We have a rough plan we are following trying to build up an early retirement. That is to say, over the next five years or so, our plan is to create enough passive income streams, such as rental properties, to be financially free.
Financial freedom is a concept I learned from T. Harv Eker, an author and the creator of an education company called Peak Potentials. From reading his book, Secrets of the Millionaire Mind, and attending one of his seminars, I have internalized the idea of financial freedom.
The concept is basically as described in the first paragraph. Financial freedom is when you have enough passive income to support your chosen lifestyle. Passive income in this sense is income that continues whether or not you are actively working for it.
Rental income is a great example of this: Once you purchase the property, you can hire a management company to take care of maintenance issues, finding renters, and whatever other miscellaneous activities are necessary to rent the property. Once you reach this point, you will continue to receive the income without needing to actively work for it, so you can use your time and other resources elsewhere.
Other investments, such as stocks, CDs, bonds, and so on, are also good examples of this. You do whatever due diligence is necessary, make your investment, and hopefully earn the expected income. Of course, as with anything, there is always the possibility of a loss rather than gain, and typically speaking, the greater the potential risk, the higher the potential gain.
Another example could be a business which you systematize and hire or train a good manager or management team. In my opinion, cash type businesses, such as Laundromats or car washes, lend themselves readily to this kind of set-up because the systems you need to create are simple, which makes management easier.
So, with all of that in mind, our plan is to get ourselves to the point of financial freedom by the end of 2018. We are working toward that by acquiring rental properties and building businesses as streams of passive income, as well as by reducing our debt and other lifestyle expenses, making our lifestyle easier to afford. By coming at it from both directions, we believe this is feasible within the five year span.
On a side note, though I mentioned investments like CDs and stocks above, I don’t intend to use these investment vehicles extensively during this five year period. There are several reasons for this, but the primary ones are that some, such as CDs and bonds, which tend to have a more stable return than something like stocks, do not pay out a return high enough to make these worth pursuing here. I would need a substantial amount more capital to begin with to make these worth considering.
Additionally, stocks and other investments, while they may be able to produce the kinds of return that might very well allow me to hit the mark in the allotted time, they are very volatile in their underlying value (price) and the dividend return is beyond any control I might assert. Given a longer time span, I might consider this kind of investment, but in a term as short as five years, it just seems too risky to me.
On the other hand, by going after investments I have more control over, such as rental properties, I can control to a large extent the initial investment and to a lesser extent the income. By avoiding large mortgages I will avoid becoming over-leveraged, a condition which I see as one of the primary risks involved in real estate. Also, by starting businesses with low start-up costs I am creating potential income streams that are nearly unlimited in the long term with small risk at the start.
If you are interested in following the progress of this plan, getting some additional details I may have neglected here, as well as seeing any changes along the way, check out the “Financial Freedom” category link. This will show you all of the posts related to this plan, among other things related to becoming financially free.