Most of us dream of achieving financial freedom — that moment when we don’t have to worry about how we’re going to pay the bills or provide our basic needs; when there’s enough left to set aside for whatever we desire, whether it is recreation, or a long vacation.
Financial freedom is having enough income coming in and not having to trade your time for money anymore. Simply put, financial freedom equals passive income > expenses, i.e. FF = PI > E.
Most people believe that working until you retire or get rich is your best bet for becoming financially free. However, being rich doesn’t necessarily mean you’re financially free. In fact, 95% of people have this misconception.
There’s a better way to financial freedom.
And that way is by building yourself a stream or multiple streams of passive income that can pay for your expenses and more, without the need for constant, tiresome work.
What Is Passive Income?
Passive income is exactly what it sounds like: Money that comes in whether you’re actively working or not. It may sound strange at first, but it really does make a lot of sense.
There are two main ways to make passive income:
- Investments working for you:
The first major type of passive income is an idea most of us are familiar with already; investments.These investments generally create monthly income with a fixed or standard rate of return attached to them. This could include bank or government bonds, corporate bonds, T-bills, rental property income, and lots more. This also helps us to build our asset column.
2. Business(es) working for you:
The second type of passive income is the one that’s hard for most people to wrap their heads around; passive business income. Many people assume that running a business means you need to be constantly working in order to achieve any real success but that is not always true.
What you can do is to create a business that has the potential to be systemized so that it can work without you. That way, rain or shine, money will continue to flow in, whether you’re putting in the hours or not.
Now that you know what passive income is, ask yourself how much money you need to be earning passively in order to be financially free and get to work.
The first step is to take a look at your expenses.
Ask Yourself: What Are My Real Expenses?
Of course, passive income is only a part of the puzzle. If you have passive income pouring in, but it doesn’t add up above and beyond your expenses, you’ll still never reach a state of financial freedom.
The second step is understanding your expenses and what’s actually essential in your life.
You can create a list of expenses that are necessities and a list of “nice to have.”
You’ll notice when you do this, that it’s much easier to simply cut or simplify the non-essential expenses. You’ll begin to question whether you truly need them in your life.
Remember, even better than passive income, the best way to financial freedom is to manage your money well.
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