Thinking about Financial Independence/Financial Flexibility
Posted 03-23-2015 at 11:16 AM by HappyinCali
My friends and I had an interesting discussion on what financial independence means. I wanted to share my view on it.
To me, financial independence has nothing to do with ability to buy items and objects. In fact, I think buying objects and items is largely pointless and leads to clutter. That doesn’t mean that you should live in Spartan room with nothing but a blanket on the floor and a portable gas stove. What it means is that you should not buy items that you don’t really need. Most items MIGHT bring you some fleeting happiness, but most of the time, it wears off after a couple of months. After that, you are just left with a bunch of items that are no longer cool or useful. They just sit there, collecting dust, creating clutter and serving no purpose what-so-ever.
Everyone has a different criteria for what’s a “need” and what’s a “want” – it is a very subjective matter and one that is often emotionally charged. Background, life experiences, expectations, keeping up with friends, peer/social pressure etc. all come together to form a vortex that sucks your hard earned cash if you are not careful.
I obviously know that a single post will not change anyone’s experiences overnight. However, I hope that at the very least, it will make you think and care enough to research this more.
Firstly, I think that you need to sit down and just think about what is important to you in life. Is it trips? Is it spending time with family? Is it putting money in a savings account for retirement? Anecdotally, I doubt that many of you will say “having items”, as a top priority. If that’s the case, why do so many people keep buying stuff just for the sake of buying stuff? Every $1 spent on things that will just lay around is a dollar that puts you further away from the things that are really important to you.
And this is where I think independence comes into place. Financial independence is the ability to not deny yourself the things that are important to you, because you cannot afford them. Let me repeat it again. It doesn’t mean buying whatever you want. It means putting yourself in a position that enables you to buy the things that are important to you without worrying how they would impact your future.
The only way you put yourself in that position is through savings.
Savings will enable you to enjoy the things that are important to you in every stage of your life. Savings are the ultimate tool of financial flexibility and enabling you to live life to the fullest.
Let me give you an example. Spending time with your family is one of the things that are important to you. In May, your family lets you know that they are planning a cruise to Alaska that will cost $700 all in. Sounds like the experience of a life time. However, in October of the previous year, you bought a $30k car. You work really hard and you had always wanted a nice car, so you DESERVE that Honda Accord with EVERYTHING included. Well, because you bought that $30k car, your savings all went towards the down payment and a large portion of your paycheck is tied into the monthly payments. You have LOST YOUR FINANCIAL INDEPENDENCE. Sure, you have a nice car. But that car is preventing you from doing the things that are important to you.
You can now do two things 1) Skip the trip or 2) Charge it to your credit card and pay a very high interest rate. Both of these options are unpleasant. But that’s what happens when you give up your financial independence.
And it doesn’t have to be just the large purchases. Small purchases add up as well. New phone every year? New Tablet? Brunch every weekend? These things will all add up in the end and slowly take away your flexibility.
So, what’s the bottomline? You will be infinitely happier when you are able to do the things that are important to you, when you want, without dire financial consequences. The only way to do that is through prudent management of your finances in everything else. Do not become a slave to a lifestyle or to items. A dollar saved is almost always better than a dollar saved. And when you do spend your money, spend it well and on things that will truly matter to you. Here is a link from lifehacker that discusses how to derive the most joy out of your paycheck. Link
To me, financial independence has nothing to do with ability to buy items and objects. In fact, I think buying objects and items is largely pointless and leads to clutter. That doesn’t mean that you should live in Spartan room with nothing but a blanket on the floor and a portable gas stove. What it means is that you should not buy items that you don’t really need. Most items MIGHT bring you some fleeting happiness, but most of the time, it wears off after a couple of months. After that, you are just left with a bunch of items that are no longer cool or useful. They just sit there, collecting dust, creating clutter and serving no purpose what-so-ever.
Everyone has a different criteria for what’s a “need” and what’s a “want” – it is a very subjective matter and one that is often emotionally charged. Background, life experiences, expectations, keeping up with friends, peer/social pressure etc. all come together to form a vortex that sucks your hard earned cash if you are not careful.
I obviously know that a single post will not change anyone’s experiences overnight. However, I hope that at the very least, it will make you think and care enough to research this more.
Firstly, I think that you need to sit down and just think about what is important to you in life. Is it trips? Is it spending time with family? Is it putting money in a savings account for retirement? Anecdotally, I doubt that many of you will say “having items”, as a top priority. If that’s the case, why do so many people keep buying stuff just for the sake of buying stuff? Every $1 spent on things that will just lay around is a dollar that puts you further away from the things that are really important to you.
And this is where I think independence comes into place. Financial independence is the ability to not deny yourself the things that are important to you, because you cannot afford them. Let me repeat it again. It doesn’t mean buying whatever you want. It means putting yourself in a position that enables you to buy the things that are important to you without worrying how they would impact your future.
The only way you put yourself in that position is through savings.
Savings will enable you to enjoy the things that are important to you in every stage of your life. Savings are the ultimate tool of financial flexibility and enabling you to live life to the fullest.
Let me give you an example. Spending time with your family is one of the things that are important to you. In May, your family lets you know that they are planning a cruise to Alaska that will cost $700 all in. Sounds like the experience of a life time. However, in October of the previous year, you bought a $30k car. You work really hard and you had always wanted a nice car, so you DESERVE that Honda Accord with EVERYTHING included. Well, because you bought that $30k car, your savings all went towards the down payment and a large portion of your paycheck is tied into the monthly payments. You have LOST YOUR FINANCIAL INDEPENDENCE. Sure, you have a nice car. But that car is preventing you from doing the things that are important to you.
You can now do two things 1) Skip the trip or 2) Charge it to your credit card and pay a very high interest rate. Both of these options are unpleasant. But that’s what happens when you give up your financial independence.
And it doesn’t have to be just the large purchases. Small purchases add up as well. New phone every year? New Tablet? Brunch every weekend? These things will all add up in the end and slowly take away your flexibility.
So, what’s the bottomline? You will be infinitely happier when you are able to do the things that are important to you, when you want, without dire financial consequences. The only way to do that is through prudent management of your finances in everything else. Do not become a slave to a lifestyle or to items. A dollar saved is almost always better than a dollar saved. And when you do spend your money, spend it well and on things that will truly matter to you. Here is a link from lifehacker that discusses how to derive the most joy out of your paycheck. Link
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