Financial Freedom Formula

Financial freedom is probably the thing that is on everyone’s mind. Everyone hopes to be financially free so that we have one lesser worry. At the end of the day, what is the true definition of financial freedom? Is financial freedom being able to have a million dollars to spend? Or is it the ability to retire and stop working entirely?

I think the best definition we have came across so far is by Robert Kiyosaki. One has financial freedom when his passive income exceeds his expenses. Passive income is the ability to gain income regularly without having to do much work. It could be income from a business by which you do not have to be physically present or income that you attained by making money work for you. Despite having a high salary which exceeds your expense, do not mistake it as already achieving financial freedom. If you were to lose that high salary one day, your expense will get the better of you.

Take a look at these pictures below:

bankteller

fastfood

firefighter

surgeon

These pictures are adaptations from Robert Kiyosaki’s Cashflow Game. Those are just some examples of different occupations and not meant to depict real life income levels. What we wish to lookout for is monthly cash flow.

This is determined by the following:
Total income – Total Expense = Monthly Cash Flow

At the end of the day, it does not matter how much income you have but how much monthly cash flow does one have. You can have a high income but expense hits the ceiling monthly thus leaving you with no monthly cash flow. As a result, it is extremely difficult to achieve financial freedom with no monthly cash flow.

With a monthly cash flow, this money can be used to generate income through various things such as investing in a business, stocks, forex and etc. However, if you do use your monthly cash flow to spend it on a luxurious item, it just ends there. No income will come out of your spending bringing you back to square one. It is really simple formula.

Be sure to begin to do your homework and calculate out your own expenses to determine your monthly cash flow. Having monthly cash flow is the thing that will bring us a step closer to financial freedom. Calculate the credit card bills, shopping, food, transportation, utilities and etc.

So, how much monthly cash flow do you have?

financialformula1

 

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