Written by Marcus Keong
Have you ever heard of financial independence or financial freedom?
Unless you’re new to the personal finance world, you will definitely be quite familiar with these terms.
Even though these two terms have always been used interchangeably, there is some slight difference between financial independence and financial freedom.
Before going into that, let’s talk about what financial independence really means.
Definition of Financial Independence
In simple words, financial independence means we are free from the need to work for money. People tend to think that the only way to achieve FI is to earn high incomes and get rich. However, it doesn’t seem that way when you drill down into it.
To achieve financial independence, you need to have assets that generate passive income.
When your passive income is enough to fully cover our current lifestyle (plus a little extra for some enjoyment in life), then you can enter the realm of the financially independent.
The Steps Toward Financial Independence
You need to learn how to invest our money.
Investing is the only way to create a reliable passive income source. You can choose to invest in either stocks or properties. It is totally up to your own preference.
Personally, I choose to invest in stocks because it gave me an early start in my investing journey as it required less money up front. However, the learning curve of the stock market can be steep, so be warned. You have to do your homework no matter which investing path you choose.
Other than that, clearing our debts and living below your means are also important steps to achieve financial independence.
If you are living a frugal lifestyle or having already adopted a saving habit, then it will be much easier for you to reach financial independence.
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What about Financial Freedom
While in my opinion, both financial freedom and financial independence are actually the same things, some say they are different. From this article, there is a little difference between them.
With the above infographic, we can use cake as a reference for our passive income.
Financial independence gives us enough passive income to cover our annual expenses, and a little extra for us to enjoy our life.
Financial freedom is actually an extension of financial independence. Once you have reached FI, if you continue saving and investing you can eventually enter the realm of financial freedom.
Once your passive income is providing you with an abundance of money, consider yourself free.
Final Thoughts
Whether you are pursuing financial independence or financial freedom, the goal is not simply to have more money.
At the end of the day, having more money can only give you the option to have more time for the things that you enjoy. Time to spend time with our loved ones. Time to live the life that we want.
Remember, money is just a tool, it is not our end goal.
To read more about financial independence, follow Marcus on his journey at MarcusKeong.com where he writes about his stock investing experience and journey to FI.