As always, everybody would raise their hands. Who wouldn't? But the question would then be, how? How do we achieve financial freedom? Here's a simple and no-nonsense formula on how to achieve financial freedom.
We need to define what we mean by financial freedom. One of my mentors said:
"financial freedom is like going to the mall and buying the things you and your loved ones need and want without looking at the price tag."
Price no longer becomes an issue because you know you can afford. It is the same as going to a restaurant: which side of the menu do you usually look at first? Is it the "left side" or the "right side"? I bet you chose the latter. Then probably financial freedom is still a far-fetched idea.
Another mentor said:
If you are still struggling from 8 to 5 at a job you hate (more like prison) because you have bills to pay, then you still have a long way to go.
Combining both, financial freedom is doing the things you love whereby money is no longer a problem with little to no work at all. It simply means you are free! Note that we did not mention that being free means being a millionaire or billionaire, because you can be a millionaire yet still you are not free. Therefore financial freedom applies to everyone regardless of your current annual income.
Therefore, the formula to achieve financial freedom is:
Yes! As simple as that. We need to build sources of passive income that will be more than twice our expenses or lifestyle that we desire. Now let us dissect:
Passive sources of income:
Note that we mention sources of passive income, meaning we need to have multiple sources of passive income. As some of you may have read or learnt, we need to have multiple sources of income - WRONG. We need to have multiple sources of passive income. PASSIVE. We can not be free if we have multiple sources of active income. PASSIVE.
Passive income can come from:
1. Money working for you through financial investments like stocks, bonds, mutual funds, etc.
2. Passive business income like rental, royalties, and business that works without you.
Lifestyle or expenses:
This is the crucial part of the formula, because we may be able to earn, save and invest but if our lifestyle exceeds the income coming in, then still we are not free. Note that there is a safety factor of two (2) times to account for any unforeseen events. To illustrate:
Person A:
Monthly Income = P80,000
Monthly Expenses = P100,000 (ex: high lifestyle, car loans, mortgage payment)
Person A is living above his means.
Person B:
Monthly Income = P50,000
Monthly Expenses = P50,000
Person B is living within his means.
Person C:
Monthly Income = P20,000
Monthly Expenses = P10,000
Person C is living below his means. This person is financially stable or fit compared with the other persons above regardless of income.
"financial freedom is working by choice not because you need to but because you want to."
If you are still struggling from 8 to 5 at a job you hate (more like prison) because you have bills to pay, then you still have a long way to go.
Combining both, financial freedom is doing the things you love whereby money is no longer a problem with little to no work at all. It simply means you are free! Note that we did not mention that being free means being a millionaire or billionaire, because you can be a millionaire yet still you are not free. Therefore financial freedom applies to everyone regardless of your current annual income.
Therefore, the formula to achieve financial freedom is:
P.I. = 2 x L.S.where: P.I. = passive income; L.S. = lifestyle you desire or your expenses.
Yes! As simple as that. We need to build sources of passive income that will be more than twice our expenses or lifestyle that we desire. Now let us dissect:
Passive sources of income:
Note that we mention sources of passive income, meaning we need to have multiple sources of passive income. As some of you may have read or learnt, we need to have multiple sources of income - WRONG. We need to have multiple sources of passive income. PASSIVE. We can not be free if we have multiple sources of active income. PASSIVE.
Passive income can come from:
1. Money working for you through financial investments like stocks, bonds, mutual funds, etc.
2. Passive business income like rental, royalties, and business that works without you.
Lifestyle or expenses:
This is the crucial part of the formula, because we may be able to earn, save and invest but if our lifestyle exceeds the income coming in, then still we are not free. Note that there is a safety factor of two (2) times to account for any unforeseen events. To illustrate:
Person A:
Monthly Income = P80,000
Monthly Expenses = P100,000 (ex: high lifestyle, car loans, mortgage payment)
Person A is living above his means.
Person B:
Monthly Income = P50,000
Monthly Expenses = P50,000
Person B is living within his means.
Person C:
Monthly Income = P20,000
Monthly Expenses = P10,000
Person C is living below his means. This person is financially stable or fit compared with the other persons above regardless of income.
However:
Person D:
Monthly Passive Income = P40,000
Monthly Expenses = P20,000. This person is financially free! Regardless of income, if he is satisfied of living with a P20,000 lifestyle per month, then he is already financially free.
So now, looking at the simple formula to achieve financial freedom, you don't have to be a millionaire to be financially free. (Though that would also be great!) Just define the lifestyle you desire, and build multiple sources of passive income.
This topic is one of my personal favorites and is also published in: Life at IMG. For more financial tips, please visit: www.lifeatimg.com
Invest in your growth,
Tiyo Pilo
Person D:
Monthly Passive Income = P40,000
Monthly Expenses = P20,000. This person is financially free! Regardless of income, if he is satisfied of living with a P20,000 lifestyle per month, then he is already financially free.
So now, looking at the simple formula to achieve financial freedom, you don't have to be a millionaire to be financially free. (Though that would also be great!) Just define the lifestyle you desire, and build multiple sources of passive income.
This topic is one of my personal favorites and is also published in: Life at IMG. For more financial tips, please visit: www.lifeatimg.com
Invest in your growth,
Tiyo Pilo
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