I officially can enjoy a cup from