In discussions over the weekend, I believe we need to define some terms regarding what successful personal finance entails. 

The old term is “retirement”, which simply means to stop working. While a good many people who retire are financially self-sufficient, many are not. Retirement seems a term left over from the era of defined benefit plans in which you gave 30 years of service to a company and they gave you a gold watch and a monthly check for the rest of your days. You likely were not wealthy, but you were secure. 

Those days however, are as dead as the dinosaurs.

In the modern era where the defined contribution plan is the norm, a secure retirement is a bit more involved. A company, or more likely a succession of companies, contributes a defined amount to your retirement and it’s up to the worker to save and invest that money to secure their own future. The company’s contribution to your golden years ends with their deposit. As a result, a good many near retirees are anything but secure and millions of workers are now on track to live exclusively on Social Security.

While they likely won’t starve, an austere twilight of life is hardly a model to aspire to.

The modern term in current favor is “financially independent”, which is problematic enough that it warrants discussion. For instance, many people want to make FI equivalent to wealthy…which may be accurate but not always so. Financial independence at its root is to have the financial means to meet your likely financial needs for your likely lifespan.

The equation is as much determined by your expenses as it is your income. For instance, a high level of expenses would require a massive portfolio to fund them for anything for more than a few years. By contrast, there are a good many financially independent people with modest portfolios who rest easy knowing that despite modest means, their needs are even more modest.

All of the financially independent people I know have lifestyles considerably more modest than their means. I also believe the fact some of those people are still working has nothing to do with the fact they are already financially independent. For a good many FI folks, work is optional and has been for a while. Some people truly like their occupations and some may simply fear a life without a paycheck, but their employment isn’t something they’re obligated to.

And that is perhaps the best thought of the weekend about financial independence… it is a freedom from obligation. Freedom from the obligation to pay and freedom from the obligation to earn. Perhaps, at its heart, it is the idea that the money you’ve made will stand good for the money you’ve not yet spent. Perhaps the hardest decision is knowing when you’ve made enough.