Financial independence, what exactly is it? Many would say that it varies from person to person. Others say that its simply having lots and lots of money. Today in my first ever financial blog post I will try to tackle and explain what these words mean to me. I will also try to show what I think are the common mistakes people make when referring to financial independence. Then in future posts, I will start to explain how I believe one might be able to attain this elusive state. But before that I want to tell you how I came to this conclusion about financial independent. What prompted me to think about it and actually write about it.
You see, I come from a family that you can categorize as middle class. We have sustainable income, our own business, we own some lands. We did not use to be this way, we used to be lower class. My father worked hard to put up his business and that is what sustains us today. I actually work for our company, I’ll soon inherit it along with my two sisters. But despite the salary I get, I still didn’t feel free. I barley get any vacation time, and the idea of the company closing keeps me in a constant state of fear. I did not feel free, free from the control that money has over all of us. And so I began to think of how to be financially independent.
To know what financial independence is you need to first know what is not. Below are the three things financial is not.
- Financial independence is NOT just having a high paying job
- Financial independence is NOT just having a higher income than your expenses
- Financial independence is NOT just available to the rich
I will now attempt to explain each of these points. First point: Financial independence is NOT just having a high paying job. Lets assume that you are an extremely talented individual and that you are earning PHP 50,000 a month. That’s a high paying job right there, many may assume that you are now financially independent because you earn so much. But do you really earn PHP 50,000 in a month? The figures below are based on a business acquaintance.
Net Salary: 50,000
Condo Rent: 15,000
Monthly Food Expense: 20,000
Monthly Bills: 15,000
Actual Income: 0
So you see even if you have a high salary it is still possible for you to actually not have any extra money. True that you can live, you have shelter, food and clothing. But do you really believe you are financially independent? What happens if you lose your job? How will you live? Without any extra cash can you buy the things that you want? So a high paying job does not always equate to financial independence.
Second point:Financial independence is NOT just having a higher income than your expenses. Lets assume that you as an individual still earns PHP 50,000. You realize that you are not earning as much as you want to so you start working more, doing more over time and such. You earn an extra PHP 5,000 for your hard work. So you now have PHP 5,000 excess and you become financially independent, right? Wrong. You may be saving PHP 5,000 a month but do you get to spend it on things that you want? How can you enjoy your money if you have to work longer for a little bit more cash. Sure you can save up for something big, then when you buy it what’s next? Save up again? You still haven’t solved the issue of what will you do if you lose your job, are you truly financially independent? So, higher income that expense does not always equate to financial independent.
Third point: Financial independence is NOT just available to the rich. Most people will say this, there is no way to be financially independent unless your parents were financially independent. This is just plain wrong, even a minimum wage earner can become financially independent. Wealth has nothing to do with it, its all about knowing the rules of the system, discipline and an eye for spotting opportunity.
We now know what financial independence is not, so what is it? Financial independence is a state in where a person can live free from the control of money. The state where a person can sustain an acceptable lifestyle, without having to spend majority of his time working for more money and spend more time doing things he wants to do. The state in where the person’s money works for him instead of the other way around. That is my understanding of what being financially independent is.
One Response »
