KNOWLEDGE SHARE - Financial Freedom Vs Financial Independence
Financial freedom is having enough residual income to cover your living expenses. It is not about being rich and having tons of money, but having enough to cover your expenses so that you can spend your precious time doing what you like rather than doing things just to earn money.
While;
Financial independence is the status of having enough income to pay one's living expenses for the rest of one's life without having to be employed or dependent on others. Income earned without having to work a job is commonly referred to as passive income.
Financial independence allows you to be self-insured against a financial catastrophe in the case of death or disability, saving you those monthly premiums. Financial Freedom allows you to be self-insured against the cost of unexpected expenses and lifestyle upgrades.
The key to understanding this term is the second word: INDEPENDENCE. According to the Oxford Learner’s Dictionary, the best definition of independence is - The freedom to organize your own life, make your own decisions, etc. without needing help from other people.
Being financially independent means you don’t need to rely on anyone but yourself to meet your financial needs. You are able to have a roof over your head, food on the table and clothes on your back. Let’s look at a brief checklist to determine whether you’re financially independent.
- Income. At this point, you have active income. Active income means you are putting in the work for your pay. Without a source of income, you have no means to pay expenses.
- Bills. To be financially independent, you need to be able to pay all of your bills, such as rent and utilities. If you rely on someone else, such as a family member, for these things, you are not financially independent.
- Debt. It’s okay to have debt. Most people starting a career fresh out of college have debt. It can be student loans or a car payment. And further down the road, it can include a mortgage. Having debt doesn’t mean you aren’t financially independent – as long as you’re working to pay it off and keeping up with payments.
- Savings. If you’re living paycheck to paycheck, savings can be difficult. But saving is important to financial health. If your car breaks down or a pipe in your house bursts, you want to be able to cover it.
-Retirement. Although this falls under the savings category, it is another aspect that determines financial independence. To be fully financially independent, you should be able to maintain your lifestyle through retirement.
- Investing. In the beginning stages of financial independence, you might find it difficult to invest.
Money can be tight. And low wages at many entry-level jobs result in living paycheck to paycheck with little left over. But if you have the ability to invest, you haven’t only achieved financial independence. You’re on your way to financial freedom.
It doesn’t matter how much money you make.
Being financially independent and financially free is a choice you have to make.
Make it NOW!
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