Financial independence and how you can achieve it

The financial independence (FI) movement has gained a lot of momentum in the last couple of decades – could it work wonders for you?

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The financial independence (FI) movement has gained a lot of momentum in the last couple of decades as people seek greater lifestyle flexibility and reduce their reliance on government support post-employment.

What is financial independence?

The idea of achieving FI largely centres around the ability to generate enough cash flow from investments to live a desired lifestyle without having to be chained to a 9-5 job.

The basic mechanics of FI boils down to a very simple equation: spending less than you earn.

By avoiding the incurrence of "bad debt" such as excessive credit card spending on non-cash flow generating items like holidays, people can save their residual income and invest that in assets that can generate passive income in the future.

One of the beauties of the FI movement is that the reasoning behind the pursuit of it and the means of achieving it are always personal. Some people will advocate for purchasing real estate assets, others will look to build sizeable share portfolios and some may even set up businesses or websites that can generate royalty-like payments in the future.

With the magic of compounding returns and a little frugalism, even those with low incomes are able to achieve FI in their working lives, meaning it's not just for the bankers, doctors and lawyers of the world.

Why is financial independence so popular?

It can be argued that the rise of FI has not been totally voluntary, as many Australians have struggled to adapt to the "gig economy" or casualisation of the workforce in recent years and have sought FI to increase security and create a safety net should they find themselves out of a job.

But while there are many different reasons for pursuing FI, and the related notion of FIRE, these vary depending on the investors' ages and current living situations.

Many older Australians seek to achieve FI to reduce their burden (and reliance) on the government pension system, while millennials have popularised FIRE in recent years as a means of tilting the work-life balance further away from "work".

This has allowed many Australians to take additional time off work for family, or take that 6-month vacation they'd always dreamed of or take that university course they'd been meaning to do for years.

Many don't necessarily aspire to achieve financial independence and retire early, or "FIRE", with some looking to build up a sizeable nest egg that allows them to quit their corporate job and pursue hobbies or interests until they decide to retire.

All in all, the FI and FIRE movements are in pursuit of a great personal finance goal and even if not achieved, will put you in a stronger financial position through some basic spending constraint and smart investing.

For those looking to take the first step, I'd suggest checking out these top growth shares as you start building a long-term ASX share portfolio.

Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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