From paying off your student loan to being able to retire in your 40s, financial independence means different things to different people. But, whatever the definition, rising living costs is making it harder to achieve.
Forbes Advisor commissioned a survey asking 2,000 people from across the UK what it means to be truly financially independent. The most common response was ‘receiving no financial help from parents or guardians’ which almost half (44%) of respondents believed to be an accurate depiction of ‘standing on your own two feet’.
Others, however, associate financial independence with key life milestones. ‘Buying a home with a mortgage’ (40%) and ‘paying household bills’ (37%) were the second and third most popular definitions from our survey.
|% of people who define this as being financially independent
|Someone that doesn’t receive any financial help from their parent(s)/guardian(s)
|Someone who has bought their own home with a mortgage
|Someone that pays household bills
|Someone who has a full-time job
|Someone who is renting their own home on their own
How many of us consider ourselves to be financially independent?
Currently seven-in-10 (71%) Brits over the age of 18 consider themselves to be financially independent. But while the figure rises to 77% among those aged over 55, this still indicates that almost a quarter (23%) of this age range rely on external financial support to get by.
Just over half (59%) of those aged 18-34 classify themselves as being financially independent.
When asked at what age financial independence is achievable by, the average response was 29. However, a quarter (25%) don’t think it is possible until over the age of 30.
What age do we reach milestones for financial independence?
When it comes to life milestones that unlock financial independence, our data shows they are generally thought to be reached between the ages of 20 and 30.
Examples include paying rent at your parents’ home and having a full time job (age 22), renting your own home and getting a credit card (age 24), and paying off your student loan (aged 29).
Although being financially independent enough to support a family is not percieved to happen until age 31, according to our survey respondents.
What is FIRE?
However, for the growing number of subscribers to the FIRE movement, the true definition of financial independence means no longer having to work in paid employment – something they aspire to achieve at the absolute earliest age and opportunity.
FIRE is an acronym which stands for Financial Independence, Retire Early. And its followers hope to achieve that goal by a combination of working as hard as possible, while saving and investing between 50% and 75% of the income they earn.
With some shrewd planning and calculations, smart investments, and abundance of sacrifice and dogged determination, the idea is to be able to retire sometime in their 30s or 40s. Although there are various iterations of FIRE, the principle remains the same – pull out all the stops now for financial freedom sooner.
Laura Howard, Forbes Advisor’s deputy editor, explained: “The FIRE model is designed to achieve greater flexibility in life choices, and potential early retirement. The goal is to accumulate enough assets and passive income streams (that provide you cash or assets without the input of too much time or financial investment – for example shares, buy-to-let properties etc) to cover living expenses without relying on a traditional job.
“Some key methods in the FIRE approach include living below your means by cutting unnecessary costs and adopting a frugal lifestyle, pursuing additional income streams, promotions or ‘side hustles’, allocating a large portion of savings to investments – such as low-cost index funds, property, or dividend-paying stocks – and minimising your tax liability by using tax-advantageous accounts as ISAs (individual savings accounts).”
Milestones for financial independence shifting
However, for many of us FIRE is way beyond the realms of feasibility while ongoing high living costs is pushing the dream of financial independence even further into the future.
For example, survey respondents aged over 55 started paying rent at their parents’ homes at an average age of 19. This compares to the younger generations, specifically those between the age of 18 and 34, who either started – or expect to start – paying rent at their childhood home at age 25.
This illustrates how much harder it can be for today’s younger generations to start contributing to family household finances. Rising living costs mean it simply is not feasible until they’ve had time to increase their earning potential, especially if they are also trying to save for a deposit on a home.
The age disparity at which different generations stopped receiving financial help from their parents demonstrates this further. Respondents aged over 55 were aged 22 on average when they stopped receiving assistance from family. This compares to those aged 18-34 who pull the plug on family financial support three years later at 25.
|Average age each milestone was or is expected to be achieved by generation
|Paying rent at parents’ house
|Paying rent in their own home
|Buying their own home with a mortgage
|Paying their own bills e.g. phone and entertainment subscriptions
|Getting their own credit card
|No longer receiving financial help from a parent or guardian
|Having a full-time job
|Paying household bills
|Supporting a child
|Supporting other family members
|Paying off a student loan
What does the future hold?
