The term financial independence indicates a state of finances in which an individual can fulfill primary needs without participating in employment. It is usually achieved when the difference between recurring revenue—corporate dividends, product sales, real‑estate rentals, etc.—and living expenses covers the basic quota for personal sustenance.
The path to financial independence is usually undertaken by people with a strong desire for freedom, or by people with significant capital looking for smart ways to manage it. This goal is rarely achieved by luck—like a lottery win—but rather by a strong and disciplined management of personal finances, with a pinch of entrepreneurial skill.
Expense Reduction
The expense‑reduction aspect focuses on containing the ongoing expenditure necessary for living. It is possible to become more “cost‑conscious,” by weighing simple daily choices at first, and then developing a more strategic and sophisticated awareness of value.
Some individuals are capable of bringing their frugality to the extremes—extreme saving—by saving 75–80% of their salary. The possibilities are numerous; for example, one smart move may be to relocate to a country with a lower cost of living—an approach known as geo‑arbitrage.
It’s important to stress that being frugal does not necessarily imply a waiver on quality of life. Frugality is often the cause of a much deeper positive change, as it can contribute to detachment from consumerism and the development of “make‑do” skills. On the social side, frugality offers ample opportunities for self‑gratification, restoring the basic reasons for being part of a community (collaboration intended for sustenance) and encouraging social spending—money spent for friends and family—that in the long run can be more rewarding than physical goods.
Passive Income
Passive income is the gain of economic value that doesn’t require active actions such as the provision of a service or the sale of an asset.
Passive income can be obtained in at least two ways: the first involves capital invested to guarantee interest or returns sufficient for self‑sustainment, through market instruments and long‑term investments. In the second scenario, the early retiree uses her/his skills to create new sources of passive income, such as products to be sold, affiliate marketing, or rental from real estate.
Of course, both roads are possible. It is essential to stress that managing passive‑income streams usually demands a minimum amount of activity, like supervision. Even a static deposit under the mattress can be subject to devaluation.
Conclusion
I became aware of the financial‑freedom community in 2014, at the age of 29, while browsing widely through links and podcasts for further personal development. Thanks to the community, I understood that self‑discipline and its teachings are precious even without reaching the ultimate goal, as they help improve personal financial awareness and can reduce wrong consumption habits.