Financial Independence vs Financial Freedom and the Steps to Get You There
Financial Freedom vs. Financial Independence
Perhaps you have reached enough financial stability that you have enough income passively outside of your day jobs to pay for the basic expenses. However, you might not have any extra income at the end of every month to really live life on your own terms. Some of the hardest questions people may ask themselves, and more importantly answer with a high degree of confidence are: Can you lose your job and not sweat it? Do you have extra money that you can put toward emergency savings and retirement contributions? Will your investment income truly fund your passions, your dreams, and your current lifestyle indefinitely?
Retirement savings is important in any financial planning, in most cases, you cannot generate enough savings to cover your monthly expenses forever; it eventually runs out. The great thing about passive income is that it generates monthly income over and over again – even while you’re sleeping.
The best way to start working toward your financial health and a crucial step should be to find ways to reduce or eliminate entirely your credit card debt, your consumer debts, car payments, personal loans, and student loans. You will also want to start learning how to generate multiple streams of income. This will take hard work, but all of these different steps will help you get on the right track to being able to live life on your own terms.
Achievement Goal #1 – Financial Security
If you lost your job tomorrow and you had x amount of money to cover your day-to-day monthly living expenses then that could qualify as financial security. You would be comfortable, but not living at the highest levels that you could. And this may be enough for you because this may be your own personal definition of financial freedom, and that’s perfectly fine.
But you want to make sure that you have enough money to cover an unexpected expense that will surely happen because just living on a savings account is not the best investment strategy. This is exactly why having multiple sources of passive income is so important.
This is, however, a great first step toward the dream of most people, which is to have true financial freedom and an opportunity to retire early and to be healthy enough to enjoy everything they want to do.
Achievement Goal #2 – Financial Independence
We’ve discussed financial security, which is covering just your monthly basic expenses. However, being financially independent means that you can pay for all of the monthly basics and still have money left over to cover some fun things like dinners, vacations, and other little perks.
Financial independence allows you early retirement and can allow you to live comfortably without worrying about how you will pay your bills. You can maintain your current lifestyle and never have to go back to work again. How you can reach this goal is through multiple streams of passive income, which we’ll talk about later.
Milestone #3 – Financial Freedom
True financial freedom allows people to live at just a bit higher levels than maybe their current lifestyle allows. True financial freedom allows people to live completely on their own terms doing whatever they want to do whenever they want to do it. Living a life by design fully.
Again, the only way to really be financially free is to find various ways to generate passive income so that you are never relying on just one source.
Your Roadmap to Becoming Financially Free
Different levels of financial freedom mean different things to different individuals. Your financial journey will be different than anyone else’s but the end goal and the steps to achieve your goal will be the same.
You have already determined that living paycheck-to-paycheck is definitely not ideal, and you know there is a better way to improve your financial situation. Creating a plan that includes changes to your personal finance with comprehensive budgeting and investment strategies that allow you to start receiving passive income streams is a must.
That also means you will want to set financial goals. Here’s how you can start.
Financial Security Number
Review your day-to-day living expenses for say, food, housing, utilities, and other basics – how much do you spend on these necessities each month on average?
Whatever that figure comes out to be is your financial security number. This is the amount you will want to shoot for in passive income to get to the first step of becoming financially secure.
Financial Independence Number
The next step is to review all of your finances that fund your lifestyle – beyond the basic needs figure that we talked about earlier. Whatever that figure is to fund your lifestyle and your basic needs is your financial independence number.
You will want multiple streams of income to pay for your current lifestyle. It’s only at this point that you would have enough financial independence to stop working if you wish.
Financial Freedom Number
Most people dream of a lifestyle that is beyond how they currently live. It’s the lifestyle of your dreams. So, in order to fund your dream lifestyle, determine how much money you would need to live the life you want to design for yourself. These are the very things that you want to be able to afford in your retirement.
Whatever that figure comes to is the amount you will need each month in passive income to live your dream life.
A final step in your journey is to build enough multiple streams of passive income to fund exactly how you want to live once you have stopped working; to live the life of your dreams.
