I love the concept of Financial Freedom coined by Robert Kiyosaki. He defined it in his bestseller, rich father, poor father, as a person’s ability to voluntarily stop working and continue to generate income without his presence is necessary. Being able to manage all your time with freedom, as well as being free to move and make decisions without conditions, upon reaching that state.
Basically, you can say that you have reached your financial freedom when the passive income you generate exceeds the expenses of the lifestyle you want to lead — understanding that passive income, as income that is generated, without your presence or your work being actively needed.
As defined, it is anyone’s dream, don’t you think? To reach that point, it takes a lot of effort and sacrifice. That’s why there aren’t many people who are able to get it. But if possible, it can be achieved perfectly.
It depends in the first place that your life train is not too high. If you lead a lifestyle that requires a significant income demand, it will cost you much more to get it or simply, you will never arrive.
Many people say they would like to achieve financial freedom, but lead a lifestyle with too many luxuries. They do not know how to differentiate very well what is necessary from what is unnecessary. There are real spending professionals out there loose.
Anyway. On the other hand, in addition to the above, the fundamental thing is to try to build a structure of passive income, which allows you to stop working or not to have to work by the obligation to pay your bills.
That structure can be supported on several pillars. You can buy real estate assets (flats, garages, offices, premises, land, etc.) to collect rents or rents, make financial investments to collect interest, dividend coupons or other returns on capital and on the other hand, you can create businesses, that come true moment and once you have staff that works for you, generate benefits without your work being necessary. But there may be other sources as royalties, CAP rights, etc.
The road is long and takes time. That’s why you have to start as soon as possible. And as much as possible, diversify sources of income so that your plan is solid.
Now, on that path to financial freedom, there are degrees of freedom or previous stages. I explain. Many times, we talk about financial security, financial independence, or financial autonomy, as if it were synonymous with financial freedom. When looked good, it is not exactly the same.
I believe that financial freedom is the moment when, as I said at the beginning, you can afford to free yourself completely from the need to work for the rest of your life. And all these thanks to a structure of generation of passive income.
However, financial security is, for me, an earlier level. A concept that would measure the time you are able to maintain your current or desired lifestyle without liquidating your assets or your assets if you lost your main or dependent source of income from a third party. And this may be of their own accord or on the occasion of a forced dismissal or closure.
For example, if you need € 1,000 per month on average to maintain your current standard of living and you have savings of € 36,000, your financial autonomy would allow you to live 36 months, even if you don’t generate any income. But your financial security is void because you don’t have any passive income structure that finances your expenses, without consuming your liquid savings.
However, if you have € 18,000 insight, you have a portfolio of shares of € 18,000 that generates income via dividends of € 75 / month on average, and you own a place that you rent for € 425 per month, the thing changes.
Your passive income structure provides you with the financial security that allows you to finance 50% of your spending in relation to the status you want to maintain. So your financial autonomy will also be 36 months (€ 18,000 / (€ 1,000-€ 500)) before you are forced to make a forced sale to liquidate your assets and prolong your financial autonomy for longer.