Job security isn’t what it once was. The trend toward contracting, outsourcing and the gig economy, combined with technological automation and increasingly, artificial intelligence, means the need for us to be emotionally and financially resilient has never been higher.
Emotional resiliency isn’t something I’m qualified to speak on, but financial resiliency – financial independence – is of course what we’re all about here at Financial Autonomy. We’re going to look at what financial independence looks like in the modern economy, and consider whether there are any local peculiarities that make financial independence in Australia unique.
What is financial independence?
Let’s start with a definition. In the Financial Autonomy world, we define financial independence as having control over how you meet your living costs. Our emphasis is on control, or choice. This differs from a more traditional definition of financial independence, as found in Wikipedia for instance, of “financial independence means having enough wealth to live without working”.
I don’t subscribe to this traditional definition for two reasons:
- The ultimate goal must be happiness, and for many people, work provides happiness. It provides fulfilment. It provides engagement with others. It provides learning. To say that you only achieve financial independence when you have enough wealth to not work – to retire, is kicking to the wrong goal.
- It focuses too much on financial wealth. The traditional definition of financial independence assumes that the foundation is a large pool of financial assets. Now certainly investments are important, and something we explore regularly. But our definition – having control over how you meet your living costs – provides a wider array of potential solutions.
Pathways to financial independence in Australia
Building “passive” income is often an important element to achieving financial independence. This may look like a traditional investment portfolio which throws off dividend and rental income. It could be royalties from intellectual property that you own, such as music or book sales. Or it could be profits from a business that you own.
Now in these latter cases, the “passive” nature of this income is very much in quotation marks. There’s a lot of work that has gone into creating a book or piece of music, and likely even more in promoting it and getting it found out in the world. But as we learned back in episode 81 with Joanna Penn, creating content that people are willing to pay for is definitely one path to gaining choice and control in life.
Having a business throw off consistent profits is rarely an effortless task either. At the least, there’s a lot of hard work at the front end. Likely, there’s plenty of ongoing work as well as markets and consumers change. But despite these challenges, business ownership is definitely another possible path to your financial independence.
Business ownership and an investment portfolio might also be a tag-team way to gain financial independence. You build a business and sell it, using the proceeds to invest in shares and property which produce income with minimal input from you.
We talk regularly here about Side Hustles – mini businesses that might serve all sorts of purposes, from gaining valuable experience, to some handy supplementary income, or something that grows to the point where you can give away your traditional employment.
Whichever way you use a Side Hustle, it’s likely to be a contributor to gaining financial independence.
(My favorite Side Hustle podcast that you might want to check out is Side Hustle Nation by Nick Loper.)
How to achieve financial independence in Australia?
Our goal is having choice as to how we meet our living costs. A good place to start then is determining our living costs. There are some who attain financial independence through frugality. Without question, the lower your living costs, the easier it is to create a situation where you have choice in life around how you generate income.
I’m not one to be wasteful with money, but extreme frugality holds no appeal either. I sometimes see posts from people on online forums shouting from the rooftops about how they‘ve achieved FIRE (Financial Independence Retire Early), at age 24 by living super cheap and building up some investments. I wonder how their life will play out long term. Will they get a partner one day who will share their bare bones lifestyle? And what about if kids come on the scene? Will they deny their kids the chance to play sport because the uniform or fees don’t fit in the budget? Or what about music or dance lessons? And then there’s travel. Travel has the ability to broaden our thinking, to learn from the past, and create wonderful memories.
In planning your path to financial independence, get a handle on your expenses, and think about what your expenses would look like in the happiest version of your life. Adam Murray had some great thoughts on this back in episode 20.
Next you need to build up some savings and clear debts. Calculate your Net Worth, and monitor this as you make progress. Whilst our version of financial independence need not require that you accumulate so much wealth that you can sit on the beach all day, it does require the financial resources to cover your living costs for at least several months without any personal exertion income.
Being debt free is likely to be a prerequisite. The burden of paying off debt certainly reduces the choices in life that are available to you. So that might mean moving to a smaller house, moving out of town, or renting.
Having multiple sources of income can be extremely helpful in achieving financial independence. I spoke at the start about resiliency. As I covered in the Security Illusion, being an employee is very binary – very secure and reliable whilst you’re employed, but if that job stops, there’s nothing. Compare this to someone with an investment portfolio that throws off regular income, and who has a side business selling her art. If she loses her job, she’s got some degree of control in her life. She likely won’t fall into a credit card debt spiral, and, assuming she wants to return to the paid work force, she won’t be forced to take a job that doesn’t recognise her skills and talents.
In Australia, our superannuation system is an important element of achieving financial independence that should not be ignored. The multi-phase approach involves solving your income generation needs by matching sources of income to different periods in your life. Once over age 60, meeting your income needs via tax free superannuation income can be a great option.
Achieving financial independence in Australia is not something we’re brought up to work towards. Our education system is about producing “employable” citizens. Our superannuation system steers us towards a mono-culture of inhabiting the traditional workforce for 40+ years, so that you can then (and only then), put your feet up.
So if you want to gain choice and control in your life, you need to be prepared to think differently. You need to be prepared to deviate from some of your family and friend’s expectations. And that’s not easy.
Make your plan, check it rigorously, monitor progress, and adapt as changes jump up at you.
Need help developing your plan for financial independence? Learn how we can work together.
Resources & Links
- Financial Independence – Wikipedia
- Joanna Penn on making a 6 figure income as a writer
- Why EVERYONE should have a Side Hustle
- Side Hustle Nation
- Adam Murray of Subtle Disruptors – taking control of his life
- Net Worth – how and why
- The security illusion
- Early Retirement: The Multi-phase Approach – FREE Download
- Gaining Choice – Newsletter
- Financial Autonomy Program