Financial independence is often associated with the FIRE movement, but it doesn’t necessarily mean retiring early. You may know that FIRE stands for “financial independence, retire early,” but the FI part of that is really the core thing to pursue. Let’s talk about how pursuing financial independence benefits you, whether or not you want to retire early.
There are so many benefits to pursuing financial independence! Many people criticize the FIRE movement, but financial independence by itself is an amazing goal to shoot for. Here are some of the biggest benefits you could gain by going after financial independence.
What Is Financial Independence?
Financial independence may have slightly different meanings to different people. Some may consider it as when a person has reached a point where they are financially able to live as they like, or to live comfortably. For the purpose of this article, though, let’s define financial independence as just having enough money that you never need to work again.
Financial independence requires being mindful of your spending and income, generally living on quite a bit less than you make. You need to invest a significant amount of your money regularly so you’ll have that proverbial “nest egg” at retirement time. Whether you plan to retire at 65, 35, or somewhere in between, most people need to think carefully about how much money you need in order to retire.
Generally in the FIRE community, people look to retirement accounts like 401(k)s, Roth IRAs, and other investments like real estate to fund their retirement lifestyle. They figure out their FIRE number—how much they need to have invested to be able to live off the interest from those accounts indefinitely.
If you’ve hung around the FIRE community at all, you’ve probably heard plenty of critiques of the movement.
- Too much sacrifice required to get there
- Miserable lifestyle
- You’ll get bored without a job
- You’re not contributing to society
- Better to live in the moment
- Too risky; you can’t be sure you have enough to retire
The critics are right—but only in a way. Finances and retirement are highly personal issues; not everyone needs the same amount of money to live happily. (Even if Suze Orman does believe everyone needs $5 million to retire.)
But let’s not even worry about the common criticisms of early retirement. Plenty of people are pursuing financial independence these days, whether they increase their income, decrease their spending, or some combination of the two. They do this because the benefits of pursuing financial independence are absolutely worth it. Let’s discuss why!
Benefits of Pursuing Financial Independence
Here are some of the major benefits of pursuing financial independence. Note that I’m talking about the pursuit of financial independence, not only having attained the goal. There are a ton of benefits within the journey itself, so check them out!
Learning New Skills
One benefit of pursuing financial independence is a willingness and ability to learn. Usually, if someone is seeking to become financially independent, they’re fairly motivated. They’re interested in learning new things, and they aren’t afraid of trying something a little risky.
When people set out to become financially independent, they often spend a lot of time reading up on strategies for doing that. This leads them to learn more about different investment vehicles. Perhaps they’ll dabble in rental property management or start a small business.
Financial independence is a major goal, and when you go after it, you learn to face challenges and learn new stuff, no matter how hard it may be. The perseverance required to reach financial independence is also essential to developing new skills.
Different Type of Job Security
Job security as we tend to think of it is really an illusion. Even though some people do work the same job, with the same company, for their entire career, that is rapidly becoming the exception and not the norm. You can lose your job at any time, through no fault of your own.
So pursuing financial independence gives you a different level of security. Yes, you need to earn money so you can save a large percentage to pursue financial independence. But you learn not to depend only on one source of income.
The journey to FI often opens our eyes to how unstable many jobs can be. Aiming to reach it can show us different and unique ways of earning a living that we may not have considered.
Setting Clear Priorities
When you’re pursuing financial independence, you have to zero in on what your true priorities are. You need a clear and consistent “why” for pursuing this major goal.
If you want to reach financial independence, you should understand why that’s important to you. Is it to be able to spend more time with family? Do you want to feel generally secure about your finances and quit worrying? Would you like to take more risks at work, or start a new business?
When you set a goal to become financially independent, you determine what matters most to you. Getting your priorities straight will offer you countless benefits for the rest of your life. Knowing your priorities enables you to align your actions with the things that matter most to you.
For example, if you’re pursuing financial independence in order to have more free time to spend with your kids, you need to consider how much time you spend working in the meantime. Don’t get laser-focused on “reaching FI in three years” but then ignore your kids that entire time. You’ll miss out on the greater purpose of reaching FI.
Being More Prepared For Emergencies
One common issue people have with the concept of early retirement is the unknowability of our future. You can’t possibly predict how much money you’ll need, even for a “normal” retirement that starts in your sixties or seventies. So how can anyone possibly feel secure retiring from work at age 35 or 40, with decades longer that your money has to last?
Well, here’s the thing. People who are pursuing financial independence tend to be among the most prepared people you’ll ever meet. I mean, think about it.
People pursuing financial independence:
- Regularly analyze their spending
- Monitor their investments
- Contemplate dozens of potential scenarios
- Look for ways to increase their income
So no matter where you are on your journey to financial independence, guess what? You’re going to be more prepared than the average person for emergencies. A robust emergency fund will prepare you for auto and home repairs, unexpected medical costs, and other situations that cost extra money.
Pursuing financial independence means that you are looking further into your future than many people like to do. Instead of living paycheck to paycheck, you understand how your spending and saving habits today will impact your life 20, 40, or 60 years into the future.
Just look at how many Americans faced severe economic hardship in 2020 due to the pandemic. How much better off would many of those people have been if they’d been pursuing financial independence the previous several years? They’d have had great emergency funds available to live on while unemployed or underemployed.
So no matter whether you plan to retire at a traditionally older age or you hope to retire before you go gray, you’ll be in a more solid financial position when emergencies arise. If you end up having to work longer than you’d like because some unforeseen event happens, well, that’s too bad. But you won’t regret having saved a high percentage of your income—you’ll be glad you did, because you may need to rely on that money sooner than expected.
Having More Options
Here’s what is probably my favorite benefit of pursuing financial independence: it opens up more options. You don’t even have to know exactly what you want to do in five years, ten years, or more. But getting yourself on the path to financial independence is awesome because it helps open up a wide variety of options, and you never know where the path may lead.
Here’s a personal example: A few years ago, when my husband and I found the FIRE movement, we changed our spending habits and became more intentional about our money. We liked the idea of early retirement, but that wasn’t our main goal.
After just a year or two of adjusted money habits, we realized that we’d paid off enough debt and reduced our spending enough for me to leave my job to focus on parenting our two kids. I quit teaching and suddenly gained two full years with our little guys.
Pursuing financial independence gave us the freedom to make a different choice from our status quo, and I wouldn’t change that for the world. It was an option I hadn’t even considered before we got our finances in better shape.
So if you hear the words “early retirement” and you think “I’d never want to do that,” get more creative in your dreaming! Here are a few of the great options you might gain by pursuing financial independence:
- Moving to a new city
- Going overseas for a year
- Taking a work sabbatical to hike the Appalachian Trail or check off another bucket list item
- Buying a house sooner than you expected
- Taking a long leave of absence to care for a loved one
- Cutting back on your hours to achieve a healthier work/life balance
- Having enough money to quit a job with a toxic workplace or unjust boss
- Taking a lower-paying, more fulfilling job
- Being able to significantly assist loved ones in need
- Feeling free to generously support charities
Financial Independence Has So Much to Offer
It’s hard to say how much you can benefit from pursuing financial independence. Anyone can enjoy these kinds of rewards when they start pushing themselves towards that goal.