Life beyond pay checks

There are definitely more ways to achieve financial independence and freedom, but some are just way too unreliable to be recommended. I don’t believe a lottery ticket can be called a good (retirement) plan and neither do I believe in random good-willing email propositions offering us provisions on gold or money transfers from Nigeria that would make us instantly rich as James Veitch beautifully presented.

We already discussed how it’s like being on the side that is paying for the money lent and issues with that. Now we are talking about the opposite side – being payed to lend money or assets and using that income to support our needs.

This income is usually called passive income in reference to requiring minimal to no work to maintain it. Examples of such income are property rentals, interest income, royalties for intelectual property or patents, dividends etc. Obviously all of this can require huge involvement, time and effort, however following certain strategies they can result in minimum involvement with satisfactory result (using a rental management service to manage rentals, using a »Lazy portfolio« strategy for portfolio investments, etc).

The purpose of passive income is to provide us with income needed while pursuing interests that may not produce (sufficient) income. Not all musicians can live of making music no matter how much they love it. With financial independence it can suffice for the musician to simply enjoy composing, producing, playing or listening to it.

When such passive income is at the level to cover our basic needs like calories&shelter we have reached financial security – you have saved and invested in a way to provide you sufficiently for the bare existence without the need to work for another day in your life. The fresh air you’re breathing? It’s the scent of freedom from now on!

Freed from living off pay checks this releases most of our time (40 hours per week and more) for such interests if you wanted to do it over anything.

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.