Today we’re going to talk about the foundation of what we do in real estate investing: the Freedom Number.The Freedom Cheat Sheet is a PDF I created a few years ago when I started on my journey toward financial freedom. This document helped me & my family set a goal, and in turn totally change our financial situation. We’ve been sharing the Freedom Cheat Sheet ever since.
On this episode, I’m going to walk you through the Freedom Number, some common misconceptions, and what you need to know about setting a financial goal.
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If you haven’t yet downloaded the Freedom Cheat Sheet, you can find it at morrisinvest.com/freedom. Here’s how it works: you calculate your monthly expenses, everything from your monthly mortgage or rent payment down to your Netflix subscription.
From there, I recommend padding that number by 10% because life happens, extra expenses sneak up on you, and sometimes you want to take a vacation or donate to causes you care about.
Once you’ve done that, you’ll have your Freedom Number! This is the amount of money you need your performing assets to generate every single month. The Freedom Number is a long-term goal. I always recommend that people write this number down, keep it front of mind, whatever that means for you.
But one big mistake I’ve noticed people make is that they almost become married to that number. Remember, this is a long-term goal, and long-term goals can adjust over time! Your Freedom Number might vary over time based on your stage of life and the maturity of your portfolio.
For example, if you’ve got three kids in braces and activities or are paying college tuition, you probably have more expenses now than you will later in life. There are so many things that are going to ebb and flow… your expenses are bound to change throughout the years.
And don’t forget about the three stages of real estate: buy, own, and cash flow. If you’re a new investor, you’re likely in the buying phase. In this stage, you’re working on the tax benefits, principal reduction, returns on appreciation… cash flow benefits come later.
As you pay off those investments, then you can leverage them. The further you get in your real estate investing journey, the more doors open for you. You are creating a powerful foundation that will eventually expand. As your loans are paid off, the cash flow becomes yours. If you are like most of our clients you will begin by using financing to purchase your properties. You may calculate your freedom number and think you need 15 doors to reach your goal when in reality you may only need 5. The cash flow number is going to change, again this is a marathon not a sprint to retirement.
If you haven’t seen my video on the three stages of real estate investing yet, I want you to check that one out. This is the key to becoming a financially intelligent real estate investor.
So back to the Freedom Number… do I want you to keep this number front of mind? Absolutely, yes! But I don’t want you to become so obsessed with the number that you aren’t open-minded to the idea of it changing over time.
If you have a life changing event like paying off your mortgage or taking on a new expense, you’ll want to recalculate your Freedom Number. It might even be a good idea to look at it every year to decide if you need to adjust.
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DISCLAIMER: I am not a financial adviser. I only express my opinion based on my experience. Your experience may be different. These videos are for educational and inspirational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. There is no guarantee of gains or losses on investments.
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