Many people asked me, why am I straying from the norm, and my reasons for picking the income streams that I currently have and intend to obtain in near future. To begin things, my income stream choices are not the usual paychecks that I receive from a boss.
And here is a partial reason why. What you are about to see can be potentially dangerous.
It may result in your desire to leave your job. And better still, it may help you to get on the path to financial freedom. Please do consult an expert in financial knowledge before making any decisions. I begin this article with this important quote:
Knowledge is not power. Applied knowledge is.
Like all masters and mentors, I have my own arsenal of mentors as well. Today, I am just going to base this article on 2 very important concepts by Robert T. Kiyosaki & T. Harv Eker.
What is financial freedom?
According to Robert Kiyosaki, in very simple terms…
Financial Freedom = Passive Income > Expenses
This is simple yet critically important not just in this discussion but also in your life and your loved ones’ lives.
To further elaborate, if your passive income chalks up to $2,001 per month and your total expenses adds up to $2,000 per month. In simple terms, according to the equation as aforementioned, are you financially free?
Yes, you are. Such that, if the following month, you stop working on your active income, your expenses are still covered for. And yes yes, I know some critics will harp on the fact of inflation rates, let’s not complicate things yet. Keeping it simple here.
Your Income Statement (Simple Cash Flow Version)
Study the income statement above carefully if you are new to Kiyosaki’s Cash Flow Concept. You will start to see how everything pieces together.
I am only concerned with 4 blanks on the right column:
- Passive Income
- Total Income (Active + Passive)
- Total Expenses
- Monthly Cashflow (Total Income – Total Expenses)
So to reiterate which are the few equations we are using:
- Financial Freedom = Passive Income > Total Expenses
- Total Income = Active Income + Passive Income
- Monthly Cashflow = Total Income – Total Expenses
The Average Joe
In this scenario, we are going to assume a few things…
- The Average Joe is getting paid pretty highly for an average Joe – $5,000 per month
- There is no income tax in Joe’s country (which is not possible in reality)
- Joe is 30 years old.
Using T Harv Eker’s money jars system (if you don’t already know)…
Joe’s monthly income: $5,000 (which is a lot for a 30 year old)
NEC (55%), also known as expenses will be…
$2,750 / month
FFA (10%) also known to be used for money-generating activities such as investments
$500 / month
One day, Joe came back from an investment seminar and found an amazing deal of 20% ROI per annum. Knowing 20% ROI is considered pretty high in the investment arena, the figures start to reveal some bone-chilling facts…
Inflation in Joe’s country is 5%.
Which instantly reflects that Joe’s investment (20% – 5% = 15%)
still provides a net profit of 15% returns.
Joe’s investment capital = $50,000
Net Profit in % = 15%
Net Profits per year = $7,500
While it seems a lot of money and good returns…
$7,500 per year actually amounts up to only
$7,500 / 12 months = $625 of passive income per month.
How much more to Financial Freedom?
In the earlier scenario, Joe’s total expenses only sums up to a small amount of $2,750 per month.
For Joe to achieve financial freedom, his passive income will need to be more than $2,750 per month (without factoring in income tax yet)
Given the same financial investment vehicle Joe is using of 20% ROI and 15% Net Profit,
($2,800 per month) x 12 months = $33,600 per year
15% Net Profit = $33,600
Investment Capital needed = ($33,600 / 15 x 100)
That is the lump sum amount Joe has to invest @ 20% in order to be financially free.
How long to accumulate that amount reasonably?
Joe’s FFA Jar accumulates $500 per month. (Refer to above as earlier mentioned.)
So in order to achieve a lump sum of $224,000
Joe needs to save $500 per month for…
($224,00 / $500) = 448 months
Which is… 37.33 years!!
By then Joe must be beyond (30+37.33) = 68 years old !!!!
Financially Free at 68 years old? Wow that is certainly exciting!
This is not some sales pitch article.
This is campaigning for financial literacy and freeing more people.
Please still get your necessary education and choose your path wisely thereafter. Hope this article helped the world, even by a little.