War of the Financial Concepts: Financial Freedom Vs. Financial Independence
by Ankita Tripathy Finance 07 November 2024
Financial Freedom Vs. Financial Independence. Both of these concepts have been pitted against each other for the longest. But are they conflicting in nature? Can you not have them both in life?
Do not worry, as we will eventually take you on an informative journey that can help you understand these concepts and, in turn, enable you to become more financially stable.
Let’s go!
What is Financial Freedom?
In order to truly understand the factual differences and similarities between financial freedom and independence, we need to start with the fundamentals. Therefore, let us start this financial freedom vs financial independence with an understanding of the term.
Honestly speaking, financial freedom is not just about money. In fact, it is more about a mindset. Therefore, one can say that the concept of financial freedom transcends money. It is more of a mental state where an individual is not plagued by monetary considerations.
In other words, true financial freedom actually means that you have enough money to stop worrying about money. A means to liberate yourself from worldly worrying about money and finances.
How to Achieve Financial Freedom?
Achieving financial freedom is not that difficult; you just need to be good at financial forecasting and know a thing or two about asset protection. Then again, it is not all game and fun.
Some people might end up working throughout their lives to attain financial freedom. Just earning big bucks will not cut it out. There needs to be a method to deal with all the financial madness.
In this section, we will be discussing some of the most tried and tested methods of achieving financial freedom.
So that you can have some clarity when it comes to achieving financial freedom.
Step #1
The foremost and most important step toward financial freedom is to stay away from debt. Debts are the biggest enemies of financial freedom and independence. Therefore, a person with high debts will never achieve financial freedom in any way.
Hence, stay away from all kinds of debts. You should prioritize being a debt-free person. The best way to do this is to stay away from the traps of credit cards and loans. Credit cards usually sell glittery lies and exorbitant interest rates. So, stay away from them.
If you are currently running out of a loan, make sure to pay it off early. There is no point sustaining a loan for a long period of time. It will affect your credit score. Therefore, be very careful.
Step #2
The second important step towards financial freedom is to start early. This sounds like age-old advice. However, it still stands true. Being the early bird in finances means life and death.
Starting early will not just help you reach financial freedom with more ease. In fact, it will also help you ease the monthly or yearly load. Therefore, always start early and do not procrastinate.
Our advice would be to start slowing and pace up eventually. The best way to start is to save or invest just 10% of your monthly or yearly income. Later on, try to bump up this number to 75%. This sounds difficult, but being bogged down with finances is more difficult.
Step #3
We never know what the future might hold for us. There is no way of knowing what good or bad things might come our way. Therefore, the only way to handle these situations is by remaining prepared. Do not leave anything to chance.
Thankfully, there are ways to deal with that. While people would provide you with illogical solutions, we at Real Wealth Business believe in starting your financial journey slowly. Here are two of the best ways to prepare yourself for a rainy day.
- Building A Contingency Plan: There always must be a contingency plan for when things go wrong. Always set aside at least three months’ worth of funds aside. This will act as a buffer if crap hits the fan.
- Medical Insurance: As a mortal financial being, you need to keep a specialized kind of fund for yourself. This fund should be enough to cover some or all your medical expenses. Finding the right medical insurance can really change the game.
Therefore, follow these contingency plans to be on the road to being financially free.
What is Financial Independence?
Now, it is time to look at the second piece of the financial freedom vs financial independence puzzle: financial independence. Financial independence is somewhat similar to financial freedom.
However, financial independence is not just about the monetary side of things, as we discussed earlier in our ‘What Is Financial Independence?” article. It is more of a mindset focused on investment and maintaining passive incomes.
Again, there is no set definition of what it means to be financially independent. It is what you make of it. However, in a general sense, financial independence is about not having to work and maintaining a passive income to sustain oneself.
How to Achieve Financial Independence?
Financial independence is remarkably different freedom, even though both of these concepts are often confused. In all essence of the word, financial independence is more about having free time to invest somewhere else.
However, achieving financial independence is not just about earning enough. If you do not know, you can earn a figure salary every day and still fail to achieve financial independence.
Therefore, we will be listing some of the key and tested methods of achieving financial independence. However, if you want a detailed look into the matter, please refer to our detailed guide on achieving financial independence.
Step #1
The first step towards financial independence is to create a goal. You need to have a set goal in order to proceed. A person without any goals will not end up making any right decisions in terms of finances.
Therefore, be an adult and set a fixed goal. This will help you visualize what you are working towards, which can help you become more motivated and focused.
Otherwise, you will end up feeling lackadaisical about saving and making the right financial decisions. Also, make sure that you ask key questions yourself, like the deadline you are aiming for, your brand of financial independence, etc.
Step #2
The second step of the process is to create a monthly budget. Financial behavior plays a key role in financial independence. Therefore, one must have clarity and understanding of this aspect of one’s life.
The best and most trusted method of creating a budget is the 50,30,20 method of budgeting. The method asks individuals to split their earnings into three sections. These include needs, wants, and savings.
In other words, you are expected to set aside 50% of your income for basic needs, set aside 30% for your wants, and 20% for savings. This method can truly enable you to approach budgeting in a more organic manner without compromising on the quality of life.
Step #3
Another very important and usable skill is to create automatic savings accounts. Automatic savings accounts allow individuals to automate the process of saving with the help of part payments.
Most employers have automated retirement accounts. Therefore, we would suggest you take advantage of these accounts as they can truly help you become better at saving. However, take all the necessary statements from your employer to keep the finances of the accounts in check.
However, you need to remember that most of these automated saving ventures are closed savings. This means that you will not be able to access them before the time is up. Hence, keep this in mind before deciding anything.
Financial Freedom Vs. Financial Independence: Key Differences
Honestly speaking, there are so many similarities between financial freedom and independence. However, there are some key differences as well.
Therefore, in this final section of our Financial Freedom Vs Financial Independence article, we will be looking at some of the most prominent differences between these two.
This will help us conclude the answer and, in turn, realize how they are not just different but similar as well.
Income & Sustainability
Financial freedom mostly involves several income sources. These include passive income, multi-asset investing, part-time work, etc. However, financial independence is mostly focused on a single source of income.
In other words, financial freedom is about branching out; financial independence is about focus. This is where both of these concepts differ in their fundamentals.
Lifestyle Choices
Financial freedom is all about luxury. The concept is open to luxurious and discretionary spending. In contrast, financial independence is all about minimalism. It is about meeting the basic expenses.
However, one needs to remember that these two concepts are very fluid in nature. Therefore, the definition changes from person to person. So, keep an open mind and approach the concepts accordingly.
The End
That is all we have to say about the famous financial freedom vs financial independence. However, you should remember that these two concepts are not very different from one another. As a result, they should not be seen as conflicting concepts.
Try to incorporate these two concepts organically in your financial planning. This is the only way to achieve financial stability in today’s day and age. Otherwise, you will not be able to break away from the vicious cycle.
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