Ways to Achieve Multiple Passive Income Streams By Investing in Real Estate
There are so many great ways to generate passive income streams, however, we feel the tried and true way to build multiple passive income streams is through investing in real estate.
Real estate investing has been responsible for creating over 90% of the world’s millionaires – at least in part.
“Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth.” – Theodore Roosevelt, U.S. president
Investing in Rental Properties
Let’s say you want to invest $50,000 in real estate. You use $40,000 as the down payment and take the $10,000 to fix the property up a bit. Then you rent the property out and the rent payment from your tenants covers all of your expenses including having a little bit of padding for repairs and unexpected expenses.
Say, you have $400 a month cash flow after all expenses are paid. Now, this may not sound like much, but if you were to make it a goal to buy a rental property each year, in 10 years your passive rental income would be $4,000. This would likely be considerably more than that because rents will almost always adjust upward over time.
It’s not an overnight success story, but remember building an investment portfolio takes time no matter what you are investing in. The goal here is to put one foot in front of the other in working toward your ultimate goal of having the life of your dreams.
Investing in Real Estate Syndications
We believe that the absolute best way to start receiving multiple streams of passive income is by investing in real estate syndications. Rental properties are great but they are an active investment strategy meaning you have to be hands-on to receive the best returns. Whereas with real estate syndications, it is truly a passive investment where you never have to deal with any of the day-to-day operations.
Real estate syndications are a “set it and forget it” kind of investment that can pay great returns.
So what exactly is a real estate syndication? It is a group investment with other investors, both active investors who are the general partners or the sponsor team who is responsible for all of the operations of the multifamily investment on behalf of the other investors. These other investors are the limited partners or the passive investors.
The passive investors simply invest in the property and receive quarterly passive income distributions as well as a portion of the equity profits when the asset sells – usually within five to seven years. Pretty sweet deal, right?
A typical investment amount that a passive investor would be expected to invest is $50,000 or $75,000 or $100,000 depending on what the sponsor team determines the minimum investment will be on any given real estate syndication.
Let’s Look at an Example
So, let’s take an example using the same figures we used in the rental property scenario. If you were to invest $50,000 into a commercial real estate syndication with say, a 10% return, you would receive just over $400 a month in passive income. Same investment amount and the same monthly return as the rental property scenario except that this investment is truly a passive investment. You just invest and let others (the general partnership team and property management team) do the rest.
The other benefit of real estate syndications over buying one rental property at a time is that with rental properties you will be putting all of your eggs in one basket so to speak. Because you will likely be only investing in your local market for the sake of ease and familiarity.
With real estate syndications, however, you have the ability to diversify much better by investing anywhere in the entire United States and in various asset classes.
Real estate syndications can allow you to build up multiple passive income streams very quickly and can help you to achieve your financial goals.
Enjoy the Journey
There’s no one way to achieve your financial goals. For example, some people aren’t comfortable with investing in real estate and would rather invest in the stock market, mutual funds, or a Roth ira, and that’s ok too.
We just want to give you the knowledge and tools to explore your options. Education is the best defense against financial challenges, so learn as much as you can and start applying what you learn when it makes sense to you and your personal financial journey.
Just remember that real estate can be a simple and steady strategy to help you get to where you want to go, so keep exploring.
NOTE: We are not financial advisors nor are we tax advisors and are not giving any financial, investment, or tax advice. Please consult with your own personal advisors before making any investment or financial decisions. This article is strictly for educational purposes only.
Ready to Learn More?
The best way for you to learn more about passive investment opportunities in commercial real estate syndications is to join the PCRP Passive Investor Club.
Through the PCRP Passive Investor Club, you’ll get a priority review of all the deals we offer. We’ll work with you to determine your investing goals and then present you with the best deals to meet those goals. We’ll then guide you every step of the way as you invest in those deals.
So if you’re ready to start investing passively in institutional-grade, commercial real estate in fast-growing, climate-resilient markets in the U.S., join the PCRP Passive Investor Club – IT’S FREE! – and get started on your path to EARN PASSIVELY and LIVE ABUNDANTLY!
If you would like to know more about what we do and how it may be of value to you, please reach out to us anytime. We’re always happy to help!