This is the 3rd and final part of the Financial Independence Series on the Millennial Life Admin Podcast.
But before I even start I want to put a little bit of a disclaimer out there: t I’m not a financial planner or a financial advisor. This is not professional financial advice, it is only for educational purposes on how to start planning your financially independent future. I highly recommend you seek a professional’s opinion if you will be making any significant financial decisions.
Okay, let’s get started!
1. Evaluate Your Current Assets
The first step in creating your plan for financial Independence is evaluating your current assets. This is going to be a very personal decision. Financial plans are already very personal, but a financial independence plan, because of the aggressive goals involved, t becomes even more personal.
There is no one size fits all model for this type of goal and it will be very different depending on where you currently are in your financial journey. Later in this article, we will talk specifically about passive streams of income to sustain your financial independence plan, but we first have to look at evaluating your starting point.
For me, it’s my rental property. However, that may not make sense for you because it takes a lot of capital and it will depend on where you live and your preference for creating “passive income”. (more on preferences later, renting not a waste of money, ep 10 rent vs. own)
For my rental property, I have 3 scenarios on how it takes fit in my financial independence plan:
- Pay off the mortgage and live in the property reducing my everyday living expenses (no rent/mortgage).
- Pay off my mortgage and have my tenants live in the property and rely on that stream of income for my financial independence plan.
- Sell the property and invest it in something else.
Another asset is my pension. Your assets may vary between different investments, pensions, etc. and it’s important to input your current assets.
2. Understand Your Circumstances in Your Financial Independence Plan
After you consider your assets, you need to evaluate the circumstances that can help you reach Financial Independence faster or slower such as debt, lifestyles, etc.
When you calculate your net worth, the formula is assets minus liabilities and it the same could be applied to creating your Financial Independence Plan, I want you to think about assets plus/minus personal circumstances because money isn’t created equally and it especially it shouldn’t be evaluated equally when creating a Financial Independence Plan. I can say this with complete confidence because as someone who lived by myself, with my own mortgage, for a few years, I can testify to how much easier financially it is to live with a spouse. (In this article, I talk about my struggles with creating an emergency fund and how much easier it was to hit my 10K goal when I had help).
When you create these types of plans, it can be easy to feel shame or overwhelm, but as we move through this section I want you to give yourself grace so that you can create a realistic, personal Financial Independence Plan. Don’t compare it exactly to mine or someone else’s off the internet, really allow yourself to be honest and realistic because as we calculated in Part 2, it’s going to take a long time.
So when you create your Financial Independence Plan, you have to consider what will be incorporated into it. What will you pay off and what will you cut out? Financial Independence takes a lot of sacrifices (Part 1) and if you have an expensive car payment – including gas, insurance etc. it might have to be cut to be a part of your Financial Independence Plan.
Also, consider your work circumstances. I also have multiple pensions and so does my partner, so that can contribute towards our goal of FI. However, you may not have a partner or have a pension, which means your avenues to achieve FI could look very different if you are self-employed and have your own business or you work for a company that does not offer any retirement matches/plans.
Another circumstance to consider is debt – including credit cards, cars, student loans, and mortgages (*yes this is debt too*).
I am very fortunate that both myself and my partner are debt-free apart from our mortgages, but again, that is our current circumstance.
We both paid for our education ourselves (although I was highly supported by scholarships and bursaries) so we can start off without having to pay down debt. However, if you have debt and are planning to pursue FI, that will be your first priority.
And even if the debt is not there, what could be cut out? Even for me who lives pretty basic – I don’t buy much apart from groceries and household items, but I could definitely cut more out. I have Amazon Prime, we also bought a $1500 e-bike this year, and we both buy a lot of plants haha
However, there is a balance between living a meaningful life and achieving financial independence and you have to figure out what your FI number is to achieve it. (Part 2).
There are so many circumstances that are involved in anyone’s lifestyle and the last one I want to talk about his illness. You may also be taking care of a sick parent, or sick yourself, and that could shift your priorities and ability to reach FI quickly. I have been there, and that’s okay.
I don’t believe in money, shame or guilt. That’s why I’m a career coach because I believe in changing circumstances, not dwelling on the past that nobody can change and this awareness is very important.
You need to create your Financial Independence Plan based on your personal circumstances.
