What is financial independence?

I attended a seminar recently which speaks about entreprenuership. I attended the seminar because I wanted to find out more about how to set up businesses as I may be interested to set up my own business in future. The speaker spoke passionately about her experiences with helping many people and organisations set up and run businesses effectively. The speaker also questioned the audience about their reasons for wanting to be an entreprenuer. One common reason given by many on why they would want to set up and run businesses is to reach financial independence.

I managed to reach a better understanding of what is financial independence based on the speaker's explanation. The idea of financial independence to me before hearing from the speaker used to be the ability to receive passive income for living without the need to work. However, my idea of financial independence is partially faulty. Financial independence is the ability to receive consistent recurring passive income that is more than able to cover total personal expenses (including all liabilities and loans), thus allowing the individual the luxury not to work anymore. Thus, the person is in a state of being financially free and working becomes an option and not a necessity for him anymore.

Can a person who has reached financial independence return back to the state of being financially burdened again? Yes. If the passive income is no longer able to meet the total personal expenses anymore, the person returns to the original state of needing to work again to meet his personal expenses. Usually, for ease of discussion, one can look at total monthly passive income versus total monthly expenses. As long as one's total monthly passive income is more than total monthly expenses, and this state is able to be maintained indefinitely, the person has reached a state of financial independence. Assuming there is no change to his amount of passive income and amount of expenses, this state of financial independence will be maintained.

So, financial independence simply means:-
Total recurring monthly passive income greater than or equal to Total recurring monthly expenses

It is not difficult to reach financial independence. Two points must be reached and maintained as follows.

1. There must be a stable consistent passive income source(s).

2. The amount of this monthly passive income must be greater than or equal to the total monthly expenses.

Thus, theoretically speaking, if one is a person whose recurring monthly expenses is little and he has stable recurring monthly passive income source(s) able to meet his total monthly expenses, he would have reached financial independence. The longer this state can be maintained, the longer the person need not be burdened with the necessity to work anymore.

Why is it that not many people can enjoy the luxury of consistent financial independence? 

A few reasons could be possible.

1. The passive income source(s) is/are not stable.

2. The amount of passive income keeps fluctuating, sometimes below and not able to meet the expenses.

3. The amount of monthly expenses keep changing and usually is getting larger and larger so that the monthly passive income can no longer fulfil the increased expenses (possibly with changes in lifestyle and commitments).

Final conclusion

It is many peoples' dream to reach financial independence. There is nothing wrong with aspiring towards this state. However, one must be careful that once he reaches financial independence, what will he do with his freed up time that he no longer need to work anymore. Invest his freed up time to enagage in meaningful actvities to help others or just while it away in meaningless pursuits? This is a question to consider carefully since one has only a lifetime to live and spend his life after which all humans must meet death eventually (whether by natural or unnatural death).