I N V E S T M E N T O R
financial freedom formula

What is financial freedom

What is Financial freedom, you may ask? Well, if you came looking for a book definition, here it goes – Financial freedom is when your passive income is more than your expenses.
But it seems that you came looking here for more than just an academic definition. And you are certainly in the right place my friend.

Let’s understand financial freedom with an analogy. Imagine you had a fully grown orange tree in your backyard and let’s assume that it grows enough oranges in a year to feed you. And let’s assume for the sake of this example that this tree of yours is reasonably healthy and will outlive you. Now here is the question, would you ever need to go to woolies, coles, aldi (or wherever you get your fruits from) to buy oranges ?

Exactly, who the f**k will go to the shop to get oranges if they have a whole tree in their backyard! That’s financial freedom (or should we say orange freedom) for you.

In this example, the tree is your “asset”, the oranges can be thought of as money.

If you haven’t already read the ‘rich dad, poor dad’, an asset is something that puts money into your pocket on an ongoing basis, without you having to show up to office at 9AM. This is important to know that “your time” (as in working your buns off 40-60 hours/week until you retire) is not part of this equation.

If you are with me so far, haven’t you already wondered who planted that orange tree? and didn’t it take someone’s time to plant and grow that tree?

Well, aren’t you a smart hotdog!

Most of the times people plant that tree themselves (and there are some lucky ones, whose parents or grand parents planted that tree for them). Likewise, people work methodically to build their “assets”.

Assets are the most important pillar of financial freedom. Some examples of assets – A business, an investment property, a stock/share portfolio that pays dividends etc.

Just like the orange tree keeps giving you oranges and tree itself grows in size too, assets put money in your pocket and generally grow in value as well.

Let’s say you bought 100 shares of Apple (Ha, gotcha. this is not the apple from your backyard orchard. Talk about comparing apples and oranges) in 2007 and it costed you $338. Now the average dividend (A type of passive income. The money that comes into your pocket, whether you show up to your work or not) was 0.60%. Those same apple shares are worth $14,754 now!

Thats how much your tree has grown since you first planted it! That’s capital growth, in simple terms.

But here is the catch, for you to own 100 shares of apple today, you must have bought them in 2007 and held them through various ups and downs. But once you bought them, you don’t have to lift a finger. Only if we had time-machine to rewind the clock. That brings us to two important lessons of building financial freedom :

Acquire assets now

For you to have a chance at enjoying the oranges in future, you have to plant the tree now. It’s alright if you think you don’t have enough money right now to acquire your asset. Try not to make a statement “I can’t do this” but instead ask a question “how can I make it happen?”. For us here at investmentor, real-estate investment is the most suitable type of asset that we have built for ourselves and helped hundreds of clients do the same via our mentorship program (but more on this later).

Hold the assets for long term

Your personal circumstances and market changes will tempt you to sell your asset, but if you have acquired a good quality asset, you must hold on to it. Anything that allows/helps you to hold the asset longer, should be dearly valued.

At the very core, financial freedom is a simple formula – acquire good quality assets and hold them. But do not let the simplicity of this formula fool you into thinking that it’s easy. Simple is not easy. Just like that hot girl sitting across you at the bar 😉 while you may think its very simple to walk up to her and say hi….. her insecure bodybuilder boyfriend is going to make it very very difficult for you … trust me, i have tried.

Before we go further, let’s think of the types of passive incomes that are possible.

Types of passive incomes

Rental income (the rent that tenants pay you for living in your investment property)

Dividends

Interest on your savings accounts

Royalty (for example if you wrote a book or patented a formula)

Profits (from a business that can run without you) etc

For us here at Investmentor, from experience we can say that real-estate(house, apartments, shops etc) is by far the most feasible and achievable asset class for most Australians. If you would like to know more about how we may be able to help you achieve financial freedom, you can get in touch via contact us page.

Let’s take you through another example of asset, but this time I’ll use residential investment property (instead of Apple shares)

Residential investment property as an asset

 

Well, if you are with me so far, I got to admire that you are pretty serious about financial freedom. But still you might say, “Ok smart Bruce, you have explained to us what financial freedom is. But what about me, what does my financial freedom look like. How do I get there?”…

My suggestion is, work backwards. What is your end goal with financial freedom ?

With the passive income that your financial freedom is going to give you,

  • Which suburb do I want to live in
  • What car do I want to drive
  • How many holidays I want to make per year
  • Which school do my kids go to
  • How much do I want to give to charity

Well, don’t just gawk at these questions. Pull out a piece of paper and note your answers. Go on.

Now put a dollar figure on these things.

for example – which suburb do I want to live in – Dee Why rent = $35,000/year

Once you have a total figure, thats your passive income goal. Now put that number into Box A below. Now think how many years you have to reach there. Put the number of years into Box B below.

Financial Freedom Calculator

Disclaimer : Just going off by assumption that the bank pays you 3% on your savings, rate of return on your portfolio is 5% and inflation is 2.5%. This is not a financial advise. This is just a calculator to explain the concept.

You see the big blue number there, that's the size your portfolio (a group of assets) needs to be. Thats the size of your orange tree. Now this number may look too big or too small to you based on what you put in. But don't worry, me and my team can help you fine-tune it and help you come up with a plan to make it happen in .

But hey, let's pause for a second and think, whats your other option ? Look at the big number in the red box, if you just wanted to save your way to financial freedom, thats how much money you will need to save every year!! Ridiculous isn't it.

Hell yeah, financial freedom can not be achieved with savings alone, period.

So my reader, you might be wondering “how can I achieve financial freedom to afford me that lifestyle?”. There are definitely ways using which people like yourselves have utilised real-estate investing to reach their financial freedom goals.

The idea is to come up with portfolio building plan which sets out the strategy and timeline for acquiring real-estate and build your asset base. Remember the first rule, it has to be good quality asset. If you don’t want to burn your hands like I did with my first investment property (and learnt a lot – unora story youtube), you have to rely on great quality research from the best researchers in the industry. For example, John, our head of research and Josh, our head of acquisition

Then obviously the next piece of the puzzle is the money. Setting out a plan to save the deposit and choosing the right lender who can lend you money to buy your investment property. Yes, if you want to eat more oranges sooner, it’s perfectly normal to borrow seeds, soil, fertiliser from someone who is willing give it to you. It doesn’t have to be all your money.

The last but not the least piece of the puzzle is you!! yes you!!!

Anyone can give you a plan to be wealthy, but eventually it’s you who needs to follow through on that plan and do whatever it takes to make it happen. Trust me, it will demand a lot more determination from you than you initially imagined. If it were easy, everyone would be doing it already.

 

The only way for everyday people to make it much much more likely to happen, is by building a solid team around themselves. Your investment mentor, your accountant, your broker, your property manager… they should all be part of your team and believe that you can achieve financial freedom.

 

If you are keen to know how I built a portfolio of 12 properties in 10 years, I do conduct a completely free webinar every week. Please do register >>here<<. Me and my team will be more than happy to take your queries in Q&A section towards the end.

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