The financial freedom number is an important number to calculate if you want to be financially free.
If you want to know what financial freedom means read this post.
Now, let’s get practical. The financial freedom number is not difficult to calculate. Do not waste your time trying to get exact figures, ball-park figures will do.
Step 1: Calculate your monthly expenses. To do this you can use this excel-based budget planner or if you are the sort of person who likes to print out and write by hand you can use this print out based budget planner.
Step 2: Determine your passive income. Passive income is that which you get without having to work for it directly. Some sources of passive income are shown below –
Step 3: Find out your financial freedom number. This is calculated as follows –
Financial freedom number= Monthly passive income-Monthly expenses
- If financial freedom number is greater than or equal to zero, i.e positive number, it means your passive income is greater than your monthly expenses. So you are financially free.
- If financial freedom number is negative, then you are not financially free.
then, financial freedom number is equal to 1000-50000= -49000
So this means you can cut your expenses or increase your passive income to cut your financial freedom number to zero or even better, make it positive and then you can be financially free.
We shall look at ways to do that in future posts.