Financial Independence versus Financial Freedom

Are financial independence and financial freedom the same thing? While they are often used interchangeably, and there might be lot of overlap, they are not essentially the same thing. If you do a basic Google search, you may find varying accounts of both of these – financial independence as well as financial freedom. The assumptions and ensuing numbers and planned lifestyle varies from person to person.

Financial Independence versus Financial Freedom

Here are my 2 cents:

Financial independence is a stage in life wherein your investments are enough to take care of all your expenses for rest of your life.

However, in financial independence you assume a certain kind of lifestyle, and to a certain degree, frugality is a part of that lifestyle. You may think twice before ongoing out of the way to make major unplanned (And maybe discretionary expenses).

To be at a stage where you don’t have to think twice before making even slightly bigger purchases, can be akin to financially freedom. In a way, it is financial independence + good amount of buffer money which you can spend as you wish. A financially free person is financially independent. But the converse may not be true.

But if your idea of spending without moneys is going on endless shopping spree and partying or buying a fleet of expensive vehicles, you may probably not even be financially independent, unless you have really truckloads of money!

For instance, having Rs. 5 Crore or $1 Million and a primary residence may give someone enough financial independence to live live only using with the ensuing passive income, provided the lifestyle is not very extravagant in nature. But will it be enough if you love partying every weekend, go on shopping spree and go for a good foreign holiday thrice a year? Unlikely. But if you are financially free, then you may have fatter bank balance (Rs. 20 Crore? $ 5 Million -What is a good number?) and lesser inertia to spend.

But there is a thin line between being financially free and  relapsing to a pre-financial independence stage. After all, without some degree of control over expenses, it’s ways to  deplete even you high savings. Thoughts?

 

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