First, let’s start with what financial independence is not. It’s not getting a raise and making more money as an employee – you could easily lose your job! Oh, and it’s not having more money because you cut back on spending – this only creates a lower quality of life.
It’s not working hard for a paycheck your entire life while tucking away money in your 401(k), hoping it will amount to big bucks – You could lose it all in a stock market crash. Additionally, it’s not trading your time for dollars!
So what is Financial independence? It’s when you have built enough wealth where you have the option of not working for anyone, typically through assets that generate income or cash flow, that is the same or greater than your expenses.
The money is normally produced through “passive income”, where your money works for you, and you don’t work for your money.