Upon searching for the term “financial freedom,” one may notice that it is often used interchangeably with “financial independence.” However, is there a distinction between the two?
Analogously, consider a young child who has just learned to walk. As they gain mobility, they become increasingly independent and no longer require assistance to move from one location to another. However, as any parent knows, a child’s stamina is limited, and they may grow tired on long walks. This indicates that while the child has achieved a degree of independence, they have not yet attained complete freedom of movement. This is akin to the difference between financial independence and financial freedom, and we will explore this concept further in the context of real estate investment.
Financial Independence VS Financial Freedom
Let’s consider the analogy of a toddler learning to walk and apply it to your financial situation. Have you attained a level of financial mobility where you can freely move about, or are you struggling to make ends meet from paycheck to paycheck?
To gain clarity, imagine losing your job today. Would you have sufficient alternate sources of income to meet your basic needs? Do you have an emergency fund at your disposal, or enough passive income to sustain your current lifestyle indefinitely?
It’s important to note that we’re referring to income and not savings. While savings may eventually deplete, ongoing passive income can provide lasting financial security. Unlike active income earned from employment, multiple streams of passive income are essential for achieving financial independence and freedom, which enable you to generate income while you sleep.
As a physician I was financially independent, I was a high earner and to most standards, an achiever. But I was handcuffed to the “job”, the long hours, and to the demands of the hospital administration. For me, and many others like me, this wasn’t financial freedom and I wanted more.
Attaining financial freedom and early retirement is a gradual process, marked by various milestones along the way.
Let’s look at these milestones:
Milestone #1 – Financial Security
Financial security is the first milestone on our journey towards financial freedom. This milestone is achieved when we have enough income coming in through other sources to cover our basic living expenses in the event that we lose or quit our job. Having an emergency fund is great, but it won’t sustain us indefinitely. That’s why we need additional sources of income, like rental properties or dividend-paying stocks, to achieve financial security.
Once we’ve achieved financial security, we can rest easy knowing that we can cover our basic needs without relying on loans or credit cards.
Milestone #2 – Financial Independence
Financial independence is achieved when we have enough passive income to cover our current lifestyle, including all the little extras we enjoy. This milestone allows us to retire early and continue living our current life without ever having to work again.
To achieve financial independence, we must build multiple streams of income. This means creating a portfolio of assets that generate ongoing passive income. This could include rental properties, dividend-paying stocks, or even a business that generates ongoing revenue.
Milestone #3 – Financial Freedom
While financial independence is a significant achievement, some people may want to take it one step further and achieve true financial freedom. True financial freedom means having enough passive income to cover not just your current lifestyle but the lifestyle you’ve always dreamed of. This means being able to travel first class, stay in luxury hotels, and indulge in other extravagances without worrying about the cost.
True financial freedom means having enough passive income to do all the things you’ve always wanted to do without having to worry about where the money is coming from.
Your Path to Financial Freedom
Achieving financial freedom and early retirement is a journey, and just like a child learning to walk, it involves progressing from one milestone to another. The path may differ from person to person, but the ultimate goal and the milestones remain the same.
Sadly, many people spend their entire lives living paycheck to paycheck (or worse, 12 hour day, to 12 hour day) without realizing that they have the power to design the life they want to live. However, if you’re reading this, you know that there’s something better out there for you, and you’re ready to take control of your financial future.
The first step to creating a meaningful life by design is to determine your passive income goals. These goals are based on three financial milestones: financial security, financial independence, and financial freedom.
To determine your financial security number, calculate your average monthly spending on basic necessities, such as food, shelter, clothing, and other essentials. This number represents the minimum passive income you need to cover your basic living expenses if you were to lose your job today.
Next, calculate your financial independence number. This number represents the average monthly expenses for everything you currently spend money on, including your basic necessities and all your discretionary spending. This is the passive income you need to quit your job and maintain your current lifestyle.
Once you know your financial independence number, the next step is to determine your financial freedom number. This number represents the passive income you need to generate per month to live your ideal lifestyle, including all the things you’ve ever wanted to do and give back at the level you’ve always dreamed of.
By setting clear financial goals for each milestone, you’ll be able to steadily build towards achieving financial freedom and early retirement. Remember, the journey may be long, but the reward is worth it – the ability to live the life you’ve always dreamed of without having to worry about money.
How to Achieve Financial Freedom Through Investing in Real Estate
Investing in real estate is a time-tested way to build wealth and create financial freedom. In fact, more millionaires have been created through real estate investing than any other means. Investing in real estate is beneficial for multiple reasons, it provides multiple streams of passive income, tax benefits, and potential capital appreciation. However, there are different ways to invest in real estate, and two popular options are investing in rental properties and investing in real estate syndications.
When you consider all the ways to generate streams of income in your life, many require significant skill, knowledge, experience, connections, and capital. Real estate, on the other hand, offers a relatively simple and accessible path to building wealth.
For example, one of the easiest ways to invest in real estate is to purchase a property and rent it out. This may sound like a game of Monopoly, but it’s a proven strategy that many real estate millionaires have used.
One of the best things about real estate investing is that you don’t need to be a rocket scientist or have a lot of money to get started. In fact, there are many different ways to invest in real estate, from buying and holding rental properties to flipping houses to investing in real estate investment trusts (REITs) or crowdfunding platforms.
Of course, like any investment, there are risks involved in real estate investing. But with the right strategy, a solid understanding of the market, and a willingness to put in the work, investing in real estate can be a highly rewarding path to financial freedom.
So if you’re looking to build wealth and create financial security for yourself and your family, don’t overlook the potential of real estate investing. It may just be the key to unlocking the financial future you’ve always dreamed of.
What is the difference between investing in real estate and investing in real estate syndications?
Investing in rental properties involves purchasing a property, fixing it up if necessary, and renting it out to tenants. The rental income generated from the property is used to cover the mortgage payments and expenses, with the remaining amount serving as cash flow. For example, if you invest $20,000 in a rental property that generates $250 per month in cash flow, you would receive $3,000 per year.
While investing in rental properties can be profitable, it also requires active involvement in finding and managing the property, dealing with tenants, and handling maintenance issues. Moreover, it can take time to build up a portfolio of rental properties to generate substantial income.
On the other hand, investing in real estate syndications involves pooling money with other investors to purchase larger properties such as apartment complexes, commercial buildings, or industrial facilities. The sponsor or lead investor manages the property and handles all the operational aspects, while investors contribute capital and receive a share of the profits. Real estate syndications offer the benefit of passive income, allowing investors to diversify their portfolio across different markets and asset classes.
For instance, if you invest $50,000 in a real estate syndication with a projected cash-on-cash return of 10%, you could receive $5,000 per year in passive cash flow distributions or approximately $400 per month. The beauty of real estate syndications is that investors have no active responsibilities, and the sponsors handle all the heavy lifting.
In conclusion, investing in rental properties and real estate syndications offer different benefits and challenges. Rental properties require active involvement in finding and managing the property, while real estate syndications offer a more passive approach to investing in larger properties with the help of experienced sponsors. Both strategies can help investors build wealth through real estate, and it ultimately comes down to personal preference and investment goals.
Start your Journey to Financial Freedom Today
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 Viking Capital Investor Club, a community of like-minded individuals all on the path to financial freedom, just like you.
