Many people use the terms financial freedom and financial independence interchangeably, but the two are different. To distinguish the two in a simple way, financial freedom is a mindset where you have enough investments and savings that can afford you to live the life you want, while financial independence is ability to live a quality life without having to work.
In this article, we are going to focus on financial freedom versus financial independence; similarities, differences and which one is better.
What is Financial Freedom?
Financial freedom is a mindset where you have financial cushions like savings, investments, and cash that can help you live the life you want. It helps you grow a nest of eggs so that you can live the life you want without having to be frugal on your spending. Financial freedom gives one happiness since you can live the life you want.
What is Financial Independence?
Financial independence is the ability to live a quality life without having to rely on income to cover your expenses. This means you can retire early and yet live a quality life. Some of the ways to create financial independence are by building passive income sources.
Difference Between Financial Freedom and Financial Independence
The following are the differences between financial freedom and financial independence.
Financial freedom is a mindset where you live the life you want by financing it through your savings, investments, and cash at hand. On the other hand, financial independence is a state where you don’t have to rely on income to live a quality life. This means you can retire early and start relying on passive income sources.
Financial independence is the first step to attaining financial freedom. Financial independence means that you don’t have to work, or rather you don’t have to rely on your income to cover your expenses. However, you can be financially independent and not be happy because you are limited by budget constraints. On the other hand, with financial freedom, you are not limited by your budget and you have the power to choose the kind of life you want. Financial freedom gives you happiness.
Read also: Passive income vs active income.
Similarities Between Financial Freedom and Financial Independence
This is how financial freedom and financial independence are similar.
Financial freedom and financial independence involve having a passive income. Both of them require you not to rely on your active income, but on passive income such as investments. It means that you don't have to rely on anyone or debt. It also involves changing one’s financial habits and mindset.
Both financial freedom and financial independence involve planning your finances and sticking to your plans. They involve having income-generating investments.
For both, it requires time and effort to be financially independent and achieve financial freedom. You need first dedicate time and effort to invest before you can say you are financially independent or you have achieved financial freedom.
Read more: How to achieve financial freedom in 5 years.
Which is Better; Financial Freedom or Financial Independence?
Now that you know what the differences between financial freedom and financial independence are, you need to ask yourself, which one do I pursue?
Financial freedom is the best since you don’t have to worry about sticking too tight to your budget or being very frugal on your spending. It helps you live the life you would want to and gives you happiness. It is because you can achieve financial independence and still not be happy. As such, strive to achieve financial freedom so that you are happy and live the life you want.
How to be Financially Independent and Achieve Financial Freedom
To attain financial freedom, the first step is to become financially independent. This is how you can get there:
- Generate rental income. Strive to own properties that you can rent out and generate a passive income.
- Invest in stocks. Dividends from stocks are good passive income that can help you attain financial freedom.
- Income generating portfolios. Look for high-yield income-generating portfolios like Robo-advisors and other investments.
- Invest in low-risk bonds. Look for low-risk investments that have regular coupon payouts. Watch out for government securities and invest in them.
Summary: Financial Freedom vs Financial Independence
To sum it up, financial freedom involves living the life you want while financial independence involves living the life you need. Financial independence is the first step to financial freedom. The goal should be to pursue financial freedom so that you can be happy and live the life you want. That way, you won’t have to be frugal on your spending.