The Real Meaning of Financial Freedom

by Kelvin Wong 

There are many different interpretations of financial freedom. Try asking your family and friends what financial freedom means to them and they would likely be giving you different answers.

Some people define financial freedom as being very rich. To some, financial freedom is being able to afford anything that one desires. Then there are those who think that being financially free is to be totally debt-free. Still, others see financial freedom as having sufficient money to retire. Hence, financial freedom means different things to different people. What does it mean to you?

So, what is the real meaning of financial freedom? To me, you’ll achieve financial freedom when your passive income exceeds your expenses. Even if you quit your job today with no more salary going into your bank account regularly, you'll still have passive income to cover your expenses. This is a situation where you’ll never worry about money again. You now have no fear even if you lose your job. You work because you want to and not because you need to.

Importantly, note that it is passive income that I’m talking about here, not active income. What is the difference between active income and passive income?

Active income is the income you get for performing a service. The salary paid to you by your employer is active income. It requires your active participation. Simply put, you get paid when you work and you’ll be paid nothing if you don’t work. By contrast, passive income is the income that you get on a regular basis without your active participation. Some examples of passive income  include  interest income from fixed deposit, stock dividends, and  the rent collected from  an investment property.

Don't have the misconception that it takes a wealthy person to be financially free. Being rich and being financially free are entirely two separate things. While it is common for one to assume that those who achieved financial freedom are wealthy, the truth is that being financially independent has absolutely nothing to do with whether you’re rich or not. Therefore, even millionaires are not financially free if their total incomes are unable to meet the expenses arising from their luxurious lifestyles. Thinking of becoming a millionaire can be daunting but financial freedom is certainly achievable. Many people actually became financially free first before they moved on to become millionaires!

 I hope that knowing the real meaning of financial freedom would help change your perspective, and ultimately your life. Why? Because you’re in control of your expenses and the passive income that you intend to pursue. You can start your journey towards financial freedom now by controlling your expenses. At the same time, begin saving more money to invest in assets for multiple streams of passive income.

So, when will you be financially free? You call the shots!

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