What It Means to Be Financially Independent

Image of a road sign with the text Financial Freedom next exit with an arrow pointing to the exitSince joining the blogging community in late 2017, I’ve heard and been a part of lots of chatter about what it means to be financially independent.

Does it mean not working?

Or is it having enough money to decide for yourself?

Does it mean you should retire early?

Is another definition to be financially free?

The real question, to me, is:


Based on the amount that’s written on the subject (including here), I guess a lot of people care.

Here’s my take.

Why all the fuss over the term?

That’s a great question. I guess we all want our voices heard. Maybe we think we can sway others to our view. I don’t honestly know.

I became aware of the discussion when I learned about the FIRE community. You may recall from a previous post the definition of FIRE is Financial Independence – Retire Early.

There is a lot more hand-wringing over the definition of early retirement than financial independence. I talked about that in the article I just referenced, so you can read about it there to learn more.

Briefly, the debate over early retirement is about whether that means quitting your corporate job.

Most of the early retirees I know about haven’t quit working. They’re just working at something else.

Financial independence (FI), on the other hand, isn’t talked about much. The accepted definition seems to be to have enough money to decide for yourself if you want to work or live off what you’ve saved and invested.

However, I think the definition is much more nuanced. Most of the folks I see pursuing their version of FI are Millennials or Xennials.

(Is it just me, or do you feel like you need to take a course in what we’re calling each generation these days and who’s in each group).

I got into a friendly Twitter discussion over that very issue.

Ok, back to the discussion.

Millennials and FI

Most of the discussion around FI and early retirement comes from Millennials and GenXers (Xennials, Geez!).Click to Tweet

After getting to know many of them, I completely understand why.

Many come out of college with degrees and a mountain of student loans. Several studies show the average student loan balance carried by graduates is $39,400.

That means these grads lucky enough to find a job also have the privilege (tongue firmly planted in cheek) of taking on an average monthly payment in the neighborhood of $300 or more,

And that’s just the student loans!

Credit card companies love to get us borrowing as soon as they can. It usually starts when we graduate from high school.

Before you know it, you’ve also stacked up some hefty credit card debt on top of the student loans.

Unless mom and dad bail them out, that’s added to the monthly bills.

Those with these burdens have limited choices.

  1. They can make the minimum payments on the credit card and the fixed monthly payments (mostly) on the student loans.
  2. Another option is to set up a budget, look for ways to cut discretionary expenses, and speed up the repayment schedule
  3. Refinance the student loans and consolidate the credit card debt.

What I’ve seen with the Millennials I’ve met is they choose option #2. They don’t want to let the debt control them and be a noose around their neck.

So, they set up their budgets, cut expenses, and attack the debt as if it’s the devil himself.

Blogger after blogger writes about their path to getting out of debt.

Most include stories of paying off massive amounts in a relatively short period.

Boomers and FI

Boomers have taken a different approach to their lifestyles. Many are in corporate jobs, the workforce, sales, management, or are executives.Click to Tweet

In the area where I am outside of Washington, DC, the government is the biggest employer.

For many Boomers,  corporate jobs afford us the opportunity for financial freedom. They may move from company to company.

When they move, it’s for “upward mobility” into a higher level position or higher salary.

Government workers are a different breed. They rarely change jobs.

They go to work every day, draw their paychecks, come home to their families, coach their kids’ sports or transport them there, and repeat that exercise for 30 or more years.

Millennials reading this right now are cringing at the thought.

Keep in mind that Boomers’ parents grew up in a society where manufacturing was everywhere. Technology has automated many of those jobs or shipped them overseas for cheaper labor.

Many Boomer parents grew up in the recession. They saw first hand the perils of debt, overspending, and living outside their means.

Their generation was the very definition of frugal and conservative. Not by choice. By necessity.

Pension vs. 401(k)

In those days, most employers offered pensions as company retirement benefits.

Today, we’re responsible for funding our retirement via employer retirement plans, IRAs, Roth IRAs and the like.

Boomers’ parents’ companies funded their retirement, so they had guaranteed lifetime income when they retired.

If you left that company for early retirement, your pensions were lower. That’s why most stayed.

That’s why government workers don’t leave either.