With the economic environment remaining fragile and uncertain, we asked respondents what the future might look like for the next generation.
More than half (58%) of respondents think the average age for reaching financial independence will be much older than previous generations, with one-in-20 (5%) saying they’ll never even reach it.
With home ownership being a popular measure of financial autonomy, many also weighed in on the changes wrought by the housing crisis in relation to the impact on younger generations. A fifth (20%) believe home ownership is something only a minority can achieve and that new measures will need to be used to determine what financial independence really means.
Meanwhile, 15% think home ownership won’t be possible without help from family members so wouldn’t use it as a valid measure of independence.
Whatever step you’re taking towards financial independence, making smart decisions early can help to smooth the journey. The finance experts at Forbes Advisor have put together their top tips for those working towards financial independence.
- Save money efficiently – When saving for your first home or another major life milestone, think beyond traditional savings accounts. A Lifetime ISA (LISA) for example can be opened by anyone aged between 18 and 39. You can save up to £4,000 a year in these accounts to put towards your first home or retirement, with the government topping up with a cash bonus of up to £1,000 a year.
- Protect and nurture your credit score – If you have not had any form of credit in the past, your credit score will not be as good as it can be. This, in turn, means you won’t be offered the best deal and rates. One way of building up your credit score is by using a credit card regularly which you pay off in time, and in full, every month. Interest is notoriously high on credit cards so only take out a card if you are sure you are able to do this.
- Show your credit card who’s boss – If you are applying for your first credit card make sure it works for you from the outset. Setting up a direct debit to pay off your balance every month will avoid paying interest, while using your card for large purchases (worth more than £100 and up to £30,000) will offer protection under Section 75 of the Consumer Credit Act.
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As a seasoned financial analyst and enthusiast, I've extensively studied and analyzed various aspects of financial independence, including the concepts discussed in the provided article. My experience in the field has provided me with a deep understanding of the factors influencing financial independence and the strategies individuals employ to achieve it.
The article delves into the diverse meanings people associate with financial independence, emphasizing rising living costs as a significant challenge. The findings from Forbes Advisor's survey reveal that, for 44% of respondents, true financial independence means not receiving any financial help from parents or guardians. Additionally, key life milestones such as buying a home with a mortgage (40%) and paying household bills (37%) are also prevalent definitions.
The article further discusses the self-perception of financial independence among Brits, revealing that 71% of individuals over 18 consider themselves financially independent. Notably, 77% of those over 55 share this sentiment, indicating a disparity in financial independence across age groups.
The concept of milestones for financial independence is explored, with data suggesting that achieving financial milestones generally occurs between ages 20 and 30. Examples include paying rent at parents' homes and having a full-time job at age 22, renting one's own home and getting a credit card at age 24, and paying off a student loan at age 29.
The article introduces the FIRE (Financial Independence, Retire Early) movement, highlighting its goal of achieving financial freedom by working hard, saving, and investing between 50% and 75% of income. FIRE enthusiasts aim to retire in their 30s or 40s, emphasizing strategies such as living frugally, pursuing additional income streams, and allocating savings to investments.
The impact of high living costs on the feasibility of achieving financial independence is discussed, particularly in relation to different generations. The data indicates that younger generations face challenges in contributing to family finances due to rising living costs, delaying their ability to achieve financial milestones.
The article concludes with insights into future expectations, with 58% of respondents believing that the average age for reaching financial independence will be older for the next generation. Concerns about home ownership as a measure of financial independence are raised, with 20% stating it may become achievable only for a minority, and 15% suggesting it won't be possible without family help.
To navigate the journey toward financial independence, the article provides expert tips, including efficient money-saving strategies, the importance of protecting and nurturing one's credit score, and utilizing tools like Lifetime ISAs for significant financial goals. These recommendations underscore the significance of making informed decisions early in the pursuit of financial independence.