Financial Freedom Index (FFI) = monthly passive income / monthly total expenditure
Monthly passive income includes all income for which no (or very little) regular working time is required. The consumption of existing assets does not count because otherwise a time component comes into
play. If someone lives longer than his available financial wealth, the financial freedom is gone again. What your current residual income is, you can quickly determine by calculating how much money you will receive each month if you were not paid by your employer from now on. Or if you would not work for several months in an independent business. Monthly expenses include fixed costs such as rental and ancillary costs (for homeowners ancillary costs necessary maintenance costs), utility bills, telephone and internet providers, insurance and possible liabilities and expenses for food, consumption and leisure.
To calculate the FFI, only the monthly cash flows are meant. A monetary reserve that is part of the “financial protection” is not included in the calculation of the FFI. In the following I would like to mention some typical values of the FFI. Here it is true that negative values are very unfavorable, because they carry a high risk financial Signal difficulties. Values above 1.0 should be the long term goal – the higher, the better.
FFI <0.0 = debt
Those who do not receive passive income and, on the contrary, even have to pay interest on liabilities, have a negative monthly passive income and thus a negative FFI. In these cases, it is important to get out of debt as soon as possible.
FFI 0,0 = One lives exclusively on work income
This value of the FFI has many people. This is the typical case where there is no income except for those in gainful employment. As soon as you lose your job, no money flows into your own wallet, except for social benefits, which are usually below the level of your previous income. That’s a pretty unsafe
condition. Because even if one’s own job is relatively safe in itself, changes can lead to it no longer feel comfortable there. The financial dependency can then become a burden.
FFI 0,1 = A first start
Achieving 10 percent of your regular spending on passive income is a great start to the day! Now you can pay for it some monthly food purchases, tank fillings or, for example, bills for the Internet or the smartphone.
FFI 0.3 to 0.4 = Approximately the amount of a rental payment
Who lives for rent, in which the proportion of the monthly rent payment to the total expenditure amounts to approximately 30 to 40 per cent. Someone who has managed to no longer have to pay this share out of his salary payments, lives in fact already rent-free!
FFI 0,5 = Half the distance is done!
As soon as half of the costs can already be paid out of passive income, there is already much more independence financially. Loss of job could be handled much easier. Because you have to settle only half of the monthly expenses from the savings. In principle one could also check here whether all expenses are really necessary. Thus, one might be closer to financial independence than initially thought.
FFI 0.6 to 0.7 = Small financial independence
With low financial independence, passive income already covers monthly fixed costs. The FFI of 0.6 to 0.7 is of course only an estimate and depends on the individual lifestyle. If someone suddenly finds himself without a job, he or she could easily spend one to two years on the money of financial
protection, since “only” money is still needed for food, consumption and leisure. For example, you have enough time to look for something new or to start your own business after losing your job.
FFI 1.0 = Financial Independence
Financial independence means that all expenditures can be paid by the monthly passive income streams. Congratulations! For financial security, you no longer have to go to work, and that is certainly the most important
milestone. You get enough monthly income and can now freely design your own days.
FFI 1.5 to 2.0 = Financial Freedom
There is no real limit to financial freedom. It also depends on you. Financial freedom means not having to pay attention to the money. If, however, expenditures rise over time, the FFI moves from the top back towards 1.0 – the limit to the financial