The old Civil Service Retirement System for Federal government employees is one of the most generous in the country. Workers on this plan don’t contribute to Social Security, so the government offers them a very generous pension. Those hired before January 1, 1987, all retire with this pension. The plan offers a cost of living adjustment (COLA) and survivor benefits.

Those who entered the Federal employees after that date went on to a new system – The Federal Employee Retirement System. Here, employees pay into Social Security, contribute to the Thrift Savings Plan (the government version of a 401(k)) and have a lower pension benefit. It’s not as generous but its’ still a pension and more than most in the corporate world offer. Depending on the length of service, employees can continue their government health care benefits, reducing those costs in retirement.

I have clients, neighbors, and friends who’ve worked for the government for thirty to forty years. Most could take early retirement at age 55 and live quite comfortably. Most didn’t and still don’t.

I can see the jaws of the FIRE community dropping as I write.

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Generational change

Many of the Boomers’ parents are (were) part of what is often called The Greatest Generation. Tom Brokaw, the longtime NBC news anchor, wrote a book with that title. It’s the World War II generation. Our parents served in World War II. The decades that followed have been some of the most prosperous times in our country’s history. My Boomer peers and I grew up in relative abundance compared to our parents and grandparent’s generations.

The world of finance changed dramatically during this period as well. The stock market soared (sound familiar?). A new form of corporate debt entered the picture in the 1980s with the introduction of junk bond financing (now affectionately called high-yield debt). Corporations with weak balance sheets could obtain financing. It also provides a way for financially healthy corporations to make acquisitions without giving up equity. Corporate leverage led to personal borrowing as well.

Homeownership became the big push by politicians. Lending standards loosened, loan amounts approved by the loan guarantors (FNMA, Freddie Mac, etc.) increased. In the new millennium, subprime loans entered the picture. Subprime loans allowed borrowers who had no business getting loans to buy homes. There are stories of hotel service employees buying Manhatten apartments. We all know the results of these actions, right? It was the 2007 – 2009 financial crisis that nearly derailed the world economy.

One of the best movies I’ve seen on the financial crisis is Michael Lewis’ The Big Short. It shows in great detail how the mess got started and what went on during that time.

Here is the point

Each generation gets influenced by the ones before it. Baby Boomers’ grandparents were a product of the Great Depression. They didn’t use debt; they saved, they built and worked hard. Their kids, Boomer’s parents, fought one of the most brutal wars in history to keep our country free. The seventy plus years that followed have been some of the most prosperous in history. We Boomers grew up in abundance. Our parents gave us opportunities that their parents didn’t have and couldn’t pass on to them. We had access to mortgages and credit to buy things like no one before us.

Somewhere along the way, we lost the fiscally conservative habits of the generations before us.

Millennials have student debt.

Boomers have big mortgages for the big houses, auto loans for the nice cars, and credit cards for everything else. We contribute to our employer retirement plans, but only to the point of the company match. If there isn’t a company match, we may not participate. We’ve mostly never thought about early retirement. We’ve been too busy acquiring stuff. That’s not to say that there aren’t lots of Boomers have prepared for retirement.

A lot have.

Compared to the Millennials in the FIRE community, we are far behind in our savings and investing.

What Millennials and Boomers can learn from each other

Here’s the real point of this post.

Millennials can learn a lot from Boomers. Boomers can learn a lot from Millennials. Click to Tweet

In this age when we’re yelling at each other or talking over each other, I submit to you that if we slowed down and got to know one another, we could learn a lot.

What Boomers can learn from Millenials

  1. Spend less than you make – One of the things I’ve been most impressed with in the FIRE movement is the fierce commitment to live within their means; to spend less than they make. Coming out at such a young age with so much student loan debt motivated many to do just that. That brings me to #2.
  2. Save and invest more – The consumerism bug caught many Boomers. We went for the stuff now more than the comfort of having the cash for the future. We save substantially less than the FIRE community. Boomers should work harder at cutting expenses, creating a nice emergency fund, and maxing out retirement plans.
  3. Calculated risk taking  – I’ve never seen a generation so in love with spreadsheets. I mean every other blog is offering a new spreadsheet to track something. Why? Because they want to calculate the costs and benefits of any new venture they are considering. Whether it’s a “side hustle,” a real estate investment, or a mutual fund purchase, they want to run the numbers before moving forward.

