Financial Freedom

 Financial independence is the status of having enough income to pay one's living expenses for the rest of one's life without having to be employed or dependent on others.^[1] Income earned without having to work a job is commonly referred to as passive income.

There are many strategies to achieve financial independence, each with their own benefits and drawbacks. Someone who wishes to achieve financial independence can find it helpful to have a financial plan and budget, so that they have a clear view of their current incomes and expenses, and can identify and choose appropriate strategies to move towards their financial goals. A financial plan addresses every aspect of a person's finances.

Source of Income to achieve financial Freedom(passive source)-

The following is a non-exhaustive list of sources of passive income that potentially yield financial independence.

• Bank fixed deposits and monthly income schemes
• Business ownership (if the business does not require active operation)
• Dividends from stocks, bonds and income trusts
• Interest earned from deposit accounts, money market accounts or loans
• Life annuity

• Notes, including stocks and bonds etc.

Approaches to financial independence-

If a person can generate enough income to meet their needs from sources other than their primary occupation, they have achieved financial independence, regardless of age, existing wealth, or current salary. For example, if a 25-year-old has $1000 in expenses per month, and assets that generate $1000 or more per month, they have achieved financial independence. They have no need to work a regular job to pay their bills.

On the other hand, if a 50-year-old has assets that generate $1,000,000 a month but has expenses that equal more than that per month, they are not financially independent, as they still have to earn the difference each month to make all their payments.

However, the effects of inflation must be considered. If a person needs $100/month for living expenses today, they will need $105/month next year and $110.25/month the following year to support the same lifestyle, assuming a 5% annual inflation rate. Therefore, if the person in the above example obtains their passive income from a perpetuity, there will be a time when they lose their financial independence because of inflation.

If someone receives $5000 in dividends from stocks they own, but their expenses total $4000, they can live on their dividend income because it pays for all their expenses to live (with some left over). Under these circumstances, a person is financially independent. A person's assets and liabilities are an important factor in determining if they have achieved financial independence. An asset is anything of value that can be readily turned into cash (liquidated) if a person has to pay debt, whereas a liability is a responsibility to provide compensation. (Homes and automobiles with no loans or mortgages are common assets.)

Since there are two sides to the assets and expenses equation, there are two main directions one can focus their energy: accumulating assets or reducing their expenses.

Expense reduction

Another approach to financial independence is to reduce regular expenses while accumulating assets, to reduce the amount of assets required for financial independence. This can be done by focusing on simple living, or other strategies to reduce expenses.