What does it mean to be financially independent?

What does it mean to be financially independent?
National Bank Plan Plan

Accumulating enough money to stop working is possible. But you have to start early.

If you’ve heard of Eliane Gamache Latourelle, the young businesswoman-turned millionaire at 30, you’ve probably found yourself envying her lifestyle. Flying to Paris for three days on a whim just to have dinner with friends, eating at the best restaurants, cruising around in a luxury car, travelling by private jet. Her life, to many of us, is a dream come true. She can afford to do what she wants, when she wants. In short, she’s financially independent.

It’s a concept that’s become more prominent over the past few years, mainly as a result of the last financial crisis. But what does it really mean to be financially independent?

Like many things in life, the answer varies depending on who you ask. For Marc Fisher – and he would know, considering he’s the author of international bestseller The Instant Millionaire, a book about wealth – it’s having the power to stop working without changing your lifestyle for the next 20 years. Easy!

But wait, don’t throw in the towel yet. Financial independence can be an achievable goal if it consists of spending less than you earn, regardless of your income level.

“To me, it’s not about a specific amount of money, but more about having enough to meet my needs in comfort,” specified Fisher before the launch of La Jeune Millionaire (The Young Millionaire) in 2014, that he co-wrote with Eliane Gamache Latourelle.

And the good news is that taking concrete action at a young age increases your chances of hitting your goal. “Scaling back your lifestyle is easy when you’re young,” asserted Fisher. “It’s a lot easier to pass up $25 bottles of wine when you never started drinking them in the first place!”

Iron discipline

We won’t lie, the quest for financial independence requires a lot of discipline. “Building wealth becomes an obsession. There’s no flexibility, you have to reach your goal every month if you want to stay on track,” stated Yves Bourget, who made his career in finance and is now a columnist specialized in mutual funds, in an interview he did with us back in 2014.

He has been setting aside 20% of his income for a long time, which has allowed him to save enough to live off interest without touching his capital. “In my opinion, discipline is an incontrovertible condition for anyone who seriously aspires to financial independence,” he said. “It needs to be a gradual process over a long period of time, and it requires you to be methodical and rigorous.”

In other words, knowing the words to the song Independant Woman, by Destiny’s Child (« ♫ The shoes on my feet, I’ve bought it, The clothes I’m wearing I’ve bought it, The rock I’m rocking, I bought it ♫ »), is not enough.

So, where do you start?

Good question! And be warned, the answer includes the same dreary things that you probably feel like everyone is doing except you. Yes, we’re talking about RRSPs. According to Yves Bourget, RRSPs are a great way to put money aside (the current rules allow you to invest up to 18% of your income every year). He also suggests having some money in a savings account, a few high-quality stocks, shares of small capitalization corporations as well as a bond portfolio.

He also emphasizes that it’s important to live within your means. We all know it, we’ve said it before, but it doesn’t hurt to say it again, considering we live in a consumer society where smart phones and vintage Scandinavian furniture are bought on credit.

This doesn’t mean you need to become a tight-fisted Scrooge, only that you should pay more attention to your expenses and debts. “To me, a certain amount of debt is acceptable,” explained Yves Bouget.  “For example, a reasonable mortgage spread over 15 years, not 30.” He’s a lot less forgiving when it comes to credit card debt that we rack up without having the money to pay it off.

Additional income

Another way to reach financial independence is to earn more money. For Marc Fisher, that might mean creating a business. It seems easier said than done, but there’s no need to go to the same lengths as Eliane Gamache Latourelle and open two pharmacies in addition to consulting services. With Etsy and Instagram, for example, a hobby like knitting or photography could become a fairly lucrative sideline. “Fifty years ago, starting a company required a lot of money. Today, with the Internet, all you need is an idea,” he affirmed.

Finally, the thing to retain, according to Yves Bourget, is that “if every year you spend more than you earn, you’ll end up paying the price, and you’ll never be financially independent.” (Okay, okay, that’s the last time we’ll say it [at least, in this article], promise!)

Convinced? Take out your calculator (and listen to Independent Woman to set the tone)!

Edited on 24 October 2017

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