What Does Financial Independence Mean


To be “financially independent:” This is a phrase that is thrown around constantly and a concept many of us aspire to reach. But, what does financial independence truly mean? In today’s America where consumer debt runs rampant, student loans are astronomical, and there is talk about social security running out, is financial independence even possible?

Generally, financial independence means not having to worry about money. In more specific terms, there are two phases to financial independence: 1) young adults who no longer depend on the financial support of their parents and, 2) adults who do not depend on full-time employment to satisfy financial obligations.

Financial independence for young adults

According to a study by the Pew Research Center, nearly half of young adults, defined as ages 18 to 29, receive financial support from their parents. Another study reported as many as sixty-three percent! This statistic highlights a growing delay in the financial independence of recent generations. In 1980, thirty-two percent of young adults were financially independent by age 22 – a percentage that has dropped to only twenty-four percent in the last two years.

Financial independence at this stage of life used to refer to a coming of age when children become self-sufficient citizens in society. As young adults move out of their childhood homes, complete their education, begin careers, purchase homes of their own, and even marry, there is a transition from being supported by someone else to supporting one’s self. However, low wages and skyrocketing student loan debt have done this generation no favors and instead, many young adults have returned home.

It is a challenging time for millennials to achieve financial independence, especially those who choose to invest in higher education. An over-saturated job market makes it difficult for new graduates to find employment that pays enough to cover those high student loan bills and leave enough in the bank for basic living expenses.

Nonetheless, financial independence is still possible for young adults, though it may be delayed longer than in previous generations. Extended financial support from parents can be the perfect security net while young adults get established in their careers and build up their savings. As time passes, the young adult will have the money needed to purchase a car, move out on their own, and begin their independence without having to rack up new debt.

Financial independence and retirement

Often, financial independence is associated with retirement. In this context, financial independence means having the resources to pay your living expenses without having to work full-time. So, retirement is an easy analogy for financial independence. But, are the two things really synonymous?

In the United States, individuals are eligible for early retirement at age sixty-two, with full retirement benefits available at age sixty-five. It seems like people aspire for that magic birthday so they can retire. However, the reality is that many people cannot afford to retire until much later because they lack financial independence to do so. In fact, one report shares the sobering reality that one in three Americans have no retirement savings at all.  

So, while retirement may make someone happier and healthier, financial independence is a significant factor in how enjoyable retirement can be. Once that retirement account has at least twenty-five times your annual expenses saved, retiring with financial independence is a possibility. While many retirees choose to work part-time or even start a second career, the key to financial independence is having enough money saved that covering basic living expenses, some leisure, and being prepared for unexpected emergency costs do not require borrowing money or working full-time.

Achieving Financial Independence is Possible. Financial independence means not having to worry about having enough to make ends meet. It is not just an option for the wealthy, but it is a reality for everyone who practices smart money management. You can prepare your finances by eliminating consumer debt and living a modest life in which you live below your means. Always prioritize saving and make smart investments. Remember, financial independence is possible if you prepare.