The 2 Key Elements For Financial Freedom
While financial freedom requires work, there are actually only two key elements required for financial freedom. Assets and Liabilities.
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Achieving financial freedom isn’t easy and it does require a lot of work, but there’s actually just two key elements that are required to achieve financial freedom. So in this episode I want to talk about what those two key elements are, give you this framework, and so then you can go about creating financial freedom in your own life. One step at a time. Hey, I’m Ryan from on-property dot com dot EU. I hope people invest in property and achieve financial freedom. And when it comes to achieving financial freedom, there’s two key things that you need. One of them is assets, and I’m going to use Robert Kiyosaki’s definition of an asset here rather than the financial definition. And so an asset is something that generates passive income and puts money into your pocket. So you’re going to need as many assets as possible and you’re going to need as little liabilities as possible.
And so liabilities are things that take money out of your pocket. So basically the opposite of passive income. So if you have a loan to pay interest on that, that’s a liability. If you have a house, even if you own that house outright, you’ve got to pay rates, you’ve got to pay insurance, you’ve got to pay water for that house, so they are liabilities, their expenses in your life that you need to pay for. And so the two key elements for financial freedom is as many assets as possible and as few liabilities as possible. And to achieve financial freedom, you just need more income coming in from the assets than you have going out from the liabilities. And that’s how you flip the scale into financial freedom. So there’s two ways you can do that. Obviously you can decrease your liabilities so you don’t need as much passive income coming in, or you can increase your passive income or you can go ahead and do both.
So the key element here is that you’re going to need to create some passive income in your life to achieve financial freedom. So a lot of people go after, after just owning their own home, owning their own home outright, which I think is a really great goal. But let’s have a look at that from the asset standpoint. And the passive income standpoint, well, owning your own home and owning an outright can be great for reducing your liability. So if you need to pay rent or if you need to pay a mortgage, then that’s some serious expense that you need to pay each and every week or each and every month in order to live in that property. If you can own a house and own it outright, you’re taking away rent, you’re taking away mortgage, and so even though you still need to pay rates, insurance, etc, that’s going to be significantly lower than someone who’s paying your mortgage or someone who’s renting.
So by owning your own house, you’re reducing your liabilities, which is a good thing, but if you don’t have any passive income, it’s never going to create financial freedom. So really there’s only one key element to creating financial freedom, and that’s assets that deliver you financial freedom. Reducing your liabilities is good because it means it’s easier to achieve financial freedom. You don’t need as much passive income from your assets, but really you only need that one key element, which is the assets that deliver you financial freedom. Now these assets can come in many different forms. It could be in shares and dividends that those shares pay out. It could be through investing in property and the rental income from those properties. It could be investing in cash and then making a return in cash, though with current interest rates as well as inflation, the chances of you achieving financial freedom and enough passive income through savings alone is extremely, extremely small, so you can invest in a lot of things.
It could be a business that just runs without you, which is how I achieved my financial freedom. I have online businesses that run without me needing to touch them every single day. So that’s how I achieved my financial freedom. So let’s have a look at building these assets because there’s two ways you can do it. One way is you can purchase that asset, and the second way is that you can go ahead and actually create that asset from scratch. Now that is harder. It makes a lot more sense for people to go ahead and purchase assets. So you might work in a job and you go to work. You work everyday, you earn money, you spend less than what you earn, you save up some money and use that money to purchase assets that will generate income. Canna Campbell from the thousand dollar project, she’s written a book called the thousand dollar project, which I absolutely love.
I’ll leave the links to that in the description down below. She saves up these chunks of a thousand dollars and then she invest them into shares that will deliver her dividends, so that’s a way that she takes money and she purchases assets that deliver her passive income. The same could be said for investing in property. You take savings in the form of a deposit. You also borrow money from the bank, so you’re using other people’s money and you then go out and you purchase this asset being an investment property. Now like with the classification of assets, if that property was positive cashflow, I would classify that as an asset. If that property is negatively geared, even if it’s going up in value, I would classify that as a liability because it’s actually taking money out of your pocket and not helping you. Well, it could be helping you move towards financial freedom, but at that exact point in time, it’s keeping you from financial freedom.
So I think probably is that generate positive cash flow or an asset. That’s the way I look at it. Obviously you want capital growth as well and so we’re kind of stepping outside the definitions that we’re talking about today, but yeah, the idea here is that you can take money and then you could invest it in shares, you could invest it in property, you can invest it in businesses, you could invest it in. There’s a whole bunch of different other things that you could invest in in order to get that passive income coming in. So that’s one way to do it and that might be the best way for a bunch of people out there. I spoke to a guy, young guy recently, Jonathan, who has been working really long hours, like I think you were saying 50 or 60 hours a week and he’s been saving and uses his savings to purchase properties and generate his passive income that way.
