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Financial Freedom

What is financial freedom? A definition

We at AZAD define ‘financial freedom’ as – the state when your “passive income” is more than your living expenses. “passive income” is income you earn without working.

A simple example: Amit, a 27 year old, spends the following every month:

Rent, electricity etc.       10,000

Groceries, milk, etc        10,000

Eating out, movies etc     5,000

Travel                               3,000

Domestic help                  2,000

Basic shopping                5,000

 

Total                                35,000

When, the interest, rent, dividend and other such income of Amit exceeds ten he is said to be financially free.

Say in this example, Amit gets

Interest from FDs, Bonds, Liquid, Debt funds:    10,000

Rent from property in home-town                        20,000

Money from FD left by his late father                     7,000

Amit earns “passive income” of                            37,000

Thumb rule is monthly income * 200 = Assets required to be financially free.

Means Amit needs 70lacs in assets to be financially free. This may take some time if he starts with low amount of Assets. Lets assume Amit has assets worth only 10 lacs. Amit’s salary is 8lacs CTC and he normally gets 1lac bonus.

As per some quick calculations, he can be financially free by the time he is 40. This is conservative and does not include any extra income or surplus that he can generate.

 

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