ARE YOU EXPERIENCING THESE 10 SIGNS OF FINANCIAL INDEPENDENCE?

Here are 10 signs that you may be experiencing financial independence:

ARE YOU EXPERIENCING THESE 10 SIGNS OF FINANCIAL INDEPENDENCE?

1. Your expenses are less than 85% of your monthly income on average. Being able to keep your living expenses well below your monthly income means you are actively saving money each month and not relying on credit cards or loans to bridge shortfalls. This allows wealth to build over time leading to eventual financial independence. 

2. You have no revolving debt like credit card balances that are carrying interest charges month to month. Debt is one of the biggest barriers to achieving financial independence. Eliminating high interest debt like credit cards gives you more flexibility and frees up cash that would otherwise be paying interest that could be invested for your future.

3. You have a fully funded emergency fund equal to at least 6 months of living expenses. An emergency fund is a crucial aspect of financial independence because it shields you from needing to rely on debt if unplanned expenses arise. It prevents you from disrupting your savings or investment contributions. I recommend having an emergency fund equal to 6-12 months worth of living expenses to withstand job loss, medical expenses or other emergencies. 

4. You max out tax-advantaged retirement accounts like 401ks, IRAs, etc. Maximizing contributions to retirement accounts is one of the most tax-efficient ways to save for the long term. The annual contribution limits on accounts like 401ks ($20,500 in 2021) and IRAs ($6,000 in 2021) aren't that high, so if you're aggressively contributing and hitting those limits it shows you are well on your way to building a robust retirement portfolio. 

5. You consistently save a high percentage of your after-tax income each month, year after year. Financial independence requires disciplined, long-term saving habits that see 10%, 15% or more of your after-tax income going into investments and savings on a reliable basis well into the future. If you've demonstrated an ability to maintain high savings rates without disruption, your net worth will compound significantly over the years.

6. You have a diversified investment portfolio and your net worth grows each year, even during market downturns. Consistent growth in your net worth is a sign you are effectively putting your savings to work. Diversifying across low-cost stock and bond index funds helps mitigate risk and allows you to participate in longer term gains in financial markets. Growing your nest egg even in difficult markets keeps you on track. 

7. You have 5-10 times your annual living expenses invested. A commonly cited figure for estimating financial independence is having at least 25 times your annual living expenses saved/invested. Knowing that markets don't always advance smoothly, having a big cushion of 5-10 times helps insulate you from needing employment. It allows flexibility for interruptions in work or adjustments in retirement. 

8. You spend time on activities you most enjoy rather than working solely for income. When your savings and spending are balanced enough that you don't feel forced to continue traditional full-time employment, that's a telltale sign of financial independence. You have the freedom to pick up work you find most rewarding and fulfilling rather than feeling slave to the paycheck. 

9. You have little fear of potential stock market declines or downturns. With a long time horizon and assets geared towards retirement, short-term fluctuations shouldn't threaten your plans. If you maintain a diversified portfolio with routine contributions continuing, market corrections just represent buying opportunities. Lack of concern for volatility shows confidence in your financial foundation.

10. You feel empowered to make life decisions based on happiness, health and priorities rather than financial constraints. Financial independence provides ultimate flexibility and control over your future. When money is not the chief determinant of choices like careers, relocations, retirement or assisting loved ones, that suggests your finances are under your terms and conditions. Freedom from money worries equals freedom to live fully on your own terms. 

Those are just some signs that could indicate you are experiencing financial independence or well on your journey to be self-reliant. There are certainly healthier attitudes you can adopt about personal finances as well, such as generosity, sacrifice and prudent stewardship of resources. Financial independence, at its core, should enable a more purposeful lifestyle overall. I hope exploring these ideas has provided helpful perspective and insights for your own planning and goals.