Declare your path to financial independence
For most Gen Xers and millennials, retirement planning isn’t at the forefront of their lives. After all, we’re young, healthy, upwardly mobile and in the prime of our careers. Retirement is the thing you do when you get “old,” and for most young people that isn’t going to ever happen (or at least that’s what we want to believe).
Enter financial independence. The “trendy” new phrase that is replacing retirement. Let’s take a look at what it actually means, why it’s gaining traction and more importantly, how to achieve it.
Put simply, financial independence is the point at which you’ve accumulated enough assets that the interest and dividends can support your lifestyle for the rest of your life. You’re financially bullet proof. There are several rules of thumb to know when you’ve reached financial independence, but the prevailing and simplest one is accumulating 25 times your yearly spending.
While the math of being financially independent is no different than being retirement ready, the idea holds a strong appeal for Gen Xers and millennials for two main reasons: Financial independence can be achieved at any age and it represents freedom.
So how do you actually do it? It’s simpler than you might think; you just need to save your money. The more you save, the faster you can reach financial independence. For example, to help you get there you can save 10 percent of your income for 51 years, save 20 percent of your income for 27 years or save 30 percent of your income for 28 years.
However, for most workers it’s not exactly a straight line of savings. There are promotions, kids, job changes and entrepreneurial ventures that impact the short term. Even still, these examples should have you asking yourself how much you’re currently saving and when you’d like to become financially free.
In all cases, the most important thing is that you set a goal and adjust as life changes. So when do you want to become financially independent? Remember, we’re not talking about retirement. We’re talking about freedom.