Financial Freedom is the endgame of most if not all investors, including myself. To be able to live the lifestyle that you so desire on the passive income of your investment portfolio and never having to work again is indeed an attractive proposition.
Financial Freedom allows us to be the masters of our destiny and designer of our own lives. However, there is a misconception amongst most young investors that one would require huge amounts of capital (i.e. above a million) to be able to live comfortably on the passive income the capital provides. Hence, I would like to shed some light on how much capital would we actually need to achieve Financial Freedom. All we need is 2 inputs:
- What is the annual cost of your desired lifestyle?
- What is the average yield of REITs?
To find out how much capital you need to achieve financial freedom, you can use this formula:
Capital Required = Annual Cost of Desired Lifestyle / Average Yield of REITs
For example, if your desired lifestyle costs $5,000 per month ($60,000 per year) and REITs are yielding 7%, the capital required for your Financial Freedom would be $857,142.86. Therefore, you do not need to be a millionaire to obtain a comfortable amount of passive income.
Furthermore, as the underlying properties of the REITs increases in value, so does their rentals and distributions; so you don’t need not be concerned about inflation because your passive income will steadily increase over time.
In closing, the price of financial freedom really isn’t that expensive, especially in today’s context where there are million-dollar HDBs. In fact, Financial Freedom can get cheaper if we have time on our side. While the journey to the endgame is a long and arduous one, do not lose hope and sight of what Financial Freedom can do for you.
I’ll end of with a quote my old friend used to tell me incessantly:
If you want the prize, you must be willing to pay the price