Definition of Financial Freedom

What Does it Mean to Be Financially Free?

I’ve been writing about my journey toward financial freedom through organizing my finances and education for months now, but realized that I didn’t ever define the specifics of what it was I want in saying that I want to be financially free. What does it mean?

Definition of Financial Freedom:

Passive Income – Expenses >= 0

Passive Income Minus Expenses is Greater Than or Equal to Zero

Now, let me explain what this means to me. Being financially free does not have to mean that you are a millionaire. All of us want to be millionaires in theory, but that’s not always easy to come by. So, following the advice of many great financial thinkers like Eker and Kiyosaki, I would rather set my sights on something tangible to begin with, so that I have a goal that is attainable. My goal is to make enough in monthly passive income to equal or outweigh my monthly expenses. This is something that many retiree’s are used to. Or, at least they were before some of the crazy stock market crashes of late that hurt their 401 K and retirement plans. However, I don’t think this has to be a goal of only those that are retired. I don’t plan to retire when I reach this goal. Instead, I plan to be able to start using my most precious resource, time, in more efficient and better ways because I’m not slaving away the days trying to earn an hourly income to ‘survive’ or ‘pay the bills’. My goal, essentially, is not to be a slave to my bills.  I am also working to decrease the dollar amount of our monthly expenses. I want to make sure that we are living within our means so that my goal of a passive income to meet our expenses becomes even more attainable.

I believe that there are many ways of reaching this goal. First, as I’ve mentioned, I’ve started getting organized and playing an active role to take control over my family’s finances. Secondly, I’m working to reduce whatever is in our control of expenses. Next, we need to increase our income sources, most importantly through passive income. Passive income is a phrase that gets tossed around a lot in the financial world, as its the “gold mine” towards financial freedom. However, it is not easy to come by in large quantities and involves a lot of financial knowledge, hard work, and conscious decisions towards achieving it. Generating large amounts of passive income can difficult, because of risk. Almost all investments that generate a passive income also come with risks which can sometimes eat into or diminish your gains. I do believe there are many creative ways of making passive income and I have started to research them as part of my journey. Many network marketers and others believe that the internet presents the best opportunity for generating automatic, recurring income (residual or passive). I believe the internet can do this as well, however as I’ve mentioned in a previous post, this is not always done in a way that I believe to be trust worthy sales practices.

Definition of Passive Income: Income derived from investments in which the investor does not have to be actively involved

(Examples: Income from a vending machines, parking lots, a certificate of deposit among countless others)

Definition of Residual Income: Income derived from recurring sales, in which the investor is not involved actively beyond the initial sale.

(Examples of residual income businesses: web hosting, Comcast cable, basically anything that charges a monthly recurring fee for use of their services)

Passive income will be an important part of my journey. My journey has just begun though, as I am still actively learning and have not yet picked which path to focus on.

What are your thoughts on Financial freedom and passive income?

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