What sounds better to you- financial independence or early retirement? Truth be told, they both actually sound pretty awesome to me! Before I began blogging a few months ago, I think that I thought that financial independence and early retirement were the same thing. However, in recent months I have come to realize that there are many people out there who consider these two ideas to be very different.
I’ve spent a lot of time thinking about this. When I started my blogging journey a few months ago, I probably would have told you that my goal was early retirement. But after learning more, reading more, talking to the hubs more, and just getting to know our own goals and dreams better, I would now say that financial independence is more the path that we are on.
What is the difference? That’s a good question, because I do now think that these are two different goals, although I also think it is possible to do both at the same time if you are so driven. Here are my definitions of these two terms.
To me, early retirement means that you take more of the traditional path to saving for retirement, you just start early and do it at an accelerated pace in comparison to most people. And of course, in order for this to work you must be accumulating some assets outside of traditional retirement accounts, which usually prohibit distributions prior to age 59.5 years (except in the case of a Roth IRA, where you may withdraw up to the amount that you have put in at any time). You then retire at an age when most people haven’t even started thinking about saving for retirement, and as long as you have done your math correctly and keep living your low-cost lifestyle, hopefully you will not have to work for the rest of your life.
I think the key difference that distinguishes financial independence from early retirement is that when you are financially independent you may continue to work for many years- but the distinguishing factor is that you no longer require an employer to make money.
To me, if you are financially independent it means that you have figured out a way to bring home the bacon without having to spend a certain amount of hours every week completing tasks required by an employer. You become your own boss and money comes in every month without need for an employer. This may be through your own business, freelance work, or passive income streams.
Yes, after thinking quite a bit about this, Mr. CMF and I have decided that we are striving for financial independence. We don’t mind working, it’s just that it would be fantastic if we could work for ourselves and set our own life and work priorities.
So what does this mean? Basically, it means that we are working on developing multiple streams of income. We want there to be multiple ways that we make money so that if there were to be problems in one of the streams (e.g., stock market corrections or crashes), we will be ok because the other income streams will still be flowing. Right now we are working on rental real estate, stock/mutual fund investments, and blogging streams of income. None of it is too impressive at this point- except perhaps our investments- but we are hoping for this to grow over time.
For the future we are considering more rental real estate, rental storage units, or even owning a relatively low maintenance business like a car wash. These things are all a few years off at this point though, as we have recently decided to make ditching our student loan debt our #1 priority right now. Once that is gone, we will be able to put more of our money towards investments and passive income opportunities.
My favorite FREE online resource to help you manage/budget your money and plan for retirement is Personal Capital (review here). Signing up for a Personal Capital account has really helped us get a better handle on our finances in general, but retirement savings in particular thanks to neat tools like Personal Capital’s 401(k) fee analyzer. And best of all, it’s absolutely free.
How about you? Are you on the path to early retirement for financial independence? Some mix of the two? Or something else entirely?
Suggested Reading: If you are interested in a fascinating read by an author who actually did retire young (in his early 30s!), check out Early Retirement Extreme: A Philosophical and Practical Guide to Financial Independence. This book is a must-read for those who strive for early retirement or financial independence!
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