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. Many people start out working toward achieving financial independence, which is a milestone on the path toward total financial freedom.
Let’s take a closer look at financial freedom vs. financial independence, where you are on the path, your financial goals, and how to achieve financial freedom through investing in real estate.
Financial Freedom vs. Financial Independence
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? Or are you living paycheck to paycheck?
Think about it this way. What would happen to your life if you were to lose your job today? Would you still have enough income via sources other than your salary to cover your basic living expenses? Do you have an emergency fund ready as a backup? 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.
No one achieves financial freedom or early retirement overnight. It’s a process, and there are many milestones along the journey.
Milestone #1 – Financial Security
Financial Security Definition: Generating enough via passive income to cover your basic living expenses
If you lost or quit your job today but still had enough income coming in through other sources to cover your basic living expenses (e.g., food, shelter, clothing), then you would be financially secure.
Sure, you might have an emergency fund that could cover your expenses for a month or two. But what about when that money runs dry and you still haven’t landed a job? This is why additional sources of income are absolutely critical.
Financial security is the first rung on the ladder to achieving financial freedom and early retirement. Financial security gives you the confidence in knowing that, even if you were to lose your job today, you could still cover all your essential expenses, without reaching out to mom and dad for a loan.
Milestone #2 – Financial Independence
Financial Independence Definition: Generating enough via passive income to cover your current lifestyle
What does financial independence mean? 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 considered financially independent.
Being financially independent means that you could retire early and continue living your current life without ever having to work again. In order to be financially independent, you must build multiple streams of income. This allows you to continue earning income regardless of what you choose to do day-to-day.
Milestone #3 – Financial Freedom
Financial Freedom Definition: Generating enough via passive income to cover your ideal lifestyle
Many people stop at financial independence. But what if we were to take it one step further? Maybe just being financially independent isn’t enough for you. You want to experience true financial freedom – the pinnacle of financial success.
True financial freedom means that your passive income could cover not just your current lifestyle, but the lifestyle you’ve always dreamed of. Flying first class every time. Getting that ocean-view suite. Splurging on those front row seats.
This is true 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 truly be financially free, meaning you can live your ideal life without having to work another day of your life.
Your Path To Being Financially Free
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.
During the journey to financial freedom, everyone may start from a different place. Some may consult a financial advisor, others may consult a financial freedom blog post or podcast. However, the ultimate goal, as well as the milestones along the way, are the same.
Many people spend their entire lives living paycheck to paycheck, not realizing that they could retire early or achieve the independence and the life that they’ve already dreamed of.
But you’re different. You’re here because you know that there’s something better out there for you, and that YOU have the power to create the life you’ve always wanted to live.
A great place to start on your journey to creating a meaningful life by design is to figure out your exact passive income goals.
Financial Security Number
Start with your current monthly budget and 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.
Financial Independence 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 income. When you reach financial independence, you’ll be able to quit your job and still cover the cost of your current lifestyle.
Financial Freedom Number
Once you know your financial independence number, 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.
How to Achieve Financial Freedom Through Investing in Real Estate
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 different streams of income in your life. You could write a book, start a business, create an award-winning new mobile app, or pursue countless other ventures.
However, all of those ventures require significant skill, knowledge, experience, connections, and often, startup capital.
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 complicated 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 we certainly know some who do). You also don’t need a ton of money to get started.
Investing In Rental Properties
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 per month is not nearly enough to retire on. And you’re absolutely right. But it’s a start to building your investment portfolio. 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 real estate 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.
Further reading: REIT vs. Syndication: The Biggest Differences Between REITs And Real Estate Syndications
Go Forth, And Enjoy Your Journey To Financial Freedom
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 financial freedom. It’s about the life lessons you’ll learn along the way, the relationships you’ll build, and the surprises and setbacks you’ll come across.
If you’re interested in learning more about real estate investing and syndications, we invite you to join the Goodegg Investor Club, a community of like-minded individuals all on the path to financial freedom, just like you.