So that’s the way that a lot of people do it. That’s one way that you could do it. I really do like the thousand dollar project idea and so please go to today’s show notes. If you’re listening to the podcast at on-property dot com dot EU for session 5:40, and I’m going to link to link to that book there. So go ahead and purchase that book. But the idea in the thousand dollar project is great for people out there who are employees, even if you run your own business, but just this idea of saving these chunks of a thousand dollars and using them to purchase at investments that’s been off passive income, absolutely loved that idea. So that’s one way that you can do it. The other way is the way that I did it, which is you create your passive income from scratch and generally that’s going to be in the form of businesses.
You can’t actually do it through creating partnerships and you could be investing in property with none of your own money by doing joint ventures, et cetera. But for me, I did it through creating my own businesses and I know that a lot of people out there had done this as well. You could do it online, you could do it offline and have people manage your businesses for you. But yeah, you can create things from scratch. Technically it’s probably not exactly from scratch because you know, you need money to purchase a domain name, build a website or purchase gear to film with to create youtube videos. But there’s lots of opportunities out there where you can put in sweat equity so you can put in your time and you can create an asset that spins off extra money. So for me, I’ve got niche websites that I have created, like I’ve got one that I made maybe eight years ago that makes it a little bit of money each month.
Not Heaps, but I literally don’t think I’ve touched that or made new content for that in the last four or five years and it still makes money every single month. So that’s really something that I haven’t touched in a long time, but continues to spin off income. So I created that from scratch, I created all the content for that website. I took a risk on that in order to spend my time and my effort creating that, not knowing if it’s going to generate a return that one did. I’ve got a whole bunch of other websites that have been complete failures where I’ve taken the same amount of time and effort, maybe even more time and effort put into these websites that then created nothing. So obviously if you’re creating an asset from scratch, it’s going to be a lot more difficult. There’s more risk involved, but if you’re just investing your time, you can really build up some great assets.
There’s another website that I have where I recommend, or maybe it’s a youtube channel that I have actually where I talk about some of the online services that are used to run my own business. I reviewed them and stuff like that. I created that maybe one or two years ago did some videos for that. Referred people to an email marketing service that I use and there’s people who sign up for that and each month that they pay for that service, I get a commission for that. So even though that website is not doing as much traffic or sales anymore, sales that I got one or two years ago are still delivering me passive income today. So there’s so many different ways that you can create an asset and you can create that passive income. I think we get skewed because so often we’re thinking about the big numbers and the capital growth around property and a million dollars in equity or $5,000,000 in equity or owning 10 properties that we forget about the idea that really if financial freedoms, your goal, the passive income is what you care about, not the equity.
And so for me, I’ve got these websites or I’ve got these youtube channels or I’ve got these businesses that spin off passive income, but truthfully they’re probably not worth a lot of money in terms of equity. So or try and sell that business. I couldn’t get a lot for it, so I have very little equity in those businesses, but for me, what’s important is the passive income and so I’ve been able to create that passive income and then get financial freedom that way and there’s lots of different ways to do that. But yeah, I guess I just wanted to give you guys a framework today to say if you want to achieve financial freedom, sure you can do it through investing in property and generate passive income that way, but just to have this idea that by reducing your liabilities, by increasing your assets and assets, not being equity, not being things of value, but assets being income generating assets, so things that generate passive income without you needing to do anything.
Building up that passive income side while reducing your liabilities, that’s going to give you the framework you need to go ahead and start to move towards financial freedom. And for me, it didn’t happen all at once. Where I was, you know, click my fingers and I’m financially free, but I would build up these little revenue streams one at a time and then eventually they build to quite a sizable amount where if you’re working a job as well, you’ve got these extra things that are making money you can reinvest to create them or create more of them or you can take the money that they’re spinning off to purchase assets like purchasing shares or purchasing property. So there’s many different ways to do this. It’s really up to you how you do it and where you feel your strengths lie. But yeah, just wanted to share this concept today of looking in your life at ways you can either purchase assets that generate passive income or ways that you can create them yourself as well as looking at ways to reduce your liability.
So I recently did a video on why we’re getting rid of our credit card because that’s a liability in our life that we would need a significant amount of money to offset that liability. So just by getting rid of that liability, I now don’t need as much income coming in in order to be financially free. And so that’s a really cool video. Go ahead and check that out. Why I’m getting rid of my credit card and don’t forget to subscribe to the channel because we’ve got new episodes coming out every single week. Day. That’s it. Different me today guys. And until next time, stay positive.