Financial Freedom - THE calculation!

As mentioned earlier in my previous article, would it be actually possible we can achieve Financial Freedom (FF)? When you actually absolutely doing nothing, but still receive money at the end of the month. The next question would be 'how much do I need to achieve that?'. Most of us simply say RM1 million. Why RM1 million?

Do you think RM1 million is enough? Have you done the calculation if all the numbers met the requirement. how long do we need to generate such money? Is that actually possible in this reality world?. For example, a case of a typical Income and Expenses of an engineer (single) 25 years old in Malaysia.
Income:
 Income : RM 4000

Expenses (estimate)
 House loan: RM 800
 Car loan: RM 500
 Bils : RM 200
 Petrol : RM 200
 Entertainment: RM 200
 Giving: RM 200
 Insurance: RM 200
 Tax : RM 200
 Misc = RM 500
 TOTAL EXPENSES: RM3000

Assume the income and expenses stay the same for the next many years. He actually can save RM1000 (Income - expenses) per month and in order for him to save up to RM1 million requires approximately 1000 months (83.3 years!). Having say that, the engineer will achieve FF at the age of 108.33 (35 years + 83.3 years) years old! This sound ridiculous. In fact, the engineer can only works until the age of 55 (or 58) years old. So, if you are in this scenario and thinking that one day you can achieve FF, think again.

Another solution would be, he works harder and reduce the expenses. Says, now the engineer works part time to accumulate his income to RM5000 and he sacrificing his expenses to RM2500. Each month, he can saves up to RM2500 and within 16.7 years, he should be able to save up to RM 1 million in his bank account. At that time he should be 41.7 years old. Bravo. Brilliant. He's a millionaire at the age of 41.7 years old. But the question is 'is he really financial freedom'?. How long can he actually survives with the money? Assuming, he still spend RM2500 per month, he will use up his money in 33.3 years at the age of 75 years old. What if he lives longer? And what if he is sick that requires him to spend more.

What I am trying to share here is that it is difficult to become FF if we rely on our working income. As many of you may already aware, instead of saving the money in the bank, he should invest the money in asset so it can generates passive income. He will achieve FF when the passive income is more than the expenses.

                     Passive income > Expenses

will share more regarding the passive income in the next article...

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