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What Does it Take to be a Financially Independent Woman?

With a strong and powerful collective voice, millions of women around the world just marched in support of their rights, and for policies that would benefit both men and women.

All this collective female power makes me wonder about economics and women. Are women feeling more financially independent?

The numbers show the financial well-being meter is moving up for women. It does seem we’ve learned from our past and have made headway against many of the challenges we face more than men, such as the well-publicized wage gap. One striking fact is that younger women now actually are more financially independent than their male counterparts. That’s according to a 2016 study by Bank of America and USA Today.

Who can call herself financially independent?

This study found last year that 61% of women between 18 and 26 years old have money in savings, but only 55% of men in the same age group do. Thirty-four percent of those women do their own taxes, compared to 28% of their male counterparts, and 33% of these young women have their own health insurance (instead of being on their parents' insurance), compared to only 25% of young men.

These numbers demonstrate that as women, we are starting to prove by the numbers that we can be financially independent. But those are just a few ways to measure what it means to be financially independent. Others may prefer to put some dollars on it. Wealth management firm UBS found in 2013 that 60% of people with over $5 million and 28% of those with $1 million to $5 million call themselves "wealthy," but just 10% of millionaires feel that being wealthy means they don't have to go to work. Apparently wealth and financial independence aren't about some magic number: Just 16% said you become wealthy only after reaching a certain threshold of assets.

Two-thirds of the millionaires who responded to the UBS survey, both male and female, said the whole reason to build wealth is achieve complete financial independence, where one setback won't banish them back to the ranks of the un-wealthy. If you can believe it, half of those whose personal worth was between $1 million and $5 million felt that one setback would severely impact their lifestyle.

What does it take?

So, as you can see, being financially independent and feeling financially independent are two different things. Even millionaires don't necessarily feel financially independent (and those with shaky resources and high expenses could be correct). The flip side is that you can get that feeling without having millions of dollars saved. The feeling is a moving target and a personal definition. It's about not only what you earn, but also what you spend and save in relation to your income.

Financial freedom shouldn’t be about attaining a specific amount of wealth, or even a certain portfolio size. Financial independence is a state of mind that’s realized once you know you can live without worrying about how you’ll pay your bills. Here's how to get there.

1. Income for life

Either your investments are enough to generate sufficient income to last for life, or you have a pension or inheritance that will be enough to cover your monthly living expenses forever. In other words, you have money for life. This happens as a result of many years of investing to maximize every dollar of savings.

2. Investments that will keep growing

You end every year with more money than you had at the beginning of the year. Work with a financial advisor to make sure your investment portfolio is fully diversified with different assets. An exchange-traded fund, index fund or Vanguard fund are simple, low-cost ways you can make sure you're diversified without a lot of fuss. Consider if you had money in a fund that mirrors the Dow Jones Industrial Average; it topped 20,000 and soared to a record high this month. After your investment has logged some gains, take some profits by selling some of the winners and looking for some up-and-comers that will offer future gains. If you're not happy with passive trades, an investment advisor can help you enact these strategies (see Blurred Lines: Whom Can You Trust for Financial Advice? and What Is a Registered Investment Advisor?).

3. Resources, so you can give to others

You have enough money to give some away, whether to your kids, charities or another worthy cause. This can only happen after you have carefully calculated how much you need to live. After you're sure you have enough to last the rest of your life, you start giving money away or making plans for what will be left after you're gone.

4. Living well below your means

You’re happy living off whatever you have and are not constantly wishing for a bigger lifestyle. Conventional wisdom says you should be able to save at least 20% of your after-tax income, although in today's world, that's not always possible. For starters, rent has gotten so high that in some markets, it rivals a typical mortgage payment for the area. And don't forget about education loans.

But it seems the younger generation has learned something about saving, which is living with your parents for as long as you can. Analysis of federal census data conducted by the Pew Research Center in 2012 found that 35% of Americans between the ages of 18 and 31 still lived with their parents. I don't have as negative a view as some people of living with your parents while you pay off debts and save enough so you can live independently. Of course, this isn't – and shouldn't be – a permanent solution. Coldwell Banker Real Estate conducted a poll and found that parents feel it's acceptable for their adult children to live with them for no longer than five years after finishing college.

5. Having a big, soft cushion of emergency money

An emergency fund means you aren't living from paycheck to paycheck, worrying that any setback means that you're instantly going to lose everything. Losing your job doesn't result in also losing your house because you have a cushion. A general rule is to have at least three months' worth of bills covered by emergency funds, but in reality, six months or more is better. These funds should be tapped only in an unexpected emergency – a sudden job loss, if your car breaks down, if you have to take time off work due to a medical problem, etc. (See Why You Should Have an Emergency Fund.)

6. Living debt-free

If you don't have cash to cover it, then you probably shouldn't buy it, with a home and car being two exceptions. But if you don't have enough of a cushion to support your home if you have to take time off work, you should be looking at a less expensive home. The less debt you have, the lower your monthly bills will be, and the larger your emergency fund will be in relation to your bills.

The Goal: Real Financial Freedom

When I was a kid, my dad strongly advised me to never put myself in a position to need a man to support me. That became my definition of financial independence. The be all, end all is financial freedom – real financial freedom.

Having financial freedom will bring you life freedom. If you've planned well and haven't been faced with an endless stream of financial difficulties throughout your life, you will be more and more in charge of your own schedule. You will have the freedom to retire when you think it’s time. Eventually, you'll work only for the love of it – or be able to stop your work life to do something you enjoy more. Then, you wake up and do whatever you want; your time is entirely your own.