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Understanding Financial Independence

finance Mar 20, 2019

Do you ever take time to visualize what you want in life?

I am talking about really visualizing EVERYTHING down to the detail. Where you live, what you do, with who you do it with, what car you drive, what house you live in, the looks, the smells, the feelings you experience living that lifestyle.


Well, you can have all of that and more if you are willing to put in the work and set yourself up for financial independence.

I do this almost every night and I can tell you there is extreme power in visualization and affirmations (something we will dive into in a later sauce).
There are some common misconceptions about financial freedom.
The most common one has to do with networth. Let me just tell you, there are tons of multi-millionaires that are not financially free.

People always say: "I want to be a millionaire."

Do you know what almost everyone means when they say that? They want a cool lifestyle.

Guess what builds a cool lifestyle? Income. Specifically, income that exceeds your expenses.

Guess what true financial independence is? When your passive income exceeds your expenses.

Financial Independence allows you to do whatever the hell you want to do with your time and space. When your expenses are fully covered by income that you do not have to work for, you have reached an incredible level of freedom, options, and choices.

Before you can even begin working towards financial independence, you need to understand the two stages.

Lets put the puzzle pieces together.

Stage 1)

Being completely independent. This means that you do not depend on anyone for your living expenses. No one helps you with bills, you have no boss, you make your own money that fully covers your lifestyle.

Stage 2)
Being completely independent of everyone and everything. In other words, it would not matter what physical, mental or spiritual condition you are in, the income would continually come in covering all of your living expenses.

 

Time is arguably the most valuable asset. Financial independence not only creates time but is also expressed in time.

The equation can be written as:

FI = A/(PI-E)

FI = Financial Independence
A = Liquid Assets
PI = Monthly Passive Income
E = Monthly Expenses

If you are unaware of what passive income is, it can be described as: income that continually comes in regardless of effort.
(A great example of this is fixed income (bonds) or a dividend paying stock).
Liquid Assets are anything that can be converted to cash in a short period of time (usually within 30 days).

This equation tells you how much time you can buy yourself in the future if your active income stream seizes. This can happen for an array of unforeseen reasons including health issues, economic downturn or maybe your boss just decides he/she doesn't like you anymore. Notice that when the closer the denominator (E-PI) is to 0, the longer time of independence you possess. When the denominator = 0, you have reached financial independence.

It is smart to be aware of how much time you have to live in your current lifestyle.

If you do not have any passive income, that is okay. The point of this newsletter is to help you understand what financial independence entails.

Play around with the calculator below to understand how changing the variables affects your time of independence.

Financial Independence Calculator
In order to change your life, you must change.

And how does change occur?

With action.

So, right here, right now, ask yourself, what can you do to increase your financial independence number?

Can you buy more appreciating assets/investments to increase your liquid assets?

Can you knock off some unnecessary expenses?

Can you go out and create a new passive or semi-passive income stream?

If you truly care about living a lifestyle of freedom, options, and choices, you must make the above changes a priority. If you cannot seem to make the change, it is simply because you value something more than financial freedom.

Start making short-term sacrifices for the long-term lifestyle.

You will thank yourself later!

Enjoy your weekend and see you next Friday!

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