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Understanding Financial Independence

Carla Fried · October 22, 2019 · 3 min read


Financial independence is a goal that has broad appeal, but can also seem daunting. It takes hard work and time to get to the point where you have enough saved that you don’t have to work, if that’s something that you are trying to achieve.

The key is to develop financial habits and a determined mindset that in tandem will propel you toward your goal.

As a general guideline, becoming financially independent requires coming up with a pile of savings that is equal to at least 25 times your annual income needs.

Yep, at least 25 times. That is going to be at least a seven-figure target if your annual living costs are $40,000 or more. The theory is that once you have that much saved, you should be able to invest in a diversified portfolio whose returns will enable you to withdraw money to meet your living costs without running the portfolio dry too fast.

Assuming there’s no winning lottery ticket in your future, becoming financially independent takes not just financial planning, but the determination to stay focused on your goal, and time.

Here are a few key personal qualities you will want to practice to ensure financial independence:


It may take you five years or 20 years to get your savings big enough to stop working out of necessity. Dabbling and taking shortcuts won’t work. You need to lean into your goal 24/7/365. Choices big and small about what you spend every day have a direct impact on the amount of money you have to funnel toward savings. That takes resolve, patience and commitment.

An independent streak.

Spending less is not exactly the American way. Record levels of consumer debt are driven in large part by an appetite for the biggest house possible, buying a new car over driving a used car a few more years, and leaning on credit cards to live beyond our means. It will take a bit of fortitude to act different than how your family, friends and neighbors handle their personal money decisions. Finding an online community of other people trying to achieve the same goals can provide important support.

A love of saving.

Find a thrill in what you manage not to spend and you have transformed saving from its usual “chore” status” to something that you find energizing and exciting.

A strong work ethic (for a while).

The more you can earn today (and not spend) the faster you can reach financial independence. Putting in the extra effort to keep angling for the next promotion (and raise), or pushing to exceed performance expectations to nail a bonus, or taking on side gigs are all ways where working harder today can help you arrive at your goal faster: having the financial independence to be able to not work.

Carla Fried

Carla Fried

Carla specializes in service journalism for news outlets including The New York Times, Money magazine, and For the past 15 years she has writen for traditional news outlets, ghostwriting books and articles for clients, creating content for major financial service firms, and editing investment newsletters and white papers.

Her work appears in The New York Times, Money Magazine, Barron's and Consumer Reports.

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Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.



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