Financial freedom vs. financial independence: What’s the difference (and why it matters)

“I want financial freedom.” That’s something you’ve probably heard — if not something you’ve said yourself. Thanks to the emergence of online financial literacy resources, more people are interested in taking control of their money, and many talk about the importance of financial freedom.

But what does financial freedom really mean, and how is it different from financial independence? Here, we break down these two often-confused terms and offer a few practical tips to help your family work toward both goals. 

What's the difference between financial freedom vs. financial independence?

Financial freedom and financial independence are often used interchangeably, but they don’t mean the same thing. Put simply, financial independence means having enough assets that you don’t have to work, while financial freedom means the ability to live however you want, with or without working. 

These concepts include a lot of common elements, such as:

• Passive income vs. active income

• Multiple income streams

• Emergency funds

• Early retirement

• Living debt-free

Let’s break down the difference between financial freedom vs. independence in more detail.

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Financial freedom

Imagine having the ability to live however you want, wherever you want, without worrying about your finances. That’s financial freedom. It might mean you retire early or move to Europe — it’s about having enough of a passive income stream to achieve your life goals on your own time.

Financial independence

Financial independence means achieving stability without relying on active income. If you are financially independent, it means you earn enough passive income to meet your financial needs without working. You have enough set aside in an emergency fund, a solid retirement plan, and new investment opportunities on the horizon. 

Key mindset shifts: Stability vs. choice

Why does it matter whether you’re aiming for financial freedom or independence? Because there is a distinct mindset behind each term. Independence is all about stability, while freedom is about choices.

For example, consider the FIRE movement, or "financial independence, retire early." This movement helps people achieve financial stability through passive income so they can retire young. It involves paying off debt, creating a clear savings plan, and setting up multiple income streams. 

Financial freedom, on the other hand, is the ability to choose the life you want to live. People who strive for financial freedom want to earn enough income not just to cover their living expenses, but also to afford their ideal lifestyle. 

How financial freedom vs. independence looks

Financial freedom and financial independence aren’t just abstract goals. It’s important to define what these concepts mean to you so you know what you’re working toward. Here are a few examples of how your family might visualize financial freedom vs. independence.

Parents

For adults, financial independence might include:

• Retiring early

• Living without debt

• Owning your home outright

Financial freedom, on the other hand, might include:

• Taking extended family vacations

• Pursuing a lifelong dream

• Donating to important causes

Teens

Teens who are just starting to build their own savings can also visualize their financial goals. One of the best examples of financial independence for teens is going to college without student loans. This can pave the way toward other milestones, such as buying a home or living debt-free.

There is nothing wrong with dreaming about less-practical goals, too. Creating a dream board featuring their ideal car, home, career path, or vacation spot is a great way to get teens excited about financial freedom and smart money management. 

Kids

As your kids start learning about money, it’s important to teach them the difference between needs and wants. For example, ask them to help you make a grocery list, and let them choose what they want to buy if there is room in the budget after getting everything you need. These conversations can turn into lessons in financial independence and freedom as they get older. 

Milestones that lead to each goal

There is no clear, universal path to financial freedom. Everyone’s goals and financial circumstances are different. 

That said, you can break down the different levels of financial freedom and set practical, achievable milestones to work toward. These include:

• Paying off debt

• Achieving financial security

• Setting up an emergency fund

• Setting up a retirement fund

• Having multiple passive income streams (real estate, investment accounts, etc.)

• Retiring — or having the option to retire

Building smart financial habits early

It’s never too early to start working toward these milestones. Kids and teens can get on the right track by developing smart money habits early. Setting goals, saving, and carefully spending will help them work toward financial independence and freedom even before they start earning their own income. 

Pros and cons of each approach

Should you be working toward financial independence or financial freedom? That depends on your mindset. 

Financial independence is a practical goal and more clearly defined than financial freedom. Approaches like the FIRE method provide helpful direction and investment advice, especially if you carefully outline the steps you want to take. 

On the other hand, there is merit to dreaming big. The freedom to choose can remind you why you wanted to start saving in the first place. There is nothing wrong with aiming for financial freedom — just remember that you have to plan while you dream. Consider the practical steps that will guide you toward financial security and independence, even if freedom is your long-term goal. 

Take the next step toward your financial future

Whether you want to achieve financial independence or financial freedom, the first step is developing smart money habits. You can help your kids take that step today with Greenlight’s money management resources. Teach them to set goals, track their savings, and spend responsibly — all while working toward your own goals. 

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