You have probably heard and read much about financial independence and passive income allowing you to no longer having to work. And you may have already asked yourself: How do I achieve financial independence?
Maybe you've heard about the 4% withdrawal rule stating that you draw 4% from your principal each year. In other words, you will need to to accumulate enough wealth to be able to follow that rule and live financially free.
From some financial advisers you may have heard that you need a few million before you can finally declare yourself financially independent.
Regardless, both philosophies are as true as they are misleading.
How much money you need to retire depends on how much you need to happily live.
When am I financially independent?
When are you truly financially independent? It really only depends on how much you have saved and invested. Even more importantly, how much your savings and investments return in interest, dividends, or rental income. How much you can withdraw depends on how much your principal is returning and earning you every year. Imagine you were to follow the 4% rule in times of low interest merely earning you 3%. The entire rule would be invalid.
And do you really need a few million before you can declare yourself financially independent? I'm am an advocate of listening to yourself and determining how much you need for your financial independence based on your own needs, dreams, and desires rather than set rules. You need to ask yourself how much money you want to see in your bank account, portfolio, or properties before you feel financially free.
Think of it this way: the lower your expenses, the less you require in principal or returns. Thus only you will know how much you need to be financially independent. It may be a few millions or much less than that. Thus, you will be financially independent, once your principal generates enough for you to live without having to worry about touching your investments. It will, in fact, allow you to live forever without ever again having to worry about money.
Good luck on your journey to financial independence. Congratulations to all of you who are already living the dream of financial freedom.