Financial Independence: What Is It? Why Should You Want It?

“True individual freedom cannot exist without economic security and independence. People who are hungry and out of a job are the stuff of which dictatorships are made.”– Franklin D. Roosevelt

Twice a year, on January 1 and July 1, I review and revise my goals. When I think about Seven Years to Seven Figures — an important part of my life — I think about you and what I want for you this coming year. Here is what I came up with … You should be able to enjoy your life — whatever life you choose — without having a shroud of money-related problems over you at all times.

You should be able to quit your job if and when you want and start doing whatever it is you’ve been dreaming of doing.

You should feel confident that if something unexpected happens — an accident or illness in the family — you can take care of it.

I don’t want you to be rich, unless you want to be rich. I want you to have choices. That’s what financial independence means. Being able to choose or change your paths in life. Not being dependent on someone you don’t trust or don’t like. Having the power to take care of yourself and your loved ones. It doesn’t take a million dollars to do that. All it takes is a passive income that’s large enough to pay for your basic bills — housing, food, utilities, education, and entertainment.

Passive income — that’s the key. Passive income means income that you don’t have to spend 40 hours a week generating. It’s the income you get from your stocks, bonds, real estate, or a share in an income-producing business.

The traditional path to financial independence went something like this: Get a job with a good (preferably large) business and work hard for 40 years. Then retire on your pension and savings. You can still do that today, but it’s difficult. For one thing, there are very few businesses — large or small — that can offer you secure lifetime employment. For another thing, the cost of living is going up faster than average wage increases. Most people in the world who are strictly employees have been getting poorer, not richer, these past 20 years.

To become financially independent today, you are better off developing some kind of second income. That may be part-time consulting. Or a financially valuable skill that you can practice on the weekends, such as copywriting, resume writing, or graphic design. Or a side business like direct marketing. 

The idea is to add a second income to the income you currently have and to invest that second income in something safe and reliable that will give you passive income.

My recommendations for safe and reliable sources of passive income are bonds and real estate. The advantage of real estate is that you can generally get a much higher yield (ROI) from it than you can from bonds.

Your initial goal — in terms of becoming financially independent — is to generate passive income equal to the income you have now. If, for example, you are currently making (after taxes) $40,000 a year and that $40,000 is enough to cover your basic needs (as outlined above), your goal should be an after-tax passive income of $40,000.

To generate that much with bonds, you’d need about $800,000 in savings. To make that much with real estate, you’d need to have between $300,000 and $400,000 invested in income-producing properties. (Now you can see why I like real estate — even though it requires more work than holding bonds.)

Saving that amount of money may seem very difficult right now. But many of the people who have taken my advice about developing a side income were able to become financially independent much sooner than they expected. (All hit the mark in less than six years.)

Surprise Bonus: Once you’ve achieved financial independence, you can (and probably should) quit your job — even if you are years and years away from retirement age. The reason is that getting from financial independence to wealth is just a matter of doing more of the same thing. Not necessarily putting in a ton of extra hours but just doing more of what you like to do.

You should be able to enjoy the freedom of financial independence too. Every day in every message, I make sure that there is at least one bit of advice that will help you achieve that goal.

And every day I try to say something — or publish something that someone else has said — that will inspire you to get, and stay, on your own path to financial independence. No one cares as much about your financial future as you do. Use Seven Years to Seven Figures to help you and you’ll have helped me achieve my No. 1 SY2SF goal.$

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