As the Fourth of July reminds us, independence is worth fighting for. On July 4th we celebrate our nation’s declaration of freedom from the control and influence of Great Britain. Financial independence also means freedom. And as with the political independence we celebrate every July 4th; financial independence starts with a declaration. Here's how to declare, fight for, and win your own financial Independence Day. 

What Does Financial Independence Mean? 

A quick definition of financial independence could be having enough wealth to live a life of comfort without the need to work. In truth, financial independence can mean different things to different people.  

In a 2020 TD Ameritrade survey of young Americans ages 15 – 29, for example, 57% of respondents judged themselves to be financially independent by virtue of being able to meet their financial obligations without financial help from parents, grandparents, or others. 

Between those two benchmarks lie myriad definitions of financial independence. Some people have no desire to ever quit working. They just want enough money to be comfortable and to have the ability to cover an emergency without going into debt. For others, financial independence means freedom from worry when they retire including the freedom to travel; spend time with family members; relax and enjoy the “fruits of their labor.” Others see it as being able to support themselves and be there for family who need them without worrying about being able to afford to help—or having enough to support the institutions and causes they value. Your definition could incorporate many of these goals.

Whatever financial independence means to you, unless you win the lottery or inherit a fortune, it will likely only happen if you are willing to go after it. The Founding Fathers knew that America’s independence would not be achieved without a fight. And they knew the fight would not be successful without a strategic plan. So it is with financial independence. 

The plans we're discussing can help you build your way to financial independence. But it's important to recognize that strategy and prudence can only go so far. Family responsibilities, health, personal circumstances, and social privilege—or the lack of it—play a large role in how free an individual is to build wealth and achieve financial independence. This advice is given in that spirit, knowing that the playing field in America has never been completely even. The independence and freedom declared on July Fourth and won in the Revolutionary War is important to celebrate. But Americans must also recognize that it left out the majority of the new nation's inhabitants; our nation is still fighting to feel and be fully equal and free.

Your Financial Independence Strategic Plan 

Just as there is no absolute definition of financial independence, there is also no one strategy that will help you gain financial independence. That said, all strategic plans have some features in common. You will need to set financial objectives, choose the assets—financial and otherwise—you will need to achieve your goals, decide on the investment strategies and other tactics you will employ, and commit to perseverance to keep fighting for your financial independence until (given hard work and some luck) it is in hand. 

Financial Objectives 

Your financial objectives are unique to you. Think about your long-term goals. Do you want total financial independence—freedom from working for a living, and the ability to do as you please? Or are your objectives more modest? Are you OK with a mostly independent lifestyle with some need to supplement your passive income? 

Your age and financial situation will influence your choice of objectives. If you are in your 20s or 30s, you have decades to achieve your goals along with the ability to take more risks. At that age, you may even want to pursue what’s known as the FIRE (Financial Independence, Retire Early) strategy, which involves an extreme savings and investment strategy designed to allow you to retire far earlier than normal. Or, as the respondents in the TD Ameritrade survey indicated, your goal may be to be able to pay your bills and avoid debt. 

If you are older, say between 50 and 65, you likely already have retirement-savings objectives but even if not, there is still time to plan for financial independence. Depending on your goals and accumulated assets, this may involve a riskier investment strategy to make up for lost time. Or you may need to reset what defines retirement comfort.

Whatever your objectives, write them down. Keep them in front of you as constant reminders of where you want to end up—living a life, as you define it, of financial independence. 

Assets 

Which tools (weapons) will you need to achieve your objectives? These can include income-producing assets of many kinds—ranging from a savings account or CDs to a portfolio of dividend-paying stocks, bonds (or bond funds), and real estate

A home is many people's largest asset—and can turn into a source of equity or be used in a reverse mortgage to help fund retirement. And that's not the only way to invest in real estate. Rental properties can generate significant amounts of cash flow but can require substantial investment and risk. REITS (real estate investment trusts) are another way to invest. The COVID-19 pandemic showed how real estate can both drop and grow in value over a short period. Over the long haul, however, real estate has shown itself to be a consistent provider of wealth.

Another wealth-building asset would be to start and run a successful business with the ultimate goal of either not being directly involved in day-to-day management or of selling the business for a substantial profit.

Assets also include intangibles, such as knowledge and skill. You were not born knowing about the stock market, rental properties, or how to run a small business. You were born with the ability to learn, research, read, and experiment with different strategies to see what works.

Tactics 

Your successful journey to financial independence depends a lot on your actions. These are the things you need to learn about and do to achieve financial independence as you define it.

Start with a budget that takes into account income and other available assets, allows you to pay your living expenses, and if at all possible, lets you save and invest. Think of your budget as a roadmap to financial independence. Pay attention to where the money goes and avoid dead ends. Cut costs where possible, creating more opportunities for saving and investment.

Take full advantage of any employer-provided retirement savings plans, if you have access to them, or start building your own through an IRA or Roth IRA. On the other hand, it's important to allow for fun (unless you are following the FIRE strategy above). Just don't go overboard and, above all, do not borrow for recreation.

Along the same vein, expect the unexpected by creating an emergency fund to provide liquidity when you need it most for an unexpected (but necessary) expense. Planning for unexpected events that could derail your plans is crucial. It doesn't have to be a pandemic; it could be illness, an unexpected job loss, or an economic crisis like the Great Recession of 2007 to 2009.

Finally, develop an investment strategy that takes advantage of the power of compound interest. Compound interest is free money and adds up over time. Learn as much as you can about investing but also take advantage of the knowledge others already have. If investing is a major part of your wealth plan, find and utilize an investment advisor as early in the process as possible.

Perseverance 

The notion of the need for "eternal vigilance" in the pursuit of liberty, often attributed to Thomas Jefferson, could also be applied to financial independence. The road to financial independence requires a lifetime commitment to continuous budgeting and investment.

You also need to be watchful about situations that could lead to having money trickle out that could be put to better use. Or that could lead to accumulation of more debt that you can handle. If you feel it coming on, make yourself stop and pay attention, and work to find a solution, whether it's debt counseling, debt consolidation, or even that old standby—putting the credit cards in a drawer and not using them.

Keep looking for new opportunities and new ways to make the most of your hard-earned capital. Perseverance also demands that you learn the steps for building a profitable investment portfolio and make sure that you rebalance it regularly to keep it moving toward your financial objectives. Then, adjust as you get closer to retirement.

Independence at Last 

Sometimes success sneaks up on us. If your fight for financial independence is intense and persistent, you may end up as the Continental Army did after the British surrender at Yorktown, Oct. 19, 1782. At that point, historians say, the Americans had effectively gained their independence. The fight continued, however, for almost more two years until Sept. 3, 1783, when the signing of the Treaty of Paris brought the war to an end. 

In other words, keep up the good fight until you are sure you’ve achieved the objectives you set out to achieve. Just as it did on July 4, 1776, independence begins with a declaration, followed by a plan, including objectives, assets, tactics, and most of all, perseverance. A little luck can't hurt, too. And some generosity to your companions on that road. Both people and nations need the company and help of others.