Low Lifestyle Costs and High Passive Income Lead to Financial Freedom

Financial Freedom is the most sought after and at the same time elusive condition in the world. But is financial freedom so unattainable actually?  This post, a slide briefly depicting the formula or equation actually, postulates that if I keep my lifestyle simple and enhance my passive income streams I will be able to attain financial freedom. This post is an integral part of a closely knit group of posts/ articles that explain the various related ideas and ingredients which I have explained briefly in this post and have provided links to other articles for detailed elucidation. 

What is Financial Freedom?

Financial Freedom means a financial condition where an individual can enjoy life without bothering about working for a living or taking up job or profession or occupation to support a certain personal lifestyle.

Importance of Keeping Lifestyle Costs Low

Meaning lifestyle can be defined as the habits, attitudes, tastes, economic level, etc., that together constitute the mode of living of an individual. The focus phrase is economic level. Marketers out there are ever enticing us with products, luxuries, aspirations, deals and offers - attempts to make us part with our money and thicken the wallets of their organisations/ clients. However in order to attain financial freedom, we need to live a simple life.

What is Passive Income?

Passive or residual income is the income that accrues to an individual without that individual physically or mentally exerting any efforts to earn that income. Examples are rent, interest, dividends and royalty.

Formula for Financial Freedom

Create passive income streams through hard work, maintaining a simple lifestyle and prudent investing and attain financial freedom.

Links to Related Ideas and Detailed Descriptions

• How to Attain Financial Freedom?
• What Is Passive Income?
• Pamper Yourself or Invest in Stocks?
• If you buy things you do not need, soon you will have to sell things you need
• How Will My Lifestyle Affect My Children?
• Gift Your Child Financial Freedom!

Conclusion

Financial Freedom is a wonderful gift one can have but at the same time is elusive. Financial freedom is surely and certainly attainable by my creating passive income streams, keeping my lifestyle simple.

Passive Incomes of Financially Free and Not Free

How To Generate Passive Income?

How to Attain Financial Freedom?

Ability to maintain a simple lifestyle without having to work is financial freedom. A majority of people has no option but work to make a living. Only a minuscule proportion of the population can afford to live without the necessity for earning a living. One may wish to call this segment of people rich but this term is actually not correct. They have certainly attained financial freedom but they need not necessarily be rich. While all the rich certainly enjoy financial freedom, all those financially free may not be rich. Financial freedom is an important milestone on the way to richness.

Financial Freedom

What does financial freedom mean, technically?

We have already understood that financial freedom means a person need not necessarily work for a living. It means one should earn incomes that are not directly dependent on the persons labor. These incomes are called passive ncomes. Examples of passive incomes are:

• Rent
• Interest
• Dividend

On the other hand, income earned out of efforts like salary, fees earned by professionals like doctors, solicitors, brokers, profits earned out of business are all active incomes. Active incomes stop the moment the earner stops working – they are totally and directly dependent on the skills, knowledge, competence and efforts of the person.

Every person will surely be earning some passive income in the form of interest from the bank on the savings and fixed deposit accounts. A few must already be earning rent from real estate like residential homes, shops, industrial sheds they own. In the case of a majority of ordinary folks, the passive incomes are not significant. They simply constitute a very small part of their total income. The passive income is just not sufficient to maintain the person’s present lifestyle without the need for that person to work.

When the proportion of passive income becomes significantly large and becomes able to sustain the person without he or she having to work, then that person is said to have attained financial freedom.

We will examine the income, expense and investment patterns of two individuals. One is already financially free and the other is not yet.

Passive Incomes per month	Not Free, Yet ($)	Financially Free ($)
Interest	100	2000
Dividends	0	1000
Royalty	0	3500
Rent	550	0
Active, occupational income	4000	1500
Total monthly  Income	4650	8000
Present monthly lifestyle expenses	4500	4500
Surplus	150	3500
Investment for generation of passive incomes in future	0	3000
Surplus Income lying in savings account in bank yielding low interest	150	500

When we study the financial information of the two individuals we find that the financially free individual has passive income of $6500 as against his monthly lifestyle expenses of $4,500, leaving a surplus of $2,500 for investment and consequent creation of additional passive income. Please also note that despite having total income of $8,000, far in excess of present cost of living, the person has wisely not increased the lifestyle expenses. Also noteworthy is the fact that even though this individual has already attained financial freedom, is still having active income, indicating active pursuit of a career. On the other hand the other person has little investible surplus. This person has to increase the active income as well as reduce the living costs and has a long way to go before becoming financially free.