Achieving financial independence is not as difficult as it might seem. After all, we shape our lives by how we think. If we accept the idea that we will never be financially independent, this prophecy will come true. Our mindset shapes our lives and our future.
Ever since we were children, our parents have led us to get a university degree and find a well-paid job. Is this the path to financial independence, however? It is such a cliché, study hard so you get a good job. A cliché of people who do not truly understand how money works. If we want to be financially independent, we must not work for money, but we must learn how money will work for us. There are many books on finance and financial literacy, and I recommend one thing, which is to read them. Every such book will enrich us and give us plenty of new ideas that we would never have come up with on our own.
In the following article, we will share a few tips on how to build financial independence.
What is financial independence?
Many people have a distorted idea of the term financial independence. They think that someone who earns a lot of money is financially independent. Of course, people with high incomes have an easier path to building wealth, but that does not make them financially independent.
A financially independent person is someone who does not have to go to work and still has an inflow of funds sufficient to cover all their costs. If such people choose to work anyway, it is because they want to, not because they need to.
When we talk about financial independence, we are talking about not working for money, but having money work for us. This primarily means passive income and portfolio income. The most common form of passive income is rental income from property. Portfolio income comes from investments in securities.
Financial independence retire early and the FIRE movement
Financial independence retire early, usually shortened to FIRE, is a movement built on the idea described above. Its followers save and invest a large share of their income, often far more than the usual tenth, so that their assets can cover their living costs long before the standard retirement age. Retiring early is optional. For many people, the real aim is the freedom to choose what work they do and when.
Common variations
- Lean FIRE means a modest lifestyle and a smaller target sum.
- Fat FIRE means a comfortable lifestyle that needs a much larger portfolio.
- Coast FIRE means you have already saved enough that, left to grow, it should fund your retirement, so you only need to earn your current living costs.
- Barista FIRE means your investments cover most of your costs and part-time work covers the rest.
Pros and cons
The main advantage is control over your time and less dependence on a single employer. The drawbacks are years of strict saving, the risk of underestimating future costs such as health care, and a long time horizon in which markets and inflation can surprise you.
Income and expenditure
If we want to keep control of our finances, we must constantly calculate. It is simple. In the income column, write down all household income, including the monthly average for bonuses, thirteenth-month pay, and other items. In the expenditure column, list all necessary expenses for food, insurance, housing, tuition, utilities, etc. We can calculate the difference immediately.
Now it is entirely up to us how we handle the saved money. The problem for most people is that they do not know how to manage money properly. If we want our money to generate more money, we invest the saved funds. To minimise risk, we spread our investments across multiple financial instruments.
Getting rid of debt
In the past, it was never easier to fall into debt than it is today. Banks and other institutions offer plenty of “advantageous loans on favourable terms”. As soon as we run out of money, borrowing more is no problem. For Christmas presents, a holiday, or a new car. And that is precisely where banks want us. Kept stressed about whether we will be able to make repayments next month. And the more afraid we are, the harder we work to pay off all our debts. We are completely reliant on our paycheque and stay trapped in the same cycle. If we want to gain solid financial ground, we must get rid of these debts and start handling our money differently.
Assets versus liabilities
To achieve financial independence, we must, among other things, learn to recognise the difference between assets and liabilities. Many people spend their hard-earned money precisely on liabilities. Over and over again. They get paid and run to the shop to buy new clothes. Yet it is so simple. Assets put money into our pockets; liabilities take money out of our pockets.
If we want to be financially independent, we must primarily buy assets. These will generate further money for us, and our financial independence will continue to grow.
Financial independence and investments
Investing goes hand in hand with financial independence. Indeed, many people have become wealthy precisely because they invested their finances well. However, we must avoid the distorted notion that we invest in shares one day and make millions the next. First and foremost, we must properly prepare and research what to invest in.
It is no secret that property is the most lucrative investment today. Another option is shares. But be careful. There are a great many shares on the market. It is important to consider carefully which shares are worth investing in.
If we have no experience with this type of investment, we need to gather as much information as possible. Ideally from people who know the ropes. After all, if we know what we are doing, it is not such a risk. However, we must remember one important thing: we should only invest money that we can afford to lose.
