In the book “Set for Life: Dominate Life, Money, and the American Dream” I found this formula for financial independence:
Assets * Return > Lifestyle
The value of your assets multiplied by the annual return these assets generate must be more than your annual living expenses. This is a simple and powerful formula we should consider thinking about for ourselves.
Consider that this formula has only THREE variables. We can achieve financial freedom earlier by manipulating ALL three of these variables.
The average person focuses mainly on the first variable – the amount of assets they stockpile. These are people that save in their 401ks and their company retirement plans. These people all have a specific wealth number they’re trying to hit before they can retire. “My number is $1,000,000.”
There are many reasons why the average person operates this way..
- This is what they’ve been taught by the financial community (financial planners, Money Magazine, Fidelity, Vanguard, etc.)
- They typically generate lower rates of return on their invested funds after paying management fees for decades.
- They want to be completely passive investors and prefer not to get their pretty little hands dirty.
Because these average people focus mainly on the amount of assets they’ll eventually accumulate throughout their working days, they only save a small portion of their income (10-15%). This lower level of monthly savings gives them larger take home paychecks, which they eagerly trade away when they agree to significant mortgages on their large homes.
Had these average people been saving more each month, they wouldn’t have bought large homes with big monthly mortgage payments. Their higher level of savings would have forced them to keep their living expenses lower thereby manipulating two of the variables in the formula to their advantage.
As Cashflownaires, we actually value AND manipulate ALL THREE VARIABLES of the freedom formula.
We do this by not accepting lower rates of return on our invested dollars. We also choose to be active investors in order to generate 15% (and higher) annual returns. We’re also keep paying off debt as a priority. This is because reducing our living expenses is dramatically accelerates our achievement of the freedom formula.
We work hard on all three variables of this formula at the same time. We do this because we truly value our time. We’re not willing to trade away 40 years of our lives for paychecks. We’re willing to roll up our sleeves and get off the couch to find attractive cashflowing assets. We’re willing to be active investors. We’re willing to get our pretty little hands dirty if it allows us to be free.
In the Cashflownaire Membership, we work on all three of these variables. We increase our return on investments by turning small investments into monthly income. We use this monthly income to pay off our debt.
You can get started here: