Last Updated on 13th October 2025
Financial independence is a goal for many, but it can seem a matter of luck, especially when professionals on multi-million-pound salaries can experience bankruptcy overnight, whereas another person on an average income can retire comfortably without any financial worries.
In reality, those who do achieve financial independence follow a series of principles, or ‘golden rules’, regardless of their starting point. These include spending less than your earnings, and using that surplus, whether small or large, to generate passive income and growth.
This is all down to the fact that income is not wealth, and focusing solely on earning as much as possible won’t necessarily help you become financially secure if you aren’t making your money work harder to achieve your long-term aims.
Understanding the Crucial Aspects That Lead to Financial Independence
Wealth isn’t always easy to define, but for many, this means having a sufficient passive income to maintain their current standard of living.
As a baseline, you can take the total assets you own minus your overall liabilities to arrive at your current net worth. While very general, your net worth is typically able to generate a passive income of around 5%. For example, a portfolio valued at £1 million should generate passive earnings of £50,000 per year.
To achieve financial independence, you need to concentrate on increasing your net worth and start to generate passive income from it, which could be through capital gains or dividends that augment your wealth without requiring any work or labour.
The trick is to have a well-constructed portfolio that can withstand market fluctuations and pressures, such as a portfolio with a diverse mix of private businesses, stocks, bonds, mutual funds, real estate, and other cash-generating assets.
How and Why to Get Started With Passive Income Generation
Before you make any investment plans, consider how long you could keep up your current purchasing patterns, including for accommodation, cars, clothing, tuition and all other expenses if you had to stop working right now.
This is pivotal, and a primary reason why sometimes, people with higher incomes aren’t financially independent, because the more they earn, the more they spend. This can mean being left wondering why financial independence and security continue to be seemingly just out of reach.
The only way to take real advantage of investment opportunities is to have sufficient funds to invest until you reach a point at which the returns generated can support your lifestyle. For instance, earning a 10% return on £10,000 will net you £1,000 before taxes – an excellent return, but not significant in terms of financial independence.
However, if you can gradually grow your investment pot to build a portfolio worth multiple times that, the returns could indeed comfortably cover all of your living costs, such as a 10% return on a £1 million portfolio, which would equate to £100,000 despite requiring roughly the same effort.
Amassing wealth and becoming financially independent is a process that takes time. You can, though, do small things every day, such as manage your expenses, generate modest amounts of extra income, and put the money into investments and tax-efficient accounts.
Over time, this will continue to build, and as each new opportunity arises, you can respond on a larger scale than with your previous investments. The end goal is to reach a level where the interest, dividends, and capital gains your money earns begins to generate their own interest, dividends, and capital gains.
The Importance of Compound Interest on Wealth Generation and Financial Independence
Einstein called compound interest the eighth wonder of the world, and it is the reason that £100,000 today can grow to £1,083,471 over 25 years at 10% per annum. Although a 10% return might be high, it’s an easy theoretical figure that demonstrates how compound interest works.
Starting from £0 now, a saving or investment of only £100 per month could be worth £133,789 in 25 years at 10% per annum, and if you were to start with this small amount and increase your investments in the intervening years, the end figure would be substantially larger.
If you’ve yet to make any savings or investments, there are two basic routes:
- Reduce your outgoings to create a surplus you can save
- Increase your income to more than cover your living costs
We would, of course, suggest that this is simplified, but making a plan, seeing where you can make adjustments, and being proactive is the only tried and tested way to work towards financial independence.
It’s equally important to use tax breaks or allowances, saving your money in the most tax-efficient way possible. Depending on your nationality and country of residence, there may be several options that will allow you to reduce tax on your wealth or your income.
Key Principles to Incorporate Into Your Investment Decisions
Once you’ve devised a strategy to help you begin investing in your future, the next step is to think about where you put your money. This is a complex area, but there are four ‘rules’ investment professionals refer to which may be useful:
- Diversify: Avoid investing all or too much of your savings in one place, because mixed assets and classes spread the risk. It’s strongly advisable to speak with an investment specialist, who can advise on the right way to balance risks at a level you are comfortable with.
- Quality Over Quantity: Selecting the highest quality investments you can afford is worthwhile because if you have funds or equities that are consistently ranked for above-average returns or real estate assets with solid performance, the likelihood is that your returns will also be advantageous.
- Focus on Income: Try to buy assets and investments that produce income. This can lower overall risk, and regular income flowing into your portfolio can be used to reinvest, enabling you to use the additional passive income to fund your lifestyle.
- Take a Long-Term View: The value of all investments will fluctuate over time. Remain patient and try not to make knee-jerk reactions to temporary volatility that will even out.
We hope this guide has illustrated the difference between income and wealth, and why anyone can work towards financial independence by developing a strategy and seeking input from experienced wealth managers and investment advisers.
Should you require further information, you are welcome to contact your nearest Chase Buchanan Private Wealth Management team or to review the various guides and downloadable resources available via our website.
© Chase Buchanan Private Wealth Management.
Chase Buchanan Ltd is authorised and regulated by the Cyprus Securities and Exchange Commission with CIF Licence 287/15 and offers its services in the EU on a cross-border basis as per the provisions of MiFID.
Chase Buchanan Insurance Services, Agents & Advisors is authorised and regulated by the Cyprus Insurance Companies Control Service with License No 6883 and offers services in the EU on a cross-border basis as per the provisions of the Insurance Distribution Directive (IDD).
Investing in financial instruments involves risk and may not be suitable for all investors. The value of investments may go up as well as down and past performance is not a reliable indicator of future results. You may lose part or all of your invested capital.
*Information correct as at October 2025
