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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Kylie Ofiu says
Financial independence is where I’m heading. I don’t see myself ever fully retired. I enjoy what I do and have developed multiple income streams which are working well. I love my work life balance now, I am here for my kids and work when they are at school or asleep. Love it.
Good luck with your goals!
That’s great! We are working on the multiple income streams. Some day I’m hoping to be where you are!
Kurt @ Money Counselor says
For me, financial independence is the goal. As long as I have a couple of functioning brain cells and can get out of bed in the morning I don’t plan ever to cease entirely paid employment. But I won’t do anything that’s not fun, that’s for sure!
That’s great. Our goal is to get enough income streams going that one day we can ditch the day jobs (which are pretty stressful for both the hubby and I). But hey, if you are enjoying it then there’s no reason to stop!
Shannon @ Financially Blonde says
I actually like to call it “Financial Freedom” but it’s the same thing as independence and to me there is something liberating in the thought and the fact that it is not necessarily tied to an age. I love working and may work until I am 80, but I can’t wait to attain the “freedom” to determine if I want to keep working.
I know, right? That’s what the freedom part is all about!
Lauren May says
My husband and I were just talking about this. We’re striving for financial independence so that we can travel and split our time between his home country in Europe and the US once our daughter finishes school. She’s only 3, so that’s a long way off- but hopefully plenty of time to reach our goals!
Definitely plenty of years there to make some serious headway on your goals! Best of luck to you, that’s a wonderful goal.
Michelle @fitisthenewpoor says
I really cannot picture early retirement, to be honest. I just dont know what I would do… So financial independence it is!
I hear you, I feel like I would always need something to do. I’m too antsy to sit still and do nothing for too long!
La Tejana @ Debt Free Tejana says
Oh I can’t wait for the day that I am financially independent. Thinking about it makes me giddy!
Oh tell me about it! Some days it feels farther off than others, though…
Right now I am pushing for becoming financially independent. I believe once I am debt free I will have the freedom to purchase rental properties and build wealth.
Love your blog so far.
Thank you! Good luck on your goals!
Laurie @thefrugalfarmer says
Great info, here, Dee. I think we’re heading more toward FI. Like you guys, we’re working on creating multiple income streams so that we’re no longer dependent on Rick’s employer to survive. Man, that will be a nice feeling. 🙂
Oh I so hear you there! We would truly love to be able to set our own daily priorities rather than have them set for us by an employer. Also, it just feels uncomfortable to know that we are basically economically dependent on our employers at this point in time. We want to rectify that situation as quickly as possible!
Brian @ Luke1428 says
For me, retirement is something that is going to happen down the road, whether it’s early or not. Financial independence is about the freedom to choose and is something that can happen in the now. It changes how I live my life, what priorities I set and what activities I pursue. I’d like to have 25 years of financial independence already behind me before I reach (early) retirement.
You make a great point- as long as we can become financially independent, retirement age is kind of a moot point. It’s the freedom to choose that we are striving for!
Stefanie @ The Broke and Beautiful Life says
BOTH! I’m not in any hurry to stop working, I just don’t want to feel like I HAVE to work. I like doing things on my own terms.
I am also the kind of person who likes to do things on my own terms (which is part of the reason why paid employment can be aggravating at times)!
Being financially independent is definitely more attractive, especially since it can in most cases be accomplished at a much earlier age.
The idea of not working for someone else (and possibly hire other people) sounds great and if it’s a sustainable business, it would be a lot more fun than going to a cubicle each day!
I agree- it just sounds more fun, doesn’t it? Thanks for stopping by!
I agree with these two definitions. I’m partial to financial independence because being able to generate my own income in my profession would be very lucrative indeed. Plus I really enjoy what I do. High student loan debt makes it tough to consider early retirement, but who knows what I will be thinking in 20 years. That’s what’s so great and challenging about personal finance. Great post.
Hey there’s always early debt payoff, right? We also have a lot of student debt and it is locked at low rates, but we are paying it off early anyway to give ourselves the gift of more freedom.
Frugality Magazine says
I definitely see myself in the “financial independence” camp – or at least that’s the long-term plan! I have paid off my student loans (plus a load of other consumer debts) and I’m now *just* entering into the saving/investing area.
I don’t feel too comfortable investing in stocks, shares, bonds etc but plan to invest more actively (for now) into business ideas as this is an area I feel comfortable with and have a degree of experience in (thanks to my job) while learning more about the stock market.
I only just stumbled across your blog for the first time I like what you have to say. I’ve added you to my RSS reader and hope to visit again often 🙂
Thanks! I am envious of the fact that you already have your student loans paid off. We are working on getting to that place…
Neha Shah says
what i am currently doing is working at office from Monday to Friday and everyday i spent 2-3 hours and my weekends learning about SEO, practicing article writing and how to make a website using PHP,,all these step by step, as i too want to move to complete financial independence as described in your blog. It was a great blog, thanks for the references along with it.
Thanks! That’s kind of what I am doing right now too. I have a full time job and blog on the side. I basically knew nothing about website design or blogging prior to this, so I have kind of started from scratch. It’s cool though because I am learning literally every day!
Ryan @ Impersonal Finance says
I like the idea of early retirement, but I wouldn’t want to have to constantly be watching my bills for fear of running out of money. I think financial independence with a dash of early retirement is my real goal.
Dee S says
I so love the way you put that! “Financial independence with a dash of early retirement”- now THAT sounds like a winner!
Mrs. FI says
Mr. FI and I are a mix. We’re mostly seeking financial independence, but would love to retire early if at all possible because we don’t LOVE our jobs and think the idea of retiring early is AWESOME. I often intertwine the two terms in my posts just because we’re striving for both goals, but I think it’s great you specified what each goal really means since they are in fact different. Great post and good luck with your goal to FI!
Dee S says
Thanks, same to you!!
Brandon @ That PF Guy says
Totally with you on the FI. Once Mrs. PFG and I are FI, we’ll be able to work on things that really matter to us. Work at jobs that probably won’t pay a whole lot but have significant meaning to us. We’re also on the “Get rid of student debt” step. Only $35,000 to go!
That’s awesome! And huge congrats on getting closer to being done with that student loan debt!!