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Your Financial Freedom Number

What is Financial Freedom?

Have you dreamed of having Financial Freedom? Quitting your job?, starting a business?, traveling?, having more time with your family?, being financially secure? Financial Freedom is the ability to walk away from your job and meet your financial obligations through passive income sources such as investments, business income, etc. I don’t know about you, but i certainly have. However, in life over time I have found that the older you get, the more responsibility you get and the more expensive things get. For myself, I have a wife, two kids, several pets, my kids are in private school, I force myself to contribute 15% of my pay to my 401k, etc. My financial freedom number at this point in life is well over what it would be for a single guy or gal in their 20’s. At this point in my life, I believe i can become financially free within the next 10 years, only by ensuring I am contributing sufficient funds to my retirement account, investing well, then having a portion to take some large risks with, to see if I am able to increase my return by taking on the larger risk (which as you may well know, can turn out either well or badly). I enjoy my career at this point and make a significant income, putting myself and my wife in the top 3-5% of income earners nationwide (according to the statistics I have seen recently). Therefore, my goal to become financially free is not to cold turkey quit my job or something wild like that, but to work on increasing my wealth through both my 401k and other investments in stocks, cryptocurrencies, and increasing passive income in other interesting ways I find and am willing to spend time on (I would like to generate income online and am working on that at the moment).

What is my Financial Freedom Number? 

Your financial freedom number depends upon your unique financial circumstances. It is calculated by taking your monthly passive income and subtracting your monthly expenses, listed step by step below.

  • Determine your monthly expenses (fixed, and a solid estimate for variable)
  • Determine your passive monthly income
  • Subtract your monthly expenses from your passive income amount

For example, if you earn $3,000 a month in passive income (from rental income, dividends, trading, an online business), but your monthly expenses are $6,500, you are $3,500 in the red and will not be financially free unless and until you can either lower your expenses to the $3,000, or raise your passive income to $6,500/month. Or perhaps you can do some combination of both (lower your fixed expenses and raise your monthly income). Personally, I have very high monthly expenses to go along with my fairly decent monthly income, and to me this affirms the belief that I will need to have a portion of assets invested in a risky manner to attempt to achieve above average returns for several years to even attempt to be financially free, to the point where I could ever quit my job and meet my monthly obligations. I am at a point in my life where i am more concerned with growing long term wealth, than increasing monthly income from my investments and therefore my choice is to invest for my personal goals and focus on both my 401k and investing in risker assets to build up a significant portfolio to get closer to my long term goals, then in the future I will work to switch some of those assets to income generating investments.

Am I Financially Free? 

If your number above is zero or positive, congratulations you are financially free. If it is negative, you need to find a way to bring up your passive income through investments (real estate, mutual funds, stocks, dividends, option income, business income/partnership) in order to offset those expenses. Think about your goals at this point in life. Are you like me and want to build long term wealth with as little tax consequences as possible along the way, then you may be more like me. if you are at the point where you want to simply start producing income from your assets you may want to consider rental properties, dividend paying stocks, etc.