Accredited Financial Counselor (AFC) Practice Exam

Financial independence refers to the state in which an individual can meet their financial needs and sustain their desired lifestyle without relying on external support, such as government assistance or financial help from family and friends. This concept encompasses a broad range of financial literacy, including managing expenses, generating income from investments, and having adequate savings.

While managing a budget, saving for retirement, and minimizing taxes are all important aspects of overall financial health, they do not fully capture the essence of financial independence. Being able to manage a budget is a crucial skill that helps in maintaining financial stability, but it does not inherently mean that one is independent financially. Similarly, saving for retirement is a vital goal for long-term financial security, but it is a component of a broader strategy rather than a standalone measure of independence. Minimizing taxes can enhance disposable income but does not alone ensure that a person can meet their needs without external aid.

Therefore, the definition of financial independence focuses on the comprehensive ability to take care of one’s financial obligations independently, making option B the most accurate representation of the concept.