Financial Independence, What Is It?

This blogpost is about the concept of financial independence. 

Both Financial Independence (FI) & Retirement Planning (RP) are fundamentally different things. 

RP in its traditional sense is about making sure you have enough funds to maintain your lifestyle post-retirement. A tacit assumption here is that you will lead a normal work life where typically you will work till the age of 65 or so and then hang your corporate boots.

FI on the other hand is the more aggressive thought process of saving enough money so you have a choice regarding your corporate career.

The whole idea is a bit of a departure from the more traditional thought process of working your entire life, leading up to retirement. 

I am sure it is not a revolutionarily new idea. However, one did not hear of it as often in the past. It is something I am hearing more of in the last 5-8 years. 

While in essence, they are both about having enough money so that your investments or passive income streams pay for your normal living. FI is more about saving (and maybe investing) aggressively so you can get to your goals sooner. The whole idea is to enable choice. A key difference you might find is that FI planning involves passive income. i.e. setting up a passive income stream so your day job is not needed to live your life.

The next level of this is the concept of FIRE – Financial Independence, Retire Early. While as a concept you don’t hear this in regular conversations in Indian, it has been quite the rage for a few years in the USA. The FIRE Reddit channels are buzzing with interesting ideas.

The FIRE goal is usually to retire early and spend time traveling or pursuing a passion or even an alternative career. The jury is still out on whether people can be happy without a larger goal in life etc. But that is a debate for the philosophy channel. To get to FIRE couples chase the goal together, live frugally and aim to save approximately 70% of their earnings. In my favourites section you can see some of the blogs I follow in the FIRE space. 

To conclude there are three levels of planning you can do, RP, FI, FIRE. 

My own goal is to at least get to FI, the RE part, well, probably too late to retire early now 🙂 . 

I will do a followup post on the planning for FI, on my approach.