Financial independence is not the same thing as wealth

In simple terms “the abundance of valuable things or money” is often called wealth. In this respect, the definition of wealth is at the same time personal as well as general, the emphasis on the later is because of its symbolism with money. In respect to this, it can easily be said that financial independence is wealth but wealth is not always financial independence. Both the terms are always used to define the rich people on earth, but the contemporary concepts related to these terms have undergone a radical change.

What is wealth?

Wealth is the accumulation of the money you have for yourself or your family. The source of this wealth is not a determinant factor in understanding whether you are rich or not. This is because we all in our own terms have a certain amount of money with us, through savings or policies that ensure that the money we need currently for running our own lives, we have much more than that.

India produces around 50,000 doctors every year and among them there are many who can be listed as one of the highest earning doctors of all times. From Dr Ashok Raj Gopal, orthopaedic surgeon who earns Rs 1.2 lakhs a day to Dr. Dr Sudhansu Bhattacharyya, cardiac surgeon earning Rs 3 lakhs per operation, the doctors today also include the highest tax payers and also considered as wealthy folks with a lot of savings.

But when one goes through the list of the richest men in the world, the names that come up are the entrepreneurs and business man living the most luxuriant lives yet being able to multiple their wealth.

What is financial independence?

Financial independence is in simple terms the state where you ensure that there is a constant inflow of money to your accounts with little effort from your end. The most important aspect here is hence financial literacy or intelligence.

Whether you are rich or not, one of the first lessons is that jobs and working constantly for hours do not make one financially independent. It is the ownership of “assets” that ensure independence financially because whatever be your skill, the assets ensure constant income for you despite you putting up much effort.

What is most crucial here in understanding is the difference between assets and liabilities. While personal home, loans, credit card payments are all your liabilities, your assets include rental income, stock dividends where there is constant inflow of money to your pocket, ensuring independence financially.

Wealth and financial independence

To become rich, the biggest entrepreneurs have taken the journey from accumulating wealth to financial independence. In India, there is a huge stress on NPS accounts where it is said to have high tax benefits. On the other hand, the general traditional concept is not to invest much in equity or mutual funds because they do not ensure much tax benefits. What we fail to see here is bonds and stocks over a span of five years give a very high return with which you can have assets and ensure financial security and independence.

Financial education is one of the biggest aspects of understanding money and this usually comes from your own study of the business and market rather than through formal business education.