Degrees of financial independence

Degrees of financial independence

Are you “findependent” enough to afford luxury meals and vacations?


In his so-called “coming to terms” post for Get Rich Slowly, J.D. Roth says the traditional word retirement carries too much baggage, so he prefers the term I also like: financial independence.

But whatever the term you prefer, it’s important to realize there are degrees of what I like to call “findependence” and/or retirement. It’s a continuum, as Roth rightly points out. He talks about four types of retirement: the traditional full-stop version that begins (usually) at age 65, early retirement (launched usually in one’s mid 50s or early 60s, although there is a genre of extreme early retirement that supposedly begins in one’s 20s or 30s). And finally there’s the concept of multiple mini-retirements championed by Tim Ferriss in The 4-Hour Workweek, which you can read more about here.

If you re-frame the retirement discussion for findependence, it’s also possible to describe a similar continuum, just as it’s possible to describe different degrees of financial freedom.

Roth notes we all begin life completely dependent on our parents, including financially. At some point, children leave the nest but will depend on an employer and/or financial institutions.

Once free of consumer debt, a greater degree of financial freedom is achieved, and this freedom expands once you own a home free and clear (which is why I say the foundation of financial independence is a paid-for home). At that point, you are no longer paying a mortgage or paying rent to a landlord, although of course you will still have to pay municipal property taxes and if you’re a condo owner you may be on the hook for ongoing maintenance fees.

Beyond that, you’ll still need external sources of income for heating, hydro, roof repairs and all the other expenses that home owners incur. And finally, true findependence arrives (I call this Findependence Day), when enough money is coming in from multiple passive sources of income (pensions, investments, etc.) that you no longer need to rely solely on income derived from the single source called an “employer.”

But even, there’s low-level findependence and high-level findependence. You may have saved enough not to have to go to work five days a week but may not be so flush that you can eat in fancy restaurants and travel the world 365 days a year.

Most people on the findependence continuum will be somewhere between the latter luxury findependence and a barebones one that requires eating in most days and restricting exotic travel to a few weeks a year. If the latter, it’s perfectly logical to continue to work on projects or part-time to fund a few more luxuries and the occasional mega-trip.

Jonathan Chevreau is the editor-at-large of MoneySense. He blogs here and at Find him on Twitter @jonchevreau.