What is your freedom figure?

I attended a weekend seminar called Achievers Conference, few months back at Bangalore where a number of international authors and speakers, had come and gave talks on the topics of their area of expertise. Notably, most of the topics were related to help participants create a passive income.

For the sake of clarity, let me explain the difference between Active income and Passive income.

Active income is something, whereinyour physical presence, time andskill is needed to create the income. For a job goer it may be salary, for a professional it may be his daily revenue through service and for a small shop keeper it may be his daily earnings through sales.In all the above scenarios the need for the person to be physically present become inevitable in order for the earning to be made.

Now let us say, due to some unforeseen happenings like a serious illness or an accident, the person is not able to go for work for few days together, it affects his earnings. For example, a Corporate employee may face loss of pay, a professional like a doctor or lawyer will not be able to render his service, which would translate to loss of revenue and for a small shop owner he may have to keep the shop closed, till he is back to normal. In all these cases, time loss equates to money loss.

Passive income on the other hand is the income generated, even without you needing to be physically present.Some examples of passive income is interest on deposits from banks, dividend on investment from companies, rental income from house property or commercial property, royalty income from sale of books, MLM,etc. In all these cases, even if the person is not able to be physically present for a substantial period of time, his income will continue to flow in from the respective sources.

Now coming back to the seminar, the seminar I attended had speakers, who talked about earning passive income through investing in house properties, writing book, creating an online membership site, selling e-books, investing in the equity market and commodity market.This programme attracted over 2000 people and it was clearly evident that there is a growing interest from people on creating a passive income. Taking into consideration the inflationary trends, the increasing living cost and in order to secure for a happy retirement, it is essential to think about creating a passive income. Moreover, creating a passive income also helps the family to be financially secure, in the event of death of the bread earning member of the family.

In this context, one of the speaker, talked about ascertaining something called a “Freedom figure”. He said everyone should identify his freedom figure and start working towards creating it. What he meant by freedom figure is the amount of money a person needs to have, in order to live the lifestyle he desires, even without working. Let us say, you need Rs. 1 lakh per month to live the life you desire, it means you have to create an investment portfolio, which will assure that the individual will earn a lakh of Rupees every month. That amount of investment is called the “Freedom figure”. Sounds easy, isn’t it? But if you look at it more deeply, you will understandit is a very complicated question. This is because, thefreedom figure will differ from time to time. What we may think is a good amount of money today, may look like too small an amount in a few years from now. It is because, weare never content with how much ever we earn. There are so many ways to spend money, when it comes to indulging in luxury and we will always end of comparing our lifestyle, with that of others. In this way, we can never be free. We will just end up in a vicious circle.

I think, that this freedom figure is very much of an illusion. The real freedom figure, lies in our contentment. When you know that you can adopt yourself to any lifestyle based on the family’s financial situation or the external economic environment, you have found true freedom.

It is true, that we need to build a sufficient investment base, to take care of our financial security. But that does not mean, we should cease to work or get lazy. Real freedom is in the ability to try out new things, stay innovative, follow our passion, take risks and be willing to face the consequences of our own choice.

Happy Reading,

D. Senthil Kannan

Article Dated Mar 2015