In short, financially independent people have assets that generate income that is greater than their expenses. That means they do not have to work in order to earn the income required to sustain an acceptable lifestyle.
Of course, the term ‘acceptable lifestyle’ is very much dependent on an individual’s perspective, and as such the road to achieving that goal will vary according to personal circumstances and how much money is thought to be needed to support lifestyle ideals. Other aspects, such as market performance or legislation changes, can help or hinder progress towards financial independence, but essentially there are four key factors that can help you succeed.
- How much time you have to save (how early you start; how late you retire)
- The amount you contribute to your financial plan
- How often you make that contribution
- The balance of risk versus return you are happy with
As a general rule, if you decrease one factor, you should increase one or more of the others to compensate and remain on target.
That’s where getting professional financial advice comes in. A financial adviser is there not only to help you set realistic targets and formulate a sensible strategy to get there, but also to help you maintain the balance of factors when circumstances inevitably change along the way.
Following the points above will not guarantee financial independence, but it will certainly hugely increase the prospect of getting there, whilst taking professional advice will also provide the expertise and structure that may not otherwise be available.