# What is your definition of financial independence?



## BeautifulAngel (Jun 30, 2017)

For you what does it mean to be financially independent? 

For me being financially independent means having no debt, having an emergency fund of a years worth of essential expenses, and being financially stable in the sense where you aren't living paycheck to paycheck.

So what is your definition of financial independence?


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## heyjude (May 16, 2009)

Never having to work for a living again with no serious prospect of running out of money.


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## redsgomarching (Mar 6, 2016)

being able to achieve a passive income that can substitute or replace income from employment. 

and after getting there monetizing a hobby or working for something that i enjoy regardless if it makes a lot or not.


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## janus10 (Nov 7, 2013)

heyjude said:


> Never having to work for a living again with no serious prospect of running out of money.


Last summer I had a series of discussions with my boss that I was quite unhappy with the revised compensation plan. I outlined that YOY I had fewer accounts, was delivering more revenue but was earning substantially less while not getting corporate support as was promised to the sales team at the beginning of the year.

We decided that I would leave the company at the end of Q3.

I have no pensions to fall back on, only investments in various accounts.

I retired and gave up a high paying job because I wasn't going to continue to work for an employer that unilaterally and deceptively made some decisions that were wrong and was too arrogant to admit it. (As I hoped, my departure led to sweeping changes which are in line with my recommendations I gave to the CEO on my last day.)

To me, that is the definition of financial independence. No matter how lucrative the job, I don't have to work anymore, ever. if I don't want to.

While there is a chance I may take on a job sometime in the future, it will be because I'd rather do that than whatever else I'm doing.


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## OnlyMyOpinion (Sep 1, 2013)

Jonathan Chevreau has written a lot - and made a lot of hay from - the discussion of financial independence. The term I believe he coined was findependence - the point at which you no longer need to work. He discusses further in this Moneysense article: http://www.moneysense.ca/save/retirement/happy-money-as-an-alternative-to-findependence/.

Remember that reaching FI does not have require that you just use passive income to replace your employment income, you can spend from the capital that you have saved as well, but you need to withdraw at a rate that doesn't cause you to end up broke later in life (look up variable percentage withdrawl rate for more on this). 

In practical terms, most of us don't get to the point of FI until our 50's, then the remaining runway is short enough and our savings large enough (plus future cpp, perhaps pension). Lucky ones get there sooner or take a 'hybrid' approach, frugality, supplementing their nest egg with part time or 'for fun' work, etc.

Chevreau discusses his notion of the stages to FI here (be aware there are lots of annoying ads): http://findependencehub.com/


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## DollaWine (Aug 4, 2015)

I take the term literally - emphasis on the "independence". 

So, being in a financial position where you don't have to rely on any *outside* sources for anything. No need for a job, loan, credit, etc. Your current assets support your life in full, whether it be a paid off house, dividends from your portfolio, etc. You don't need anything from anyone, ever. You've built your castle and you're enjoying the life of a king/queen!


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## heyjude (May 16, 2009)

BeautifulAngel said:


> For you what does it mean to be financially independent?
> 
> For me being financially independent means having no debt, having an emergency fund of a years worth of essential expenses, and being financially stable in the sense where you aren't living paycheck to paycheck.
> 
> So what is your definition of financial independence?


I'm FI by my definition (see post #2) but I have investment debt. That is, debt that is making money for me. One key to reaching FI is to avoid consumer debt. Of course I use credit cards, but I pay off the balance every month.


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## kcowan (Jul 1, 2010)

OnlyMyOpinion said:


> Remember that reaching FI does not have require that you just use passive income to replace your employment income, you can spend from the capital that you have saved as well, but you need to withdraw at a rate that doesn't cause you to end up broke later in life (look up variable percentage withdrawl rate for more on this).
> <snip>
> Chevreau discusses his notion of the stages to FI here (be aware there are lots of annoying ads): http://findependencehub.com/


Right. The trouble people have is the notion of spending down the principal. OP states the super conservative approach that many people mistake for FI in retirement.


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## Karlhungus (Oct 4, 2013)

Your investments cover your expenses.


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## milhouse (Nov 16, 2016)

I like the concept of a financial independence pyramid. Here's some definitions I've quasi-plagiarized from a few websites: 

Financial Dependence: Need to rely on someone else to cover your expenses.
Financial Solvency: Your working income allows you to manage your expenses and cash flow.
Financial Stability: You're producing enough income to start saving seriously and expense shocks are not much of a concern.
Financial Security: Your passive income covers your core living expenses.
Financial Independence: Your passive income covers your typical annual spend for your current lifestyle. 
Financial Freedom: Your passive income covers your typical annual spend plus allowing for extended goals. 
Financial Abundance: Your passive income provides a surplus of cash that you have to come up with ideas on how to spend/utilize it.


