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  • Writer's pictureRick Martin

Financially Independent or Financially Free - Become Either Through Real Estate

Financial independence and financial freedom seem to be the same thing. As someone once said - "They're the same, but different." One essentially means you did it. You are free from the shackles of your W-2 for those that don't like their W-2. The other is what we call having "F.U. money." They do share some common foundational qualities. For instance, gone are the days of treading lightly above that minimum balance of your bank account, or maxing out credit cards, or staring at a mountain of student loans. They (Financial independence and Financial Freedom) may both be getting you more attention from a financial advisor. And both are seeking better ways, if not the best way, to grow that savings account with vehicles other than mutual funds and the stock market.

F.I. and F.F. help you make early retirement plans. There is nothing wrong with putting that day job in the rearview mirror, which both have succeeded at doing. However, one has a net worth that will take care of not only you but your family members and generations to come. To know which lifestyle may suit you, you'll have to reach down deep and truly discover what your life goals are.

Let's take a good look at the differences between financial independence vs. financial freedom and see how investing in real estate can help get you there.

Financial Freedom vs. Financial Independence

Are your finances in a place where you have enough passive income (outside your salaried job) to cover your basic expenses (and unexpected expenses too)? Can you lose your job and not sweat it? Do you have a fully-funded emergency fund? Will your passive income fund your current lifestyle indefinitely?

Savings are a hard way to fund a lifestyle for an extended period. However, ongoing passive income builds while you sleep.

To achieve financial independence or financial freedom, you'll need to build multiple streams of passive income over time. Thus it's called a financial journey.

Milestone #1 - Financial Security

What if your salary vanished tomorrow? If you still had enough money coming in from other sources to cover your basic living expenses, that would be financial security.

Sure, you might have an emergency fund, but what if finding new employment takes longer than expected, and that nest egg runs dry? Building multiple streams of income is necessary, so the well never runs dry. I don't think, under any circumstances, is having a little extra money is a bad thing.

Becoming financially secure is the first step toward financial freedom and early retirement.

Milestone #2 - Financial Independence

Being financially secure means you can cover all the bare-bones basics to survive. Still, being financially independent means you can cover those basics plus a few conveniences or luxuries like dining out, family vacations, and some Amazon Prime.

Financial independence allows you to retire early and maintain your current lifestyle without working ever again. Multiple streams of passive income can fund your lifestyle while you choose what you want to do day-to-day.

Milestone #3 - Financial Freedom

True financial freedom is one step beyond financial independence. Financially free individuals' passive income can fund the luxurious, travel-inspired, do-what-I-want lifestyle.

What exactly does financial freedom mean? For starters, you can make choices like flying first class, upgrading to the ocean-view suite, and bringing a friend pro-bono without worrying about how you will fund it. You can keep a less watchful eye on your annual spending. Now, do you know which one has the "F.U. money?" It goes well beyond financial stability. Yes, it probably consists of a crazy or at least a very comfortable amount of money.

Some call it a limiting belief: "I don't deserve to be that rich!" Or, perhaps you know best what the most important things in life for yourself are. Being financially independent will be just fine as long as you have a constant stream of a passive, steady income and set for the rest of your life. You don't need or want that Learjet.

Your Path to Being Financially Free

Everyone's financial path begins from a different place, with other numbers and circumstances. Not every income level is the same, of course. However, the ultimate goal and the milestones along the journey are the same.

You know that living paycheck-to-paycheck is not for you. You're aware of the possibilities for your future and your financial situation due to carefully planned budgeting and investing. You're going to need some passive income goals against which to measure and gauge your progress down the path.

Financial Security Number

An important step is to look at your current expenses (bills + anything else you pay for) and extract the costs for the basics of day-to-day living. How much on average do you spend on food, shelter, clothing, and other basics?

That's your financial security number - the amount you need in passive income to become financially secure. For those with high incomes, this will be a more significant challenge, and you may be thinking this could take a long time. Dread not - a little patience, persistence, and brick by brick attitude will get you on the right track.

Financial Independence Number

Next, look at your current finances and lifestyle in totality. What does it take to fund the whole deal? You will start with the basics (those covered by the financial security number) plus all the enjoyable conveniences. This equals the monthly amount you need in passive income to achieve financial independence.

When you build enough passive income streams to cover your current lifestyle completely, that's financial independence. You're financially independent of needing to work.

Financial Freedom Number

Once you have calculated your financial independence number, take a step back, and consider the things you WANT to afford. Find out how much money the lifestyle you dream of will cost. This dream lifestyle number is your financial freedom number.

Your final steps along the financial journey path include building multiple income streams. The passive income you earn is enough to fully fund this dream lifestyle and help you achieve true financial freedom.

How to Achieve Financial Freedom Through Investing in Real Estate

There are a bunch of ways to generate passive income streams. You might become an author, design an app, or start a business. Still, all of those require significant skills and knowledge the average Joe doesn't have.

However, more people have become millionaires through investing in real estate. Why? Because it's so simple!

You buy a property and rent it out. It sounds like the game of Monopoly - pretty simple, right?

Investing in Rental Properties

Let's pretend you've saved up $20,000 for investment. You put $15,000 down on a rental home and use $5,000 to boost curb appeal and refresh the paint. A nice little family rents the place. Their consistent rent payment more than covers the mortgage payments and other expenses, so you're earning cash flow each month.

$250 per month in excess cash flow after the mortgage and taxes get paid isn't much and won't create financial freedom on its own, but it's a step in the right direction! Add a rental home like this to your portfolio every year, and within five years, you'll be up to $1,250 per month in rental income. And with principal pay-down and appreciation, your wealth grows.

It's not fast, and there's no magic pill, but if you take the time to build slowly, you'll get there.

Investing in Real Estate Syndications

An alternate way to invest in real estate and avoid a lot of work with remodels and the late-night tenant phone calls is to invest in real estate syndications.

Several investors pool their money in these group investments ($50,000 - $250,000 each average). The money covers the down payment and the cost of renovations on a much larger-scale property.

You would be a limited partner (passive investor). At the same time, the general partners (also called sponsors) are responsible for property management, renovation coordination, and occupancy rates. Sponsors do receive a cut of the returns for their work, but most of the profits go to investors.

For example, a $50,000 investment into a real estate syndication with a 10% return will produce about $400 per month in cash flow. Syndications are genuinely passive because your money makes money, and you have no active responsibilities.

Real estate syndications are available in different markets and asset classes, which allow you to diversify and build multiple streams of income quickly.

Enjoy Your Journey to Financial Freedom

So even if your immediate goal is financial independence, you may well pass this by and attain financial freedom. And no, you don't have to say F.U. to everyone, but life may bless you with the finer things, places, and experiences in life. Hey, you only live once. Can you picture a day where you are not nervously watching over your investment accounts?

Real estate can be the easy, slow and steady approach to financial freedom no matter which stage of financial security you're at now. Being financially free? Why not, you deserve it. The cup can runneth over. You just need to start the process.

If you’re interested in investing in apartment communities and learning more about syndications, join the Fortress Federation Investor Club.

Sign up for our Quickstart Guide to Investing in Syndications below, to get up and running quickly.


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