The breaking point

When working toward financial freedom an important milestone is the achievement of »the breaking point«. This is the time when you’ve moved to  having positive net-worth.

Net-worth is simply calculated when you sum up all value of assets (money, housing, equities, etc) and then substract debt from that. The breaking point is at 0, when value of assets is the same as all existing liabilities.

You might want to calculate your net worth at the moment, to see where you stand and compare it with others on a global level at the Global Rich List. Do it, you could be surprised..

Turning over to positive net worth free agency is achieved, enabling ability to do what you want. You can quit job and take time to pursue opportunities without liabilities hanging over your head. You have eliminated all debt and saved some money to live off of it for a while.

Having said that, some debt can be good to be had (especially with interest rates in some parts of the world being below zero in 2017). An example would be having it invested in business or assets generating earnings higher then the debt interests. But achieving this stage means money saved is sufficient to repay liabilities instantly when circumstances change.

With this you move beyond mere survival of all the expenses hitting you and paying a mark up in the shape of interests on debt. The money available is spent efficiently. What’s more money is accumulated beyond being a mere safety net towards starting to work for us.