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## Monsieur Rioux (Jun 13, 2017)

DollaWine said:


> I take the term literally - emphasis on the "independence".
> 
> So, being in a financial position where you don't have to rely on any *outside* sources for anything. No need for a job, loan, credit, etc. Your current assets support your life in full...





Karlhungus said:


> Your investments cover your expenses.


Yes but with the proviso that assets and investments are not limited to capital, shares and such like.

Pensions, private or government ones, should be included too. You may have 'invested' your time or labour in an occupation that "sees you alright" and it can be just as _personally_ effective as if you'd been lucky enough to have spare funds to invest.


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## Rusty O'Toole (Feb 1, 2012)

Who has the power to ruin you financially? If the answer is "no one except myself and the government" then you are about as independent as anyone can be.

If your life is controlled by a boss, or your customers, or you are beholden to anyone else you are not really free.


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## Mukhang pera (Feb 26, 2016)

Here's a guy who had achieved financial independence:

Doug Pender lived all his life in the Florida Keys and is on his deathbed and knows the end is near. 

His nurse, his wife, his daughter and two sons, are with him. 

He asks for two witnesses to be present and a camcorder be in place to record his last wishes, and when all is ready he begins to speak: 

"My son, Bernie, I want you to take the Ocean Reef houses." 

"My daughter Sybil, you take the apartments between mile markers 100 and Tavernier." 

"My son, Jamie, I want you to take the offices over in the Marathon 
Government Center." 

"Sarah, my dear wife, please take all the residential buildings on the 
bayside on Blackwater Sound." 

The nurse and witnesses are blown away as they did not realize his extensive 
holdings, and as Doug slips away, the nurse says, "Mrs. Pender, your husband 
must have been such a hard-working man to have accumulated all this 
property." 

The wife replies, "The cheapskate had a paper route."


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## olivaw (Nov 21, 2010)

A little OT but the _paper route_ joke above brought back fond memories of my own paper route as a kid. Some of my customers would ask me to deliver their paper a certain way - e.g. between the screen door and the front, in the mailbox etc. Rather than fall back on protocol, I would make it a point to remember the requests and fulfill it every day. The tips and praise were wonderful. It also led to a few extra jobs and I earned enough money to buy a new banana bike. 

Financial independence came the day that I reached my retirement savings goal. I retired about a year after that. I'll be giving up the paper route soon too.


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## cashinstinct (Apr 4, 2009)

milhouse said:


> Financial Stability: You're producing enough income to start saving seriously and expense shocks are not much of a concern.
> it.


I like these stages. I am at Financial Stability right now. 

I am not sure I love the name "stability" though, I see it as "Financial Improvement", since I am saving to improve my future. One could say I am saving to "stabilize" my future spending level...



milhouse said:


> Financial Independence: Your passive income covers your typical annual spend for your current lifestyle.


I agree with this definition. 

Financial Independence depends on the lifestyle you want.


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## My Own Advisor (Sep 24, 2012)

heyjude said:


> Never having to work for a living again with no serious prospect of running out of money.


I largely agree with that. I also somewhat agree with the enough passive income to exceed expenses. 

Agreed: FI does not have require that you just use passive income....there can be other forms of income as well. 

For us, the passive income is really a stretch target, nothing we absolutely HAVE to achieve but it would be nice. I intend to work for fun once we have "enough". Then again, life is short and you never know...


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## peterk (May 16, 2010)

milhouse said:


> I like the concept of a financial independence pyramid. Here's some definitions I've quasi-plagiarized from a few websites:
> 
> Financial Dependence: Need to rely on someone else to cover your expenses.
> Financial Solvency: Your working income allows you to manage your expenses and cash flow.
> ...


I like it.


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## Plugging Along (Jan 3, 2011)

Monsieur Rioux said:


> Yes but with the proviso that assets and investments are not limited to capital, shares and such like.
> 
> Pensions, private or government ones, should be included too. You may have 'invested' your time or labour in an occupation that "sees you alright" and it can be just as _personally_ effective as if you'd been lucky enough to have spare funds to invest.


