What does financial independence mean?

If you’ve already heard of Financial Independence/Retire Early (FIRE)/FI then you’re probably aware that most definitions and discussions of it emphasise these points:

  • maximising your savings rate
  • accumulate assets as much as possible, e.g. by investing in index funds, so that your passive income outweighs your expenses
  • retire early so you don’t have to work anymore
  • something about the 4% withdrawal rate

No doubt these are technically the most important, but it leaves something to be desired doesn’t it?

There doesn’t tend to be much about the virtues of FI for itself (beyond the obvious, that retiring early means you don’t have to get up at 7am for work), or what the goals of people who choose financial independence are.

Surely, if FIRE is a movement as Wikipedia suggests then we should start with why we want to retire early or have financial independence.

You find quite a bit on this when you start digging into the community online, but it’s not always obvious how many cool ideas the FIRE packaging is hiding.

So to start with, here’s my rough, personal definition that I hope says a bit more about why I think it’s important:

What does financial independence mean?

Your financial independence is the amount of freedom you have to spend your time doing what is right by you and your community, instead of selling your labour.

This could mean choosing volunteering, or low paid work, or building stuff, or starting a new organisation, or at the most extreme going to prison for something you believe in – think civil rights movements.

How can it be achieved?

There are two models.

The individual model works by saving more money than you spend and paying yourself a wage from the resulting investments.

This involves betting on the continued growth of investments, and has proved successful for individuals in the past few decades especially because invested wealth is outpacing wage growth. This option is open to pretty much everyone who is healthy and fairly well educated in the UK (where I live) and other rich countries, so it’s somewhat exclusive.

The collective model is socialism, basically.

By diverting wealth investment into universal public services and democratising the economy through policies like 30 hour working weeks and higher wages we can change everyone’s options – decreasing the number of hours you need to work to pay for an enjoyable life. There are probably smaller, self-organising versions of the collective model that I’d like to explore in this blog too.

Both models share some of the same conditions. Most importantly, you have to value free time more than average and value commodities less than average. So either way there’s a cultural change that needs to happen…

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