Starting your own business
In employment, it is simple: we go to work for a month, and at the start of the next month, we always receive the same paycheque. If we want to earn more money to invest and thereby get closer to financial independence, we set up our own business. In business, unlike in employment, the rule applies that the harder we try, the more we earn. It is our business, and we have the opportunity to turn it into a thriving company. That means that if we are capable, we can make enough money to achieve our goal.
Financial independence as a goal
Once we understand the power of money, we will be several steps ahead of people who do not understand it. But what is more important? No one can ever take this knowledge away from us. So if we decide to take the path towards financial independence, nothing will stop us. Many successful and wealthy people have lost invested money along this path. However, they were so motivated to reach their goal that this setback did not deter them. They got back up and, with even greater motivation, found another way. And that is precisely what made them successful. They did not give up. Ever. We might also lose invested money, but we must find a way to create more.
How to achieve financial independence step by step
- Track your spending for a few months so you know your real costs.
- Build an emergency fund that covers several months of expenses.
- Pay off high-interest debt before you invest heavily.
- Raise your savings rate by cutting costs and increasing your income.
- Invest regularly in a diversified portfolio with low fees.
- Set your target sum and review your progress once a year.
Common mistakes to avoid
Many people forget taxes, investment fees and inflation when they set their target. Others raise their spending every time their income grows, so the target keeps moving away. Selling investments in panic after a market fall or chasing quick gains can set you back by years. A steady, boring plan usually works better than a clever one.
The value of our assets
This tip is mainly for guidance. However, it will help us get a clearer picture of our financial situation. When calculating the difference between income and expenditure, we gained a clear idea of our monthly expenses. That is the amount we inevitably need to pay every month.
In our assets column, we list all the assets that we can convert into cash. Investments in mutual funds, the value of shares and real estate (apart from the home we live in and will continue to live in), all funds in current and savings accounts, building savings (stavební spoření), and more. We add up the value of all our assets. If this total net worth is 3,000,000 CZK (about 140,000 USD) and our monthly expenses are 20,000 CZK (about 920 USD), this money would last us 12 and a half years.
How a financial independence calculator works
The calculation above shows how long your assets would last if they earned nothing. A financial independence calculator goes further and assumes your money keeps growing. You usually enter your current savings, how much you invest each month, your annual expenses and an expected rate of return. The calculator then estimates the year in which you reach your target.
Most calculators set the target with a simple rule of thumb: multiply your annual expenses by 25. This corresponds to withdrawing about 4% of your portfolio in the first year and adjusting that amount for inflation afterwards. If you spend 40,000 USD a year, your target is roughly 1,000,000 USD. If you cut your spending to 30,000 USD, the target falls to 750,000 USD. Lower spending helps twice, because you save more and need less.
Treat the result as an estimate, not a promise. Returns vary from year to year, and a small change in the assumed return can move your date by several years. Some people use a lower withdrawal rate to build in a margin of safety.
Financial independence and the law of attraction
If we want something, we should give it first. That means if we want money, we must first give it away. This law of attraction truly works. Whenever we lack something in life, we should give it away first, and it will find its way back to us. Multiplied many times over. This applies both in finance and in other aspects of life. In love, friendship, a smile, kindness, business, essentially everywhere. However, we must not forget that if we give solely to get something back, we will not receive it. We must give for the joy of giving, not for gain.
Frequently asked questions about financial independence
What is the meaning of financial independence?
Financial independence means your passive and investment income covers all your living costs. You can still work, but you no longer have to work to pay your bills. It is about the gap between your income from assets and your expenses, not about how much you earn.
How do you achieve financial independence?
You spend less than you earn, get rid of expensive debt and invest the difference regularly. Over time, your investments grow until they can cover your expenses. The higher your savings rate, the sooner you get there.
What does financial independence retire early mean?
It is a lifestyle movement, known as FIRE, whose followers save a large part of their income to become financially independent well before the usual retirement age. Some stop working completely, while others switch to part-time or more meaningful work.
How do I use a financial independence calculator?
You enter your current savings, monthly investments, annual expenses and an expected return. The calculator estimates your target sum, often 25 times your annual expenses, and the year you could reach it. Try several scenarios with cautious returns so the result is realistic.
USD amounts are approximate, converted at the Czech National Bank rate of 21.80 CZK per USD on 2 October 2026.
