It is a common saying in Canada and the United States and I am sure all over the World: financially free. But how many of us actually become financially free?? What does it even mean?? To me, financially free means having income that cover your expenses without actually working. This income is accumulated from assets, interest, dividends, royalties, etc. However, the key to being financially free is to be earning the income passively. If you are looking at becoming financially free, the following points will aid you in achieving your goals:
Set a goal for yourself
In order to achieve your dreams, you must first know what your goals are. This is something that you should write down and try to review it once a week – or more if possible. You must know how much you want to make and by when. For example, I may want to earn $4,000 net cash flow every month. This mount should be based on your current expenses and can be changed accordingly as circumstances change.
Determine how you will earn your money
As important as knowing how much you should earn, you should look at how much you will earn from different streams (ie. 45% real estate, 30% dividends, 25% royalties). Receiving money from different streams ensures you that your income is diversified and a shock to one sector in the economy will not jepordize your entire income stream. By expanding your income environment, you also ensure that you look at all opportunities in the market.
Many people fall into the mistake of trying to get further ahead by taking on massive ammounts of debt. For example, my cousin purchased a 10-plex apartment complex in Chicago along with 3 houses. He was mortgaged to maximum and considered himself to be a good investor. However, after the Great Recession or 2009, he quickly lost everything and was forced into bankrupcy.
Formula for success
A formula for success works something like this:
- Have a good paying job where you’re able to save a considerable amount of money. If you don’t have a good paying job, go to school and/or work hard to get a promotion/advancement.
- Become familar with investing and properties – cap rates, expenses, how mortgages work, interest, etc.
- Look for properties that will cash flow with your minimum down payment.
- Get a mortgage if you need to and pay off your mortgage as soon as possible.
- Move on to the next property and repeat.
This formula will ensure you are never overextended and will never need to declare bankruptcy. Granted, this is a very slow, almost guaranteed way to become financially independant – it ensures you do not get into any money troubles even in the case of a job loss.