How can individuals assess if they are financially independent?

Financial independence is primarily determined by the ability to cover living expenses through passive income sources, such as investments, rather than relying on earned income from employment. By calculating income derived from investments and comparing it to necessary living expenses, individuals can assess whether they have enough financial resources to sustain their lifestyle without needing to work for a salary.

This assessment allows for a clear understanding of whether one's investments can generate sufficient returns to cover all personal expenses. If the investment income meets or exceeds these expenses, the individual may confidently claim financial independence. This approach emphasizes the importance of passive income in achieving a state where one is not dependent on active employment for financial stability.

In contrast, evaluating monthly expenses against one-time earnings does not provide a comprehensive view of ongoing financial health, as it overlooks the recurring nature of living expenses and the sustainability of earnings over time. Reviewing an employment contract for benefits may help understand job-related financial features, but it does not address the broader picture of financial independence. Lastly, comparing personal wealth to the national average may provide context but does not directly measure an individual’s capability to meet their specific financial obligations.