Presumably, you’ve heard the terms “financial freedom” and “financial independence” more often. You may have thought that this would automatically mean a huge salary or that financially free people have
done anything beyond legality. You will learn a little later that no managerial salary is mandatory.
But how can you tell how far you are from the goal of financial freedom?
If a goal is still very far away, it may cause motivation. Therefore, it is important to maintain motivation to divide his big goal into smaller so-called milestones. It would be nice if the current state of their own
financial freedom is to be seen at a glance, and in the form of a key figure. Personally, I am a friend of simple metrics to immediately see if there is a change and a need for action without having to do more in-depth analysis each time.
Before we come to your personal stand on the path to financial independence, a little digression on the so-called passive income and the definition of “financial protection”.
What is passive income?
When practicing a conventional profession, you will only receive salary if you also work regularly. If you spontaneously decide not to go to work for a few weeks, you will not receive any money, neither from your boss, nor will the tasks be done by yourself in a self-employed activity. So you sell some of your time for money and are thus in a hamster wheel. Because you can make a lot of money this way – for example, as a manager in large companies – but as soon as you stop working, your income goes down.
Therefore, it is advisable for every person to look for income that will continue to flow even if it does not work. An income that does not reach you for eight hours, but 24 hours a day, including sleeping at night,
during a vacation trip, or socializing with friends in the evening. This is indeed possible with passive income.
The benefit is that you can also build a passive income alongside your main job. Basically, it only takes a few hours extra work per week, but in this case it takes a little longer than when you start with full power. Either increase your monthly total salary payments or once the income stream is large enough, you can consider reducing your main job.
However, passive income streams do not mean “to do nothing” to earn money. On the contrary, especially at the beginning, you have to work extra hard and long to develop and expand sources of passive income. However, unlike in an employment relationship where you ultimately work for your top bosses or investors, this form of hard work is solely for you! You alone will eventually reap the full fruits due to this activity.
With active work, the income is limited in the standard case even when selling successfully. Permanently working more than 10 or 11 hours a day does not last long. In the worst case, the long-term burden on your own health.
On the one hand, the passive income can be increased almost arbitrarily (scalable), on the other hand, you can – after completing a project with a permanent cash flow – concentrate on other activities. These can be either additional business activities or more family leisure time activities.
Once a passive income stream has been set in motion, only comparatively little work is needed to ensure that it continues in the future.
There are a variety of ways and means that can provide you with consistently passive sources of income. On the one hand, this can be investments in assets that give you dividends, interest or rental income,
but even without having more capital, you can achieve passive income over time. If you are reading this eBook, you have probably subscribed to the “rethink financially” and passive cash flow newsletter. Stay tuned and learn more about passive income.
Definition financial protection
No matter which lifestyle you live in, there are always situations with unforeseen events that suddenly cost you money. This can be the daily necessities of everyday use (like a new bike, car or television), or the loss of a job. In order to act sovereignly in such cases, you need a financial cushion. The loss of a job breaks the biggest hole in most people’s finances. However, a large part of the population would then be unable to bridge this phase of unemployment, since those in everyday life are completely dependent on their pay. This dependency is avoided if a certain cushion has previously been built up with the financial protection.
The amount of financial protection varies individually. Everyone should ask themselves how long he could get out of work without income until he has created a new way to earn money. Some need more time to do so because they only want to think about the new situation for a few weeks. Others are
faster. As a suggestion one hears and reads again and again something from 2 to 4 or even 6 to 10 net monthly salaries. Basically, everyone has to decide for themselves what their monthly expenses are and multiply them by the desired time.
My recommendation is not to underestimate the level of financial protection and find a range of 6 to 12 average monthly expenses as appropriate. The important thing is that the money is available quickly and
provide money market accounts – even if they do not bring high returns. It does not matter here too, but rather on a quickly available protection. If an emergency occurs, then the financial protection should be replenished to the self-imposed limit.