Financial Freedom vs Financial Independence

Financial freedom vs financial independence. They sound like the same thing. But they aren’t and understanding the difference will help clarify what you read in money articles as well as how to think about your own financial journey.

The terms “financial freedom” and “financial independence” are often used interchangeably, but they have distinct meanings and implications. Understanding the differences between these two concepts can help you set realistic financial goals and work towards a life of greater financial security. We will define both terms, compare and contrast their key aspects, and provide practical steps to help you achieve your financial aspirations.

Defining Financial Freedom and Financial Independence

Before diving into the differences, let’s first define both terms to provide a clear understanding of what they entail.

Financial Freedom

Financial freedom is a broader and more subjective concept. It refers to the state of being free from financial stress, worry, or constraint, and having the ability to make life choices without being limited by financial concerns. Financial freedom may encompass not only the ability to cover basic living expenses but also the capacity to enjoy life’s luxuries, pursue personal passions, and leave a lasting financial legacy.

Financial Independence

The definition of financial independence is the state of having sufficient personal wealth and passive income to cover your living expenses without relying on active employment or assistance from others. In essence, it means having the ability to maintain your desired lifestyle without the need for a traditional job.

Comparing and Contrasting Financial Freedom and Financial Independence

While financial independence and financial freedom share similarities, there are crucial differences between the two concepts.

Degree of Financial Security

One key difference between financial independence and financial freedom is the degree of financial security they provide. Financial independence focuses on covering essential living expenses, whereas financial freedom goes beyond this, allowing for greater flexibility in spending and lifestyle choices.

In practical application, you will have a number for you to be financial independent. If you define that number using how you want to live, it will automatically include all of the financial freedoms you desire. They do not have to be separate. It’s all about how you come up with that magic FI number in the first place. For most people, this number is not a bare existence number.

Subjectivity and Personal Goals

Financial freedom is a more subjective concept than financial independence, as it varies depending on an individual’s personal goals, values, and desired lifestyle. Achieving financial freedom may mean different things to different people, whereas financial independence has a more universally applicable definition.

Understandably the amount of financial freedom a person experiences along their financial independence journey differs from one person to the next, depending on specific goals. However, what makes it easier for me to understand is to think of achieving financial independence as the objective, while recognizing the closer I get to achieving financial independence, the more financial freedom I experience. 

I don’t look at financial independence as simply the ability to cover basic living expenses. If I planned and executed correctly, I’ve included my lifestyle wants and desires in my FI number. So when I reach that number, and proclaim my financial independence, I’ve reached nearly 100% financial freedom. I encourage you to look at it this way as well so that you don’t wait until after you have saved enough to live a basic existence and then think you’ll be completely satisfied and happy with that.

Truly attempt to design a lifestyle you want to live along your FI journey and you will realize the transition into your post working life as well as your expected financial concerns will be met responsibly and with less turbulence.

Other financial freedom vs financial independence articles will attempt to tell you that financial independence is simply being able to afford to exist without working a 9-5 job. But you don’t want your financial independence just to be that. Be aware of how much freedom from money stress you truly desire and work that into your FI number.

Practical Steps to Achieve Financial Independence and Financial Freedom

While the path to financial independence and financial freedom may differ, some core principles and strategies can help you achieve both goals.

Assess Your Current Financial Situation

To chart a path towards financial independence or freedom, start by assessing your current financial situation, including income, expenses, debt, and assets. This will help you identify areas for improvement and create a roadmap to achieve your financial goals.

Set Clear, Realistic Goals

Establish both short-term and long-term financial goals that align with your desired level of financial independence or freedom. Ensure your goals are specific, measurable, achievable, relevant, and time-bound (SMART).

Develop a Comprehensive Financial Plan

Based on your financial assessment and goals, create a plan that addresses key areas, such as saving and investing, debt management, and income generation. Regularly review and adjust your plan as needed to stay on track towards achieving your goals.

Cultivate Good Financial Habits

Consistently practice good financial habits, such as living below your means, prioritizing savings and investments, and maintaining a healthy credit score. These habits will serve as a strong foundation for achieving and maintaining financial independence or freedom.

Diversify Your Income Streams

Developing multiple income streams can help accelerate your journey to financial independence or freedom. Consider exploring passive income opportunities, side hustles, or freelance work to supplement your primary income and build wealth.

Invest in Yourself

Investing in yourself by learning new skills or enhancing existing ones can lead to higher-paying job opportunities, career advancement, or even the ability to start your own business. This, in turn, can contribute to your financial independence or freedom goals.

Stay Informed and Seek Guidance

Stay informed about personal finance topics, such as investment trends, tax laws, and economic news, to make informed decisions and ensure your financial plan remains effective. Additionally, consider seeking guidance from a financial advisor or mentor to help you navigate the complexities of achieving financial independence or freedom.

Adjusting Your Goals and Expectations

As you progress on your financial journey, your goals and expectations may change. It’s essential to regularly evaluate your financial goals and adjust them as needed to reflect your evolving priorities, values, and life circumstances.

Embrace Flexibility

Life is full of unexpected changes and challenges. Be prepared to adjust your financial goals and strategies to accommodate life events, economic fluctuations, and personal circumstances.

Celebrate Milestones and Learn from Mistakes

Recognize and celebrate milestones and achievements on your journey to financial independence or freedom, as they provide motivation and a sense of accomplishment. Equally important is learning from any financial mistakes or setbacks and using them as opportunities for growth and improvement.

Prioritize Your Values and Passions

As you work towards financial independence or freedom, ensure your goals align with your values and passions. This will help you stay motivated and enjoy the journey towards a more financially secure and fulfilling life.

Finally, the financial freedom vs financial independence debate can be put to rest!

Understanding the differences between financial independence and financial freedom is crucial for setting realistic financial goals and working towards a life of greater financial security. While both concepts share similarities, financial freedom encompasses a broader and more subjective range of aspirations compared to financial independence. 

You can work towards achieving your desired level of financial independence and freedom and enjoy the numerous benefits associated with a financially secure and fulfilling life. Remember to stay flexible, learn from your experiences, and prioritize your values and passions as you embark on this exciting journey.