What Financial Independence Really Means – And How to Work Toward It
When most people hear the term “financial independence,” they think of early retirement, beach chairs, time with family, and not having to work another day in their life.
But that’s just one version of the story.
The real concept of financial independence is far more flexible – and more useful – than it first appears. It’s not about never working again – in fact, some times people just want to scale back their work. It helps keep their mind sharp, and you can only golf with the same 4 buddies before it gets too repetitive 😊. But it is about reclaiming control of your time and using your resources to design a life that lets you focus on doing what actually matters to you.
By the way…getting there doesn’t require a windfall. Get serious about saving, not trying to win the lottery or picking the right stock. The slow and steady way works, but it requires planning, discipline, intent, and a better way of thinking about your goals.
What Is Financial Independence?
Financial independence happens when your investment income (and other passive sources of income) can reliably cover your living expenses. In other words, you don’t have to work for money to live the life you want. The phrase I like to steal from an old boss and mentor of mine (who is a phenomenal guy) is “eat the eggs, not the chickens” – the dividends being your eggs and chickens being the capital.
The simplest version is: when your income from assets covers your expenses, you’re financially independent.
But there’s nuance here. The actual math depends on:
- How much you spend
- How long you’ll need your assets to last (i.e. your life expectancy)
- The taxes and fees you’ll pay to access your money
- Your flexibility around spending and lifestyle changes
And it’s important to acknowledge that “independence” isn’t one-size-fits-all. There are degrees of financial independence:
- As mentioned above, maybe you don’t need to quit work altogether – you just want the option to take fewer shifts or choose projects that align more with your interests.
- Maybe you want to be able to reduce your on-call time, or take more vacations.
- Maybe you just want the peace of mind that you could stop working if you needed to.
That’s still financial independence. And it’s often more realistic – and more satisfying – than aiming for a full-stop retirement in your 40s.
Financial Independence = Math + Values
Most people focus on the investment side of financial independence. But spending is just as important. Every dollar you don’t need to spend reduces how much you need to save.
Here’s a quick, overly simplified example:
Let’s say you want to live on $50,000 per year in retirement. Using a conservative withdrawal rate of 2.5%, you’d need a portfolio of about $2 million to fund that spending long term purely off of the “eggs” and not including anything such as CPP/OAS, etc.
But if you can live happily on $40,000? Your target drops to $1.6 million.
That’s a $400,000 difference – not by earning more, but by adjusting your lifestyle in a way that aligns with your values.
Reducing fixed expenses – especially housing – can be one of the most powerful tools for accelerating your path to independence. One client I worked with shaved 7 years off their financial independence timeline just by downsizing and cutting housing costs.
Those of you that have heard me talk about anything fitness related know that I love to talk about “levers” and how pulling slightly on multiple usually leads to better outcomes than pulling strongly on one. Your spending is the “lever” in the system that you can often control more than investment returns.
One thing I’ve learned in this industry: no matter how much you have, you can always spend more. I’ve built plans for people with eight-figure wealth who were still on track to run out of money if their habits didn’t change. We’ve all heard similar stories—athletes, celebrities—it’s more common than you’d think.
Not All Dollars Are Created Equal
When doing financial independence planning, another layer to consider is the tax treatment of your accounts.
For example:
- Drawing $50,000 from an RRSP is very different from drawing $50,000 from a TFSA
- Corporate accounts may have embedded taxes
- Your withdrawal plan needs to account for tax efficiency
Most simple “4% rule” retirement models don’t factor in taxes, fees, or sequence of returns risk (the risk of poor returns early in retirement). In reality, you need to adjust those numbers based on your unique situation – and sometimes plan for a lower withdrawal rate.
The good news? Even with these variables, you can still build a realistic plan. And if you can be flexible with your spending, you may not need to aim for perfection – just sustainability.
Aiming for the Right Goal
This part is critical: Financial independence is not the end goal – it’s a means to something greater.
The real question is: what are you working toward?
Is it time with your kids? Time to volunteer? Space to focus on your health or personal projects?
Too often, people fixate on a number. But the point of financial independence is to support the life you want – one where you’re using time in a way that’s fulfilling, meaningful, and aligned with your values.
And that brings us to the importance of clear goal setting.
Values-Driven Goals: How to Get Started
If you want to make good financial decisions, you need to know what you actually value. Otherwise, you’ll end up chasing goals that don’t lead where you hoped.
Here’s a simple exercise adapted from some of the best research on decision-making and goal setting:
- Think about past decisions you were proud of. What values were reflected in those moments?
- Think about decisions you regret. What values were missing?
- Picture yourself at different ages – 55, 75, 90. What will matter most to you at each of those stages?
- What are the experiences or relationships you’d regret not prioritizing?
These questions help anchor your goals in real meaning – not just numbers on a spreadsheet.
From there, you can set abstract goals (who you want to be, what kind of life you want) and then define measurable targets that help move you toward them.
For example:
- Abstract goal: I want more freedom to travel with my partner.
- Target: Build a portfolio that supports $60,000/year in spending by age 58.
- Immediate action: Automate $1,500/month into my investment plan.
Use the Journey as the Reward
One of the most powerful takeaways I’ve seen in clients who reach financial independence is this:
They don’t just enjoy reaching the goal – they enjoy the process of working toward it.
They’re not just saving – they’re actively building a life that feels better as they go.
And when life throws a curveball (which it always will), they have the confidence and flexibility to adapt.
Whether you’re years away or already near your number, the process of working toward financial independence can help clarify what you value, improve your decision-making, and create more intention in your financial life.
Disclosures:
Important information about mutual funds is found in the Fund Facts document. Please read this carefully before investing. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. Unit values and investment returns will fluctuate.
The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.
The end goal isn’t to stop working. The goal is to gain the ability to say “yes” and “no” more freely – with your time, your energy, and your money.
That’s the real power of financial independence.