What Millennials can learn from Boomers

  1. The value of a steady job  – I feel like many in the FIRE movement view the corporate and government world as the evil empire. Many are. I talked about the generational history earlier to show the evolution of the economy, jobs, and benefits. There has been a lot of sacrifices to get us to where we are; to give us all the opportunities we have. Our parents and many of us believe in sticking it out, even when it stinks, to provide for our families, and our retirement. Let’s not be so quick to judge the lifestyle. It gave you many of the oppportunities you now enjoy.
  2. Debt can be used for good  – I understand the hatred Millennials have for debt. They’ve watched their elders put the country into bankruptcy. Many use credit cards wisely to earn points and cash. That’s smart. Mortgages allow you to own a house. That’s the most significant asset for most of the middle class. Some Millennials shun homeownership because of the debt, or they don’t want to be tied down. If you do it smartly, you can own a home and turn it into a rental if you decide to move. Use it wisely. Get out your spreadsheets! 🙂
  3. Expand your definition of FI – For many in the FIRE community, early retirement is part of the meaning of FI. I know tons of people, including several clients, who are financially independent and could quit tomorrow. They love what they do, have balance in their lives, and see no reason to stop. Others, like my government worker friends, look at their jobs as a means to an end. They save regularly, understand the value of their work, and have a plan when they want to hang it up. That may be age 55; it may be age 70. Some want to work beyond that. They have attained FI but see no reason to quit. Make room in your views for them.

Final thoughts

I’ve been thinking a lot lately about attitudes. Why do we feel the way we do? As we watch the constant drumbeat of negative news and the latest Trump tweet, it can feel like there is nowhere to hide. I’ve asked myself lately, why do I feel the way I do about this or that? Sometimes, I don’t have the answer. Sometimes I don’t like the answer I get.

I’ve learned a lot from Millennials. One of my posts was a confession to Millennials for the stereotype I had attached to them. I wonder what might happen if each of us decided to strike up a conversation with someone in a group we disagree with; one for which we have strong negative feelings. If we will do that and work on listening and learning from each other, imagine the change that could take place.

I’m not trying to get all sappy on you here. Well, on second thought, maybe I am. The world needs people willing to get out of their comfort zone and take risks. I’m not talking about financial risks.

I’m talking about relationship risks.

Since entering the blogging world. I’ve met some fantastic people from all over the country. In fact across the globe. Many of their views and opinions are different from mine. As I’ve read their posts and entered into conversations, I’ve learned and grown a lot.

Here’s one inarguable fact. Everybody’s fighting a battle in life. Understanding that fact as we meet and talk to people can go a long way to breaking down barriers that divide us.

Why not give it a shot. You’ve got far more to gain than lose.

Now it’s your turn. Is there room in your life for differing views? Do you stereotype people, as I did with Millennials? Are you locked into a particular opinion of something that needs to be changed? Let me know in the comments below. And thanks so much for reading.

4 thoughts on “What It Means to Be Financially Independent

  1. You are right Fred that every generation has had a major influence from the generation directly ahead of them with either positive or negative influences shaping their thoughts. I’m part of Gen X and feel that the rise of student loan debt started during this period and that has likely shaped younger generations. Will be interesting to see how this trend continues with the newest generations entering the workforce in a few years.

    1. The difference in debt from generation to generation is interesting. I’ve been so impressed with many of our fellow bloggers’ passion for getting rid of this burden. I so appreciate you taking the time to read and comment.

      Have a great day!

  2. Interesting read Fred. I am working towards financial independence but don’t have any plans to retire in the near future. I’d like to work until I’m 55 (I’m 39 now) and at that point to have the freedom to work on my own terms. I get bored extremely easily so I know there is no way I could fully retire unless that changes.

    1. Hey, Mark,

      The main thing is you have a plan. It’s different for everyone. That’s the point. Boredom is something that’s a real issue for retirees at any age. I work with my clients long before retirement to help them think through how they’re going to spend their time. Here’s a short article I wrote about it last year – https://moneywithapurpose.com/retirement-planning-more-than-just-money/.

      Thanks for reading and commenting. Have a great rest of your day.

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