I agree with this in the most part, but I am not sure about the investing time in an occupation that sees you right. The fact remains that even if you are treated well, there is a time where that could change. I think if one is still reliant on paid work then there are not quite there yet. CPP And those things have already been earned by the time one starts collecting. 



My Own Advisor said:


> I largely agree with that. I also somewhat agree with the enough passive income to exceed expenses.
> 
> Agreed: FI does not have require that you just use passive income....there can be other forms of income as well.
> 
> For us, the passive income is really a stretch target, nothing we absolutely HAVE to achieve but it would be nice. I intend to work for fun once we have "enough". Then again, life is short and you never know...


Just curious what other types of income outside passive would you consider?


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## My Own Advisor (Sep 24, 2012)

To clarify, I think passive income (from my investments) _and_ some form of employment income/income from a hobby would be good Plugging Along.

I always intend to work, hopefully to keep me young, active and fit, but do it on my own terms and try new things. The more passive income I have to do that, the sooner, the better. Hopefully by age 50 most of our financial goals will be realized and we can start exploring other options before I get too old. We are however enjoying the journey and I think that's the most important part. Life can change on you quickly. 

What types of income are your striving for? You're an avid investor (and reader here)...


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## Monsieur Rioux (Jun 13, 2017)

Plugging Along said:


> I agree with this in the most part, but I am not sure about the investing time in an occupation that sees you right....


It may not transfer well to Canada. I spent all of my working life in the UK in government service.

In Canada the belief seems to be that civil servants are treated rather well. Not quite the same in the UK where it was accepted that the lower than usual pay was compensated by secure employment and then your pension.

Of course, low earnings and a pension based on 'final' earnings adds up to a not great pension, but you know exactly where you stand and you can make your decisions accordingly.

To me that's time and labour invested.


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## none (Jan 15, 2013)

Monsieur Rioux said:


> In Canada the belief seems to be that civil servants are treated rather well. Not quite the same in the UK where it was accepted that the lower than usual pay was compensated by secure employment and then your pension.
> 
> .


This is how it is in BC provincial government - the public certainly doesn't believe that though


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## Plugging Along (Jan 3, 2011)

My Own Advisor said:


> To clarify, I think passive income (from my investments) _and_ some form of employment income/income from a hobby would be good Plugging Along.
> 
> I always intend to work, hopefully to keep me young, active and fit, but do it on my own terms and try new things. The more passive income I have to do that, the sooner, the better. Hopefully by age 50 most of our financial goals will be realized and we can start exploring other options before I get too old. We are however enjoying the journey and I think that's the most important part. Life can change on you quickly.
> 
> What types of income are your striving for? You're an avid investor (and reader here)...


Thanks for the clarification about investment incom AND employment income in terms of hobbies. I quite like that idea. I have some very artsy friends who have not really considered that they can make money from their hobbies. I always looked at them and gave them ideas on how they could seek there hobbies. I, unfortunately do not have very many crafty skills that I could sell as a hobby. I love the idea, perhaps I will find a hobby where I am very good at that will bring a little income when I am older. As of now, I will have to continue to rely on my knowledge and experience as my main income generating avenues. 

I was actually looking at trying to develop some apps that will capture my knowledge on how I do certain things. My spouse is very seasoned in IT. However, he considers my app ideas as too much work. 




Monsieur Rioux said:


> It may not transfer well to Canada. I spent all of my working life in the UK in government service.
> 
> In Canada the belief seems to be that civil servants are treated rather well. Not quite the same in the UK where it was accepted that the lower than usual pay was compensated by secure employment and then your pension.
> 
> ...


I actually think it's the same here in some areas. I am currently in public sector. I can assure you, dui g the good times, I could be making easily 30% more. However, it can be more feast and famine like then. I don't expect I will stay in public sector until the end of my career, but I will leave with a small pension that will help. If I decided to work another 19 years In public sector, I will have a decent pension. I am not sure I am willing to invest that time. So I understand now what you mean. I know people who stay in the organization under lousy circumstances, and boring work to collect the pension. The public thinks this is a gold plate pension, but many do not understand how challenging it can be and is a true investment.


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## Tetsujin (Mar 17, 2016)

This could be a short answer?

Financial independence = All assets greater than all passive indefinitely. (A - P > 0)

*Assets *= Income from rents/sharing economy, royalties or any other income without job or a partial job to flip financial securities or houses without using your own money, getting money from hobbies like selling paintings, etc.
*Passive * = Debts like mortgage/rent, loans, insurance, utilities, food, furniture, taxes, gas, etc.


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