Financial independence #1 – the rationale

Financial independence is probably the most commonly used jargon in the financial world today. Most investors say that they want to be financially independent and all financial planners tell their clientele that they can help in constructing a financial plan that will lead to this desired state. Based on the amount of interest the term generates, I wanted to do a series of posts in my blog to deal with the different aspects of financial independence ( FI ).

Let us start by seeing why FI may be of interest to an investor. As we know, the traditional model of financial planning is that you work and accumulate investment till you retire. Hopefully at that point of time your accumulated investments will generate enough income to take care of your expenses for the rest of your life. The plan, therefore, for most people would have been to work till 60 years or more and you kind of achieved FI by default at that age.

Well, a lot of things have changed in our country over the last 15 years or so. Some of the factors that have been responsible for FI gaining a lot of currency are as follows:-

  1. There has been significant increase in income levels in almost all jobs and professions. It is therefore possible today to accumulate a reasonable amount of wealth much before the traditional retirement age.
  2. Despite the intention of doing other things in life, due to family and other pressures, most persons were unable to try other things. In the present context people with a reasonable amount of financial resources can now look at possible second careers or even take up a hobby seriously, that has some earning potential.
  3. Consultancy and other opportunities have received a huge boost in this internet age and people quitting their jobs for getting into such areas are becoming increasingly common nowadays.
  4. In some professions and industry segments, a normal career span of 35 years is becoming difficult and therefore it makes sense to look at FI in a much shorter time period than before.

So, whether you look at it from a positive or a negative angle, achieving FI needs to be seen as an important goal for every individual. This is not to be confused with Early retirement, as you can continue to work if you wish. Achievement of FI simply means that you can maintain your current lifestyle and future responsibilities without having to worry about earning income from any of your current activities.

In other words, achieving FI is tantamount to reaching Financial nirvana. You can lead your life and choose the work you want to do, without impacting the needs and goals of yourself or your family members.In the next post I will try to put a context to Financial independence in terms of what your financial status should be catering to.


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