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## Financial Freedom Or Not?

This is when you have enough income from sources outside of your regular job to pay for your current lifestyle.

I think the simplest explanation is that stage of your life where you don’t have to worry about money anymore.

The problem is, it’s all a matter of degrees. What is ‘financial freedom’ for one person will not be considered the same for another.

Some people will think that they are financially free only when they live a comfortable life without ‘working’. Of course the meaning of ‘work’ may not be clear.

If you have found your passion and you are doing what you want to do and you are getting paid for it, for you it is suddenly not included as a job, but you still have to do it to make money to live. So this is not really financial freedom.

True financial freedom means you don’t have to ‘earn’ the money yourself.

Let’s say you need $1000 a month to pay all your bills and leave the rest for entertainment purposes. If you then rent a room in your house for £1000 a month, how financially free would you be? (Let’s not consider tax and maintenance issues here).

I think the issue here is that your employer is not going to be around forever and with true financial freedom, you need solid guarantees that the money is coming in, for as long as you need it. Again, circumstances change. If you wanted to move house, you would have to find another tenant to keep your rent.

Other sources of income are fairly predictable and can be used to calculate your total ‘passive’ income. These could be dividends on shares, or interest from money in a bank account. Getting to the point of true financial freedom is getting your passive income to be a greater amount than your expenses.

The problem is, if you spend some of the money in a bank account or sell shares, this income can change. So passive income based on investments such as renting out part of your house, or shares depends on you treating the money as a permanent investment and not available for use. Ideally, a real passive income should not include a permanent investment in your money, it should be fixed and run with little or no expenses and generate income.

Some sources of passive income are highly variable and certainly unpredictable. Ads from books, money from the Google AdSense program where people pay you when ads click on your website, or prizes from Premium Bonds are all examples of unexpected income.

So ‘financial freedom’ means different things to different people. Sometimes it is very easy to find financial freedom, but usually it is difficult and can take a long time. Many of us find financial freedom by accident when we grow up and inherit money.

Either way, you should focus on those things that make you money without earning it and choose without tying up any of your money.

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