Financial Freedom – The Reality

What does it mean to be financially free? Ask 10 people that question and you might get 10 different answers. This is my answer. You may not agree with it, but that’s OK.

My Definition Of Financial Freedom

Many people equate financial freedom to being rich. This is simply not true. I know many “rich” people who are not financially free. When the NDP government was in power, they considered you rich if you made more than $60,000 a year. The US government considers you rich if you make more than $250,000 a year. The point is being rich is associated with some dollar figure. However, you can be financially free with zero income.

My definition of financial freedom is when your passive income equals your monthly spending requirements. Passive income means money earned without your input. Examples include rent from properties, interest from bonds, dividends from stocks, self running businesses, etc. For example, if your cost of living is $2,000 a month and you have $2,000 of passive income, you are in fact financially free. You can have all the earned income in the world but if none of it comes from a passive source, you’ll never be financially free. A corporate CEO making a $1 million a year and no passive income is not financially free. If he loses his job, he takes a huge lifestyle cut.

It Is Not Hard To Get Financially Free

Think financial freedom is a dream? Think again. It’s really not that hard. How much is your monthly expenses right now? That is how much passive income you need to earn to be financially free. For example, if your monthly expenses are $2,000 a month and you have a $240,000 earning 10% return; you can technically quit your job and live off that 10% since it will make you the same $2,000 a month. However, few of us have $240,000 sitting around to do this so the object is to find other ways of making passive income. This is where the internet comes in. The internet is ideally suited for creating passive income without a huge investment on your part.

I will be the first to admit that my internet income is not 100% passive. Content sites need to be updated fairly often and that requires my input. Mind you that input is still way less than even a part time job. However, I have many website pages that are on “autopilot”. Those pages require no input from me, yet they continued to add to my passive income every month. An example of an autopilot page is the Digital Finder Price Index. This page updates itself every 15 minute and requires no human input what-so-ever. It just sits on the net and makes money – 100% pure passive income.

To Get Truly Rich, You Must Become Financially Free

In order for you to get truly rich, you must first become financially free. If you’re not financially free, you can never become truly rich. You see, to get truly rich requires a lot of time and effort, and you can’t give this time and effort if you’re stuck to a job 8 hours a day. A job was never designed to make you rich. It was design to make you exist and make the business owner rich. This is not to say you should quit your job. Far from it – you still have to exist. However, while you’re slaving away at work, keep your mind open for opportunities to create passive income. Create enough passive and you can pass out at work and say thank you when you boss say “You’re fired!”

Remember, To Get Rich Is Glorious! 🙂


8 thoughts on “Financial Freedom – The Reality”

  1. Yes I totally agree with you.

    “For example, if your cost of living is $2,000 a month and you have $2,000 of passive income, you are in fact financially free.”

    This is something you totally get out of the “Rich Dad Poor Dad” book.

    Its the ultimate goal for a lot of people now…

    “I will be the first to admit that my internet income is not 100% passive. ”

    There isn’t anything out there that isn’t totally passive. Even home rental investments need a little work.

    To be rich, you must be financially free – free to do and choose to do anything you want.

    To be wealthy… is another story.

  2. John Chow says:

    Well, there are some true 100% passive investments, but they don’t pay that much. For example, my ING account pays 3% interest on deposits. However, I won’t getting rich on that. But it’s a good place to park your money while you’re looking for higher paying assets to buy.

  3. Well… I said “There isn’t anything out there that isn’t totally passive.”

    You still need to transfer that money over to that account right? 30 seconds of work 😉 hehe…

    3%pa ?? is that all ING is paying in US? We have it at 6.4% at the moment in Australia…

  4. BoozeB says:

    “For example, if your monthly expenses are $2,000 a month and you have a $240,000 earning 10% return; you can technically quit your job and live off that 10% since it will make you the same $2,000 a month.”

    $240,000 isn’t enough. I once read an interesting topic on a forum and after calculation it appeared you need at least $750,000, preferable even a lot more.

    10% is a relatively high return and hard to get in a safe way. Additionally, you also need to factor in taxes (depends on the country you’re living in) and inflation. Within 10 years for instance you’ll need maybe $2,500 instead of $2,000 to keep the same lifestyle. The intrest rate you get from banks is mostly barely enough to keep up with the inflation, so you aren’t really gaining any money.

  5. John Chow says:

    Very good point BoozeB. I was trying to be very simplistic in my example. In real life, you have to take into account a whole bunch of other parameters.

    George – The 3% is what ING is paying in Canada.

  6. Edward Heming says:

    John,

    How does one define “somewhat passive” from “active” income? For example, I consider my stocks and commodities trading to be somewhat passive as I only spend about 1-2 hours per week trading them. Most of the process is programmed so all I do is add the final analysis and enter/exit the trades as appropriate.

    Obviously this is a lot different than holding a CD or something of that nature, which takes virtually no work.

    How much effort would one have to put into the investment for it to no longer be “passive”? I assume this is somewhat subjective.

    BTW, for the other poster saying that a 10% ROI is risky, please educate yourself. Risk is defined by the investor. Hence, the investor is risky, not the investment. I routinely return 5-10% ROI per month with a maximum historical drawdown of 5%-7% and do not consider it “risky” in the slightest. Could it stop working? Sure. But I have done extensive modelling of worst case scenarios and as an educated investor I strive to manage the risk.

    On the other hand I hear from other “investors” that they are getting returns of 12% ROI per year on their Mutual Fund and they think this has less risk. In fact, it has more (given that these funds typically follow the U.S. stock indicies and have historically had worst case drawdowns as much as 60% in a single year).

  7. Delano says:

    Edward,

    Do you mind telling me what investment gives you 10$ ROI per month? Stocks?

    Thanks

  8. Leo says:

    Thank you for you kind ‘little’ ramblings. They have a big, positive impact for many of us Canadians.

    I came across you when I was googling for the author of a Yahoo article – the poor soul that worked something like 6 – 7 jobs together with his wife to buy a home in 3 years.

    I read your reply, and I agree it is a sad story. However, for many of us ‘avg joes’ we don’t have any savings. Most struggle with debt, and once that is paid off we only really know is to save.

    Take the above example. How else should that man or any of us, go about achieving a home purchase without slaving away at a job?

    Thank you kindly in advance.

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