When reading about this subject online, you will find that, often, authors use the terms financial freedom and financial independence interchangeably.
But do they both mean the same thing?
To illustrate this better, think of when a toddler first learns to walk. They achieve some level of mobile independence since they no longer need adults to help them get somewhere. They can get up and experiment more around the house and knock more stuff off the coffee table just fine by themselves now, thank you very much.
However, even as they slowly gain their mobile independence, any parent can tell you how their children might dread long walks, insisting you pick them up after some time. Though the child has mastered the basics of mobility, they can not go everywhere by themselves yet.
In short, they have not achieved full mobile freedom just yet. It is a process with many milestones along the way, and the same basic structure applies to finances.
By learning the difference between financial freedom and financial independence, it will be easier to realize where you are on the path and how to achieve financial freedom through investing in real estate.
Financial Freedom vs. Financial Independence
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 living expenses? Do you have an emergency fund ready as a backup? How about enough income to indefinitely fund your current lifestyle?
You need to understand that true financial independence is not dictated by your savings as much as it is by your current source of income.
Savings will run out sooner or later, but ongoing passive income will last you indefinitely.
To obtain financial independence and financial freedom, you will need multiple streams of passive income, a cash flow that is stable enough to take care of itself — eventually.
And just like learning to walk, no one achieves financial freedom or early retirement overnight. It is a process, and there are many milestones along the journey.
Milestone #1 – Financial Security
It means that if you lost or quit your job today but still have enough income coming in through other sources to cover your living expenses (e.g., food, shelter, clothing), you would be financially secure.
Even when you have an emergency fund that could cover your expenses for a month or two, that money is bound to run dry eventually. Additional sources of income are critical.
Financial security is the first step to financial freedom and early retirement. Nothing beats being confident that, even if you were to lose your job today, you could still cover all your essential expenses without depending on family and friends to keep your head above water.
Milestone #2 – Financial Independence
If you have enough passive income to fully cover your current lifestyle, including all the little extras that you currently enjoy, then consider yourself financially independent.
Financial independence means that you could retire early and continue your current lifestyle without having to work to support it.
To be financially independent, you must set up multiple passive income streams, which are all about how you manage yourself to make more money in less time. The aim is for you to continue earning income regardless of what you choose to do day-to-day.
Milestone #3 – Financial Freedom
Maybe just being financially independent is not enough for you. You want to take it a step further and experience true financial freedom.
True financial freedom means that money stops being a factor to consider when you want to do something.
Ever wanted to fly first class? Have dinner at that fancy hotel? Buy that car you have always wanted? If you are smart about your investments and play your cards right, you will end up with a cash flow that will allow you to make it happen.
You will have achieved true financial freedom.
How To Be Financially Free
Many people spend their entire lives living paycheck to paycheck, not realizing the potential to improve their quality of life and build enduring wealth.
But if you are still reading this, it is because you are different. You are aware of where you are on the path to financial freedom. You understand that there is something better out there for you, and you can choose to be in command to make that possibility a reality.
There is no hack, no quick scheme, or an easy way to create a meaningful life. Everything that is truly good and worthy requires learning, work, and planning.
That is why the best place to start on your journey is to figure out your exact passive income goals.
Step 1: Financial Security Number
Take a look at your accounts and bills, and pull out the items related to living expenses – food, shelter, clothing, and other necessities.
What is the average amount you spend on these items per month? That is your financial security number.
Step 2: Financial Independence Number
Next, examine all of your current finances and lifestyle. Figure out your current average monthly expenses for everything – necessities, plus all the nice-to-haves you are currently spending money on; this is your financial independence number.
You need to reach that financial independence number through building multiple streams of income. When you finally achieve it, you will be able to quit your job and still cover the cost of your current lifestyle.
Here is where most people will stop, but if you want to go even further, there is much to be done.
Final Step: Financial Freedom Number
Once you know your financial independence number, think about all the things you want in life. List them out. Figure out how much they cost. Most people overestimate how much it costs to live their ideal lifestyle, so it is crucial to use these figures to set a clear goal.
Your financial freedom number is the passive income you need to generate per month to live the life of your dreams, to do what you want without worrying about money, and to give back at the level you have always wanted.
Once you have your financial security number, financial independence number, and financial freedom number, you will have clear milestones to aim for and can start steadily build toward them.
How to Achieve Financial Freedom Through Investing in Real Estate
90% of millionaires in the U.S made their fortune by investing in real estate, and the industry continues to be the most popular choice for those who seek to build enduring wealth.
Why is that? Well, if you about all the ways you could generate different streams of income in your life, most of them require significant skill, knowledge, experience, connections, and often, startup capital.
You can see what we mean every day on TV and social media. People write bestsellers, design award-winning apps, start new companies, and countless other ventures.
But with real estate is simple and straightforward. It all comes down to buying a property and renting it out. Sounds pretty easy in comparison to all those other complicated ventures, right?
As the saying goes, “when something is too good to be true, it usually is.”
Even though knowledge helps a lot, you don’t have to be a rocket scientist to invest in real estate. 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 hard-working couple, who pay you rent every month. The 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.
If you are thinking $250 per month is not nearly enough to retire on, you’re right. But it’s a start, a stepping stone. Instead, envision how your finances will look if you had five of these rental properties.
As we said before, there’s no hack or quick scheme that will get you to financial freedom. You have to build your path there, brick by brick.
Investing In Real Estate Syndications
If you don’t want to deal with the hassle of finding and fixing up a property yourself, syndications might be your best bet (i.e., a group investment).
In a real estate syndication, a group of investors comes together, and each one puts in some money. Together, the group raises the capital needed for the down payment and any renovations. It’s just like the rental home example, but on a bigger scale.
Sponsors or General Partners are the folks who are doing the heavy lifting. They are the ones responsible for all work 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.
They receive a cut of the returns for their work, but the majority of the profits go to investors.
The beauty of syndications is that they’re the very definition of passive investing. 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 invest your money and get returns.
This system allows you to quickly diversify and build up multiple streams of passive income in different markets and asset classes.
Before You Start 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, independent, free, or just starting, you now have the map before you. And as it is with any trip, be sure to enjoy the journey.
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