Your Financial Lifeline

In my last post I talked about having passive income equally your living expenses as a way to measure financial freedom. In this post I want to talk about what is known as the financial lifeline and how to measure it.

Simply stated, your financial lifeline is a measurement of how long you can last if you stop working. Say you have $10,000 in the bank and you lose your job tomorrow. How long will you last if you have no passive income? That is your financial lifeline. If your cost of living is $1,000 a month then your financial lifeline is 10 months. If need $2,000 a month, the lifeline is 5 months. If you have enough cash saved up that the interest from it can pay your living expenses than your lifeline is infinite. An infinite financial lifeline means you are financially free.

Now for the scary part; the average person has a financial lifeline of 3 months.

One thought on “Your Financial Lifeline”

  1. Tyler says:

    Really? I’ve always been curious about that. Sometimes I’d go to the ATM, and see a receipt or two lying around, and look at them. And I’d see the balance in the account be like $800 or $1200 or $3000.. and even though I know if this is only one of their accounts, it still paints a good picture. That is scary, isn’t it?

    My financial lifeline is not infinite (or could you call websites passive income? I guess not as it takes a bit of updating, but still.. come on..) but it could last a fair while. However, it’s also important to measure in um.. what’s the word.. almost like collateral, heh, into the picture; as you could have a cost of living of $1000 a month, and only $10,000 in the bank, but if you have 3 cars valued at $40,000 each, even though your ‘lifeline’ is only 10 months, you’re really still quite safe.

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