Financial Independence. The financial gurus in the media often throw this phrase around. But what does financial independence really mean? In large part, the answer is really dependent on you. Every person ultimately comes to their own conclusion, much of it based on their own values, experiences, and emotional nature.
While we all will come to different final definitions based on our own circumstances and views, there still is some objective criteria that helps us drill down to our own answer. The CFPB (Consumer Financial Protection Bureau) probably did as good a job as anybody in giving us that baseline criteria in a 2015 study, “Financial Well-Being: The Goal of Financial Education1”.
The CFPB study said the objective measures of financial independence or well-being came down to four areas where we felt like we had control: 1) Our daily and monthly finances; 2) Our ability to withstand a financial shock; 3) Are we on track to meet our long term financial goals? and, 4) Our ability to have choices that ensure enjoyment of life.
Even within the objective statements or questions offered by the CFBP, we will differ according to the weight and importance we give to each of them. This will drive how we come to our own ultimate definition of financial independence. While we do this, we are bombarded daily with messages about the economy and financial markets. What does that “external noise” really mean to us and where we want to be financially a month from now, five years from now, or in retirement? When we take time to define financial independence for ourselves, it allows us to disregard many of the broad messages and focus on those that personally matter to us.
In contemplating the question, we can often get to some sort of reasonable definition of our immediate and long-term goals around financial independence and security. The challenge many people face is how to then realize those goals. Often, we don’t have knowledge of the tools we need or of the obstacles we may face along the way. Additionally, because the definition of financial independence is so personal, it is deeply intertwined with our emotions. It’s human nature to react with fear and anxiety when we can’t understand something or experience a temporary setback. Once we move under the clouds of fear and anxiety, our decision-making ability suffers and that often leads to unfortunate consequences.
The solution for most people is to enlist the help of a financial professional. They can bring knowledge and direction that we lack. And just as important, they also bring an emotionally detached view of our situation that can keep us from being guided by pure emotion. If we think about financial independence, we ultimately know where we want to be. A financial professional then offers the knowledge, guidance, and sober analysis on how to get there.