What Financial Freedom Really Means (2)

I want to carry on where our previous article on Financial Freedom left off. For those new to the topic, please see our entry below, but the fundamental concept of financial freedom is:

Having a passive income greater than your living expenses.

The question, of course, then becomes "so how does one achieve this?"

First, for clarification, we need to review passive income briefly. Passive income is money that comes to us whether we work or not. It can (and should) come from a number of sources, but some of the most common ways of earning it are: rental income from real estate you own, dividends from stocks, insurance, network marketing, and interest on loans you make (there are many other ways, of course, but that covers what most people can go out and actually do). The opposite of passive income is active income, and is where you get paid for the work you do, either as an hourly wage or a salary. The problem is, and this applies whether you are making minimum wage or $500 per hour, if you have to work for all your money, then the moment you stop working, you stop getting paid. You want to take a month off? Your yearly income just dropped by 1/12. Three months off? It just dropped by ¼. Not pretty. 

Passive income, however, keeps coming in whether you are punching a clock or on a beach in Belize. For those of you who currently rent, do you know where your landlord is every month? Probably not. But you still pay your rent by the 5^th of each month, right? It doesn’t matter if he is sweeping the corridors or sipping a cocktail, that money is coming into his bank account every single month. And not just from you, but from the tenants in all the other properties he owns as well.

SO, how do we make this work for you? First, you need to email us at mailto:info@abundancebound.com, with “Chart of Accounts” in the tag line, so that we can send you an excel spreadsheet that will help you work out where your money is going each month, and how much you need to cover your bills. This will give you a current “snapshot” of your financial situation, and will include rent/mortgage, groceries, utilities, artistic expenses etc.

From this you will have a number, let us say $4,000 per month, that you need to earn to keep your head above water. This amount would become your first passive income goal, because the second that you are earning $4,001 per month, you are able to live, indefinitely, at that standard of living, for the rest of your life.

The question then becomes how to reach that goal, and develop that level of passive income. That is where financial education comes in, and to answer that, let us look at the list we started earlier. The first item was rental real estate, and let’s say that this was what you decided to focus on. If you do your research around different rental markets in the country, it becomes entirely possible to find properties for sale at a reasonable price that will generate $200 per month in positive cash-flow (money left after all taxes, mortgage etc has been paid). So you purchase one of these (with money from your wealth account), and now add $200 per month to the acceleration of your “wealth cycle”. Four more properties like this, and you are ¼ of the way there. Then you start to look at dividend paying stocks, and some Oil & Gas, and maybe a business or two…

Does it start to make sense? I hope so, because I remember my own sense of shock and excitement when I realized that the goal of all my financial dreaming was something tangible and obtainable: I just hadn’t realized what it was. Because this really is the financial goal of life: get your passive income above your expenses. Some people wait to do it until they are retired, and pensions and things of that sort kick in. Most never achieve it, and either work some kind of job or rely on somebody’s charity, until they die. But with some education, some planning, and a little courage, we can all have it three to five years from now. Five years time is coming, whether you get into action on any of this or not. The question is, will you still be in the same place, doing the same thing? Or will you greet five years from now on the beach, drinking champagne, knowing that everything is paid for whether you go home next week or next month. And, more importantly, free to pursue your acting career as and how you choose?

The choice is yours. What I hope we made clear in this article is what that choice is.