What is Financial Independence?
Financial independence is a goal which an increasing amount of people in the UK are setting for themselves, in response to a rising culture of living-to-work and an increasing cost of living. Rather than continuing to work full-time up until the state-minimum age for retirement, people are enacting something known online as FIRE – an acronym for Financial Independence, Early Retirement. The discipline involves the ruthless saving and investment of household income, with the end goal of owning enough to retire at an early age, and live free from the necessity to work for a living.
The Benefits of Setting a Deadline
A crucial mechanic by which financial independence is achieved is the creation of a deadline. For many in online FIRE communities, financial independence is the freedom from salaried work by a specific age, and their efforts have been finely tuned and calculated with an endpoint in mind, a year by which they will have the assets and savings necessary to retire. Some pick an age at which they intend to be financially secure, while others give themselves a time limit in years from their initial decision. The deadline is personal and individual, derived from personal factors and financial viability, but it also serves an important purpose. The deadline inspires those aiming for financial freedom to stick to their programme, and not to falter or ‘slip’ from their financial plan with an impulsive purchase that could derail them.
Becoming Financially Independent
But what are the processes by which someone could feasibly become financially independent? The first step tends to lie in taking stock of your present situation: how much do you earn; what are your household costs; do you expect to be in the same situation for a while; will your expenses increase; and will you be earning more in the future, whether in the same field or a different industry? This is followed by an interrogation of your conditions for financial independence – how much you would like to live on annually after retirement, how much you expect your outgoings to be when you do, and the assets you would like to have before you retire.
With a comprehensive understanding of your situation and your conditions for retiring, you can calculate how much you need to save monthly to achieve this by a certain point, and make executive decisions about your current lifestyle to prioritise your eventual financial freedom. You might also look at methods of earning on your existing savings, whether you decide to invest in the stock market or trade forex.
The routes to financial independence are many, and the journey an unavoidably individual one – no one will know as much about your financial situation as you do – but the core mechanisms remain the same across the board. With these mechanisms, anyone can begin the process of becoming financially free.