What is Financial Freedom?

Financial freedom is defined not by how much you have in the bank account. It is not defined by net worth. In my opinion, this is certainly the wrong definition of financial freedom.

Contrary to the common definition, financial freedom is achieved when you no longer need to work for money but yet still having income flowing into your bank account. When you have income without work, this is sometimes called passive income.

In order to have financial freedom, your passive income must exceed your monthly expenses. For most of us, we were once financially free early in our lives. It might puzzle you but think about it.

During my school days, I was given a fixed school allowance. All I had to do was to wait until the month is over before I receive my next monthly allowance. My expenses were fairly low and my savings were not existence. When I run out of money, I stayed at home and wait for time.

The school allowance was my “passive income” because I did not really work for it and I know that it is coming in like clockwork.

Once I started working, it was then I was burdened with all sorts of expenses, starting with a car. With a car as fixed overhead, I had to get a higher job. You know the story….

Back to what financial freedom is all about. Monthly Passive income greater than monthly expenses equals to financial freedom. Of course, once there is no need to work for money, I now am financially free with time freedom. With time freedom, I now have the luxury to create more passive income.

Would I want to be financially free but living on low monthly expenses? Of course not! I am always thinking of ways to increase my passive income so that I can increase my expenses.

In essence, understanding what financial freedom is makes it mission possible. Thinking of a financial destination of $5M is overwhelming. But thinking how to increase your passive income by $300 this month is a less challenging thought. Once you manage to increase your passive income by $300 this month, perhaps it is time to think about increase it to $1000. It is a simple but extremely powerful concept. Free your time and you will have time resource to create new streams of passive income to achieve financial freedom.