Reaching for FI

Unless you got some lucky windfall to jump to financial independence (FI) you were working hard through stages and thus acquiring not only the resources of which to live off but also the discipline and habits that will make and keep you financially independent.

You made some serious and good decisions about your goals and lifestyle you want.

And even if you’ve got here getting some inheritance or winning the lottery to keep your financial independence secure you depend on the regular income which must meet your spending.

This income is supposed to be of passive nature, meaning you don’t need actively to work for it. Examples of passive income are:

  • Profits from business you don’t materially participate
  • Dividends or interest income
  • Rental income
  • Royalties paid for intellectual property such as music, books, manuscripts, computer software, or a patent

Of course there are many people working long hours and hard in this areas to earn money. But the key phrase here is »you don’t materially participate« as this is supposed to be low risk and passive income, remember! If you need to control and shuffle your portfolio on monthly basis that can’t be considered passive income. It can be a hobby, but you sure ain’t passive about it 🙂

It is also wise to diversify passive income between stated categories and thus lower risk of running into trouble.

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.