3. Creating Passive Streams of Income For Your Financial Independence Plan
There are many ways to create passive income. If you Google it, 5 million hits will come up.
However, you don’t have to do all of them, and a lot of them are not actually passive. In this section, I’m really going to concentrate on *sustainable* passive streams of income, not selling your clothes on Craigslist because that’s not passive or sustainable because you have to still manually do it, and you will eventually run out of clothes
Actually, I would recommend learning and focusing one at a time so you can do it really well and then move on to focusing on the next one. I’ve really learned this through trial and error because there are so many different ways to create passive streams of income – for example like mine is rental property. But that takes an enormous amount of capital and that might not be best for you.
That’s why it’s so important to consider the category of passive streams of income that you need to concentrate on. You could do everything all at once, and you might see mild success is some streams of income, but you won’t truly build something everlasting in any of them. I’ve done this before when I’ve gotten caught up in shiny object syndrome – I would read how someone made X amount of money building a blog or selling on Etsy or then want to do that – but the truth is, to do anything well, you have to put the time and effort in. As I mentioned in Part 1 of this series, I don’t believe in doing whatever it takes to reach financial independence – especially if you’re miserable. That’s why it’s so important to choose a passive stream of income and investing strategy that works for your preferences when building your Financial Independence Plan.
Let’s start with creating passive streams of income: there are 3 categories in which you can do this. You can build, sell or invest when it comes to building passive streams of income.
Building Your Passive Stream Of Income
This category of passive streams of income is for you if you are interested in building a tangible stream of income like rental property income, having a YouTube channel, blogging etc. This category has great payoffs, but it requires a lot of patience and initial work in the beginning with no reward. When you start blogging or building a YouTube channel, yes the payoff could be really high, but you’re most likely not going to get 10000 views on your first video or blog post. However, if you build it to a certain level, you could start making passive money through advertising or affiliate marketing (when you link a product and get a commission). This is the same for rental property because it is a lot of upfront investment to not only buy the property but also maintain it passively. The investment may not pay off all at once, but as the property value rises, the income will be easier. You can also list rental properties on Airbnb and it may take a while to get really great ratings, but once you become a Superhost or have a history of good ratings, your property will be more booked.
Passive Streams of Income for this category include:
- Rental Property/AirBnB
- Blogging (Advertising and Affiliate Marketing)
- Building A YouTube Channel (Advertising and Affiliate Marketing)
- Publishing a book (Royalties)
- Building a business that involves licencing your copyright materials (Royalties) i.e. publishing a book, creating music, etc.
- Creating a niche website (Advertising and Affiliate Marketing)
- Building an online business sells digital products or utilizes drop shipping (Automated sales)
This category might be really appealing to you if you are really goal-oriented and are able to put in the work at first without seeing results. It’s also important that these types of endeavours speak to you creatively as well.
Selling Your Goods + Services
The next category of creating a passive stream of income is selling. This category is great if you are creative and like marketing. It’s also a great category if you like to see the immediate results of your hard work.
Passive Streams of Income for this category include:
- Selling digital products on Etsy, Creative Market, or Society 6
- Selling stock photos on iStock or Getty Images
- Selling Online Courses on Teachable, Kajabi, or Thinkific
Passive Income Investing
The last category is passive income investing. This is for you if you don’t want to go through all the hoops of building and selling things online and don’t need these types of activities for a creative outlet; you just want to concentrate on the capital itself. This is a great category if you are willing to really take the time to learn about investing. Unlike the other categories, which you could basically learn as you go, investing takes learning. Trust me, I tried to do without knowing all the terms and strategies and I made a ton of mistakes that I shared
Passive Streams of Income for this category include:
- High Yield Dividend Investing
- BRRR Real Estate Investing (Buy, Renovate, Rent, Refinance)
- Robo-Investing (Ex. Wealthsimple)
- Real Estate Investment Trust
- Refinancing Mortgages and Loans
- Interest on High-Interest Savings
And that is how you create a Financial Independence Plan. It can be really hard but it is definitely doable. Remember, pursuing financial independence is worth pursuing even if you don’t achieve it. I hope you’ve enjoyed this series – make sure to also check out Part 1 and 2 of this series for your full roadmap on the journey to financial independence!