The terms financial independence and financial freedom are tossed around a lot when discussing goals related to security and wealth building. Do they mean the same thing? And more importantly, how do their definitions affect your financial life?
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While they’re closely related — and often part of the same journey — they aren’t the same thing, according to Melissa Murphy Pavone, CFP and founder of Mindful Financial Partners.
Here’s how to understand the difference — and what it takes to build both.
Financial independence means you’ve accumulated enough assets to cover your lifestyle without relying on traditional employment, according to Christopher Stroup, CFP and owner of Silicon Beach Financial. “It’s the foundation, as your money works for you.”
In other words, Pavone said financial independence means “work becomes a choice, not a necessity.”
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Financial freedom builds on that foundation, Stroup said, allowing you “flexibility and control.” This could look like a variety of things, like “the ability to take a sabbatical, fund a passion project or change careers without financial pressure,” he said.
In a nutshell, “Independence provides security; freedom unlocks possibility,” Stroup said.
Financial freedom can also bring a sense of peace or ease because you can “live life on your own terms,” according to Autumn Knutson, CFP, founder of Styled Wealth and a CFP Board Ambassador.
To illustrate the difference, Stroup offered this example: Imagine an early employee at a growing tech company who leverages stock options, invests bonus income and avoids lifestyle creep.
“They reach financial independence in their 40s, but they achieve freedom by shifting into advisory work, traveling more, and spending time on causes they care about,” he explained.
What gets them there is not just financial planning, but making choices that align their values with their financial strategies, he said.
To work toward both independence and freedom, Stroup recommended the following practical steps:
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Start with a budget that reflects your values.
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Invest early and consistently to grow wealth beyond your salary.
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Eliminate high-interest debt to free up future income.
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Plan for taxes so you’re not surprised down the road.
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Reassess often, as your goals will evolve, and your strategy should, too.
In addition to the practical steps that Stroup mentioned, Knutson added the idea of working “with the end in mind.” That means defining what you want to be true for your life now and in the long term. “Start non-numerically — more along feelings and experiences,” she said. “Then, match the goals to rough numbers.”
From there, you can calculate your current resources, savings rate and anticipated income to create a realistic plan to attain those goals, she said.
Achieving financial independence and freedom may also require doing some inner work, Pavone said, because everyone carries unconscious beliefs about money — what she called “money scripts.”
These scripts are shaped by childhood experiences, family dynamics and personal history. They influence how you save, spend, and think about wealth and security.
“Some of us grew up thinking ‘money doesn’t grow on trees,’ while others saw money as a source of power, fear, or control,” she said.
To build both financial independence and freedom, you have to “unpack those beliefs, examine what’s actually true for us today, and decide what kind of relationship we want to have with money moving forward,” Pavone said.
If either end goal doesn’t feel attainable, work with a CFP who offers comprehensive financial planning. They can help you clarify what you really want, and the steps you need to take to get there.
Looking to build a legacy? Check out our Life to Legacy guide for expert advice and smart moves you can make today.
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This article originally appeared on GOBankingRates.com: Financial Independence vs. Financial Freedom: Know the Difference, Build Both
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