Google the term “financial freedom,” and you’ll find that, often, financial freedom and financial independence are used interchangeably. But are they indeed one and the same?
Think of a young child. When a toddler first learns to walk, they achieve some level of mobile independence. They no longer need adults to carry them to get from point A to point B. They can get up and knock that cup off the coffee table just fine by themselves now, thank you very much. ??♀️
However, even as toddlers gain their mobile independence bit by bit, any parent can tell you about the whines of “I’m tiiiiired” on long walks. This suggests that, though the child has mastered the basics of mobility, they can’t go everywhere by themselves. Hence, they haven’t achieved full mobile freedom just yet. We’ll revisit when that child is getting their driver’s license.
The same basic framework applies to finances. Let’s take a closer look at financial independence versus financial freedom, where you are on the path, and how to achieve financial freedom through investing in real estate.
Let’s take the toddler who’s learning to walk, and apply that to your finances. Are you at a point in your life where you’ve become mobile, so to speak? Can you go anywhere you want?
Think about it this way. What would happen if you lost your job today? Would you still have income to cover your basic living expenses? How about enough income to indefinitely fund your current lifestyle?
And yes, I’m talking about income, not savings. Savings will run out sooner or later, but ongoing passive income will last you indefinitely. The income you receive from your job is active income. In order to obtain financial independence and financial freedom, you will need multiple streams of passive income, the kind of money you make while you sleep.
If you lost or quit your job today but still had enough passive income coming in to cover your basic living expenses (e.g., food, shelter, clothing), then you would be financially secure.
If you had enough passive income to fully cover your current lifestyle, including all the little extras beyond the bare basics that you currently enjoy (e.g., that latte you get every morning, your Amazon Prime membership, the family trips you take a few times a year), then you would be financially independent.
Being financially independent means that you could retire today and continue to live your current life without ever having to work again. In order to be financially independent, you must build passive income. This allows you to continue earning income regardless of what you choose to do day-to-day.
And what if we take it one step further? What if that passive income could not just cover your current lifestyle, but the lifestyle you’ve always dreamed of? Flying first class every time. Getting the ocean view suite. Splurging on those front row seats.
This is financial freedom. Financial freedom means you have enough passive income to do all the things, without having to worry about where the money is coming from.
Once your finances allow you to go anywhere and do anything you want, without you having to work for it or worry about it, you will have achieved true financial freedom.
Every healthy child who learns to walk starts from the same place and progresses along a similar path. They go from being completely helpless, to being able to roll over, to being able to crawl, to being able to take a few steps, to walking steadily, and then to running and jumping.
On the path to financial freedom, though everyone may start from a different place, the ultimate goal, as well as the milestones along the way, are the same.
Wherever you are on the path to financial freedom, keep your head up, keep your eyes on that next mile marker, and keep moving.
A great place to start is with your current expenses. Take a look at your accounts and bills, and pull out the items related to basic living expenses – food, shelter, clothing, and other basic necessities. What’s the average amount you spend on these items per month? That’s your financial security number.
Next, examine all of your current finances and lifestyle. Figure out your current average monthly expenses for everything – basic necessities, plus all the nice-to-haves you’re currently spending money on. This is your financial independence number.
Aim to reach that financial independence number through building multiple streams of passive income. When you do, you’ll be able to quit your job and still cover the cost of your current lifestyle.
The next step is to think about all the things you want in life. List them out. Figure out how much they cost. This is an important step, as most people overestimate how much it costs to live their ideal lifestyle. Use these figures to determine your financial freedom number.
Your financial freedom number is the passive income you need to generate per month in order to live not just your current lifestyle, but your ideal lifestyle, to do all the things you’ve ever wanted, to give back at the level you’ve always wanted, and to live the life you’ve always dreamed of.
Once you have your financial security number, financial independence number, and financial freedom number, you’ll have clear milestones to aim for and can start to steadily build toward them.
More people have become millionaires through investing in real estate than through any other means.
Why is that? Well, think about all the ways you could generate passive income. You could write a book. Eh, that would take too much work. Writing is hard, and plus, what would the book be about anyway. You could start a business and have someone else run it. Hmm, sounds hard. Create an award-winning new mobile app. Umm, not even sure where to start with that one.
Okay, now let’s look at real estate. One of the simplest ways to invest in real estate is to buy a property and rent it out. Yup, just like Monopoly. Sounds pretty easy in comparison to all those other ventures, right?
That’s exactly what all those real estate millionaires were thinking too.
You don’t have to be a rocket scientist to invest in real estate (though I certainly know some who do). You also don’t need a ton of money to get started.
Investing in Rental Homes
Let’s say that you had $20,000 to invest. You put $15,000 of it into a $60,000 rental home, and you spend the remaining $5,000 to fix it up a bit.
Then, you rent it out to a nice hard-working couple, who pay you rent every month. Their rent payment more than covers the mortgage payments, so you get to pocket the extra (i.e., the cash flow) every month. Let’s say this particular property provides $250 of cash flow per month, or $3,000 per year. Not bad for a $20,000 investment.
Okay, I know what you’re thinking. $250 is not nearly enough to get you to financial freedom. And you’re absolutely right. But it’s a start. A stepping stone. If you had five of these rental homes, you’d be up to $1,250 per month.
There’s no magic bullet that will get you to financial freedom. You have to build your path there, brick by brick.
Investing in Real Estate Syndications
Another way to invest in real estate, especially if you don’t want to deal with the hassle of finding and fixing up a property yourself, is to invest in a real estate syndication (i.e., a group investment).
In a real estate syndication, a group of investors comes together, and each one puts in some money – $50,000 here, $100,000 there – and together, the group pieces together the money needed for the down payment and any renovations. It’s just like the rental home example, but on a bigger scale.
The sponsors are the folks who are doing the heavy lifting. They are the ones who are leading the syndication and are responsible for all the stuff you would have done by yourself on the rental home – find the market and the property, work with the property management team day-to-day, ensure that renovations are on track, etc.
Sponsors receive a cut of the returns for their work, but the majority of the profits go to investors.
If, for example, you invest $50,000 in a real estate syndication whose projected cash-on-cash returns are 10%, you would receive about $5,000 per year, or about $400 per month, in passive cash flow distributions.
The beauty of syndications is that they are truly passive. You leverage the time and expertise of the sponsor partners to do all the heavy lifting. As an investor in a syndication, you have no active responsibilities. You invest your money, then start seeing returns.
This allows you to quickly diversify and build up multiple streams of passive income in different markets, and even different asset classes.
There’s no single type of real estate investment that will get you to financial freedom the fastest. The point is that real estate can be an easy, low-risk, and steady way to progress along your path to financial freedom.
Whether you’re currently financially secure, financially independent, financially free, or just starting out, you now have the map before you. And just as with any trip, it’s important to enjoy the journey.
It’s not just about snapping your fingers and attaining instant financially freedom. It’s about the lessons you’ll learn along the way, the relationships you’ll build, and the surprises and setbacks you’ll come across.
So go forth, and enjoy your journey to financial freedom.