Financial Freedom

Financial freedom is a term that many aspire to achieve, yet its exact meaning can vary from one person to another. Generally, it refers to the state of having sufficient personal wealth to live, without having to work actively for basic necessities. For many, financial freedom means that their assets generate income that is greater than their expenses.

Formula for Financial Freedom

To quantify financial freedom, one could use a simple formula: Financial Freedom = Passive Income > Expenses. This implies that your regular expenses are fully covered by your passive income generated from investments, such and real estate, stocks, bonds, or a business that does not require your day-to-day involvement.

Example of Financial Freedom

Consider a real estate investor who purchases a multi-unit residential property. Assume the net rental income from the property after expenses is $5,000 per month, and the investor's monthly living expenses total $4,000. This scenario puts the investor in a position of financial freedom, as their passive income not only covers their monthly expenses but also allows excess for savings or further investment.

Importance of Financial Freedom

Achieving financial freedom is important for several reasons. It allows individuals to make life decisions without being overly stressed about the financial impact because their income is not dependent on earning a salary. This type of freedom can provide an incredible sense of security and peace of mind, as it ascertains financial stability and independence. Furthermore, financial freedom can provide the opportunity to pursue other passions or engage in philanthropic activities, ultimately leading to a fulfilling life.