One of the most common questions asked me, mostly in jest, is whether people can get rich by reading my work. My honest answer is that, I do not know. Advice on how to be financially independent is so associated with wealth strategies and schemes that people tend to lump them together. There are some similarities between these two but there are important distinctions as well. In this post I will try to make a clear distinction between the goal of getting rich and the goal of financial independence and what one needs to do in pursuit of each goal.

To be rich, according to the Marriam-Webster dictionary, is to have abundant possessions and especially material wealth. The same dictionary defines to be independent as to not [be] subject to control by others. From the definition of independent we can conclude that to be financially independent is to not have ones material possessions subject to control by other people.

Given these definitions it can be seen that someone who is rich i.e. someone with abundant resources could be financially dependent if their wealth is controlled by others. In the same way, someone could be poor but be financially independent since their resources, no matter how meagre, are not subject to the control of anybody. But these are absurd extremes. It is more likely that a rich person is also financially independent while a financially independent person may not be rich but would certainly not be poor.

The main difference between being rich and being financially independent is the probability of both situations occurring. According to inequality.org, 45% of global wealth is owned by only 1% of the global population. Only 1% of the global population have a net worth of $1 million or more. If you are not born in a wealthy home, the odds of becoming rich sometime in the future are not good. I do not have the data about financially independent people, but it is reasonable to assume that there are far more financially independent people than there are rich people.

Another difference between these two concepts is the difference in the approach to getting rich as compared to the approach to getting financially independent. The rules for becoming financially independent are simple:

• spend less than you earn;
• invest in proven and reliable assets; and
• prioritize financial independence over quantity of material possessions.

The rules for becoming rich on the other hand are very different. I believe no one can truly tell you how to become rich. However, by observing the lives of people who became rich although they were not born rich, we realize some qualities such as natural abilities (e.g. athletes and artists), luck (e.g. lottery winners and early investors), and a higher than average tolerance for risk (e.g. entrepreneurs). You cannot teach natural ability or luck and having a high tolerance for risk is more likely to leave you in financial ruin than financial success. That is why we admire successful entrepreneurs so much, because they are so rare.

Financial independence is as much a lifestyle issue as a finance issue. It as about the freedom to live life on ones own terms that derives from not depending on anyone for financial support. Being rich on the other hand is something difficult to understand because so few people in the world are rich. And even many of those who are rich are unable to explain exactly how they got there.

It is much more useful, given the odds, for one to focus on becoming financially independent than becoming rich. This means a focus on managing risk instead of taking up more risk, a focus on reliable investments instead of volatile speculation, and a focus on diversification instead of a do-or-die bet on a single outcome. It may sound boring but remember that financial independence gives you the freedom to actually spend your time doing what makes life worthwhile.