Vicki Robin and Joe Dominguez (1992) Your Money or Your Life, Viking.

^ Your Money Or Your Life: 9 Steps to Transforming Your Relationship With Money And Achieving Financial Independence.

^ Early Retirement Extreme: A philosophical and practical guide to financial independence.

^ 'What your financial plan should cover | Financial planning | GetSmarterAboutMoney.ca'.

' The Myths & Realities of Achieving Financial Independence Archived at the Wayback Machine'. This can be done by focusing on simple living, or other strategies to reduce expenses.

Gather enough liquid assets to then sustain all future living/liability expenses.Īnother approach to financial independence is to reduce regular expenses while accumulating assets, to reduce the amount of assets required for financial independence.

Gather revenue-generating assets until the generated revenue surpasses living/liability expenses.

Asset accumulation Īccumulating assets can focus one or both of these approaches: Since there are two sides to the assets and expenses equation, there are two main directions one can focus their energy: accumulating assets or reducing their expenses. (Homes and automobiles with no loans or mortgages are common assets.) An asset is anything of value that can be readily turned into cash (liquidated) if a person has to pay debt, whereas a liability is a responsibility to provide compensation. A person's assets and liabilities are an important factor in determining if they have achieved financial independence. Under these circumstances, a person is financially independent.

If someone receives $5000 in dividends from stocks they own, but their expenses total $4000, they can live on their dividend income because it pays for all their expenses to live (with some left over). Therefore, if the person in the above example obtains their passive income from a perpetuity, there will be a time when they lose their financial independence because of inflation. If a person needs $100/month for living expenses today, they will need $105/month next year and $110.25/month the following year to support the same lifestyle, assuming a 5% annual inflation rate. However, the effects of inflation must be considered. On the other hand, if a 50-year-old has assets that generate $1,000,000 a month but has expenses that equal more than that per month, they are not financially independent, as they still have to earn the difference each month to make all their payments. They have no need to work a regular job to pay their bills.

For example, if a 25-year-old has $1000 in expenses per month, and assets that generate $1000 or more per month, they have achieved financial independence. If a person can generate enough income to meet their needs from sources other than their primary occupation, they have achieved financial independence, regardless of age, existing wealth, or current salary. photographs, books, patents, music, etc.Īpproaches to financial independence Interest earned from deposit accounts, money market accounts or loans.Dividends from stocks, bonds and income trusts.Business ownership (if the business does not require active operation).Bank fixed deposits and monthly income schemes.The following is a non-exhaustive list of sources of passive income that potentially yield financial independence.

Financial freedome