Financial independence is a term generally used to describe the state of having sufficient personal wealth to live indefinitely without having to work actively for basic necessities . In the case of many individuals whose financial circumstances fit this description, their assets generate income that is greater than their expenses. To illustrate, a person's quarterly expenses may total $4000. They receive dividend

Dividend

Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...

s from stock

Stock

The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...

s they've previously purchased totaling $5,000 quarterly, while also having an even more substantial amount of money in other assets. Under such circumstances, a person is financially independent.

A person's assets and liabilities are an important factor in determining if they have achieved financial independence.
An asset is anything of value that can be liquidated if a person has debt, whereas a liability is related to debt, in that it is the responsibility of one possessing it to provide compensation. (Homes and automobiles with no lien

Lien

In law, a lien is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation...

s or mortgages are common assets.)

The following are two approaches in achieving financial independence :

• Gather revenue generating assets until the generated revenue surpasses living/liability expenses.
• Gather enough liquid assets to then sustain all future living/liability expenses

It does not matter how old or young someone is or how much money they have or make. If they can generate enough money to meet their needs from sources other than their primary occupation, then they have achieved financial independence. Age is potentially irrelevant with respect to financial independence — if they are 25 years old and their expenses are only $100 per month and they have assets that generate $101 or more per month they have achieved financial independence and they are now free to do things that they enjoy without having to worry about their next meal or a roof over their head. If, on the other hand, they are 50 years old and earn a million dollars a month but still have expenses above a million dollars a month, then they are not financially independent - they still have to generate the difference each month just to stay even.

Passive sources of income to achieve financial independence

The following is a non-exhaustive list of sources of passive income

Passive income

Passive income is an income received on a regular basis, with little effort required to maintain it.The American Internal Revenue Service categorizes income into three broad types, active income, passive income, and portfolio income...

 which potentially yields financial independence.

• Rental property
• Dividend from stocks, bonds and income trusts
• Bank fixed deposits
  Time deposit
  A time deposit is a money deposit at a banking institution that cannot be withdrawn for a certain "term" or period of time...
  
   and monthly income schemes
• Royalty from books, patent
  Patent
  A patent is a form of intellectual property. It consists of a set of exclusive rights granted by a sovereign state to an inventor or their assignee for a limited period of time in exchange for the public disclosure of an invention....
  
  s, music, etc.
• Alimony
  Alimony
  Alimony is a U.S. term denoting a legal obligation to provide financial support to one's spouse from the other spouse after marital separation or from the ex-spouse upon divorce...
  
  , Child Support
  Child support
  In family law and public policy, child support is an ongoing, periodic payment made by a parent for the financial benefit of a child following the end of a marriage or other relationship...
  
   or Child Trust Fund
  Child Trust Fund
  A Child Trust Fund is a long-term savings or investment account for children in the United Kingdom. New accounts cannot be created but existing accounts can receive new money...
  
  
• Renting out professional or academic qualifications
• Interest earned from deposit accounts, money market accounts or loans
• Oil leases
• Notes
• Business ownership
• Patent licensing
• Trust deeds