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
Domestic help 2,000
Basic shopping 5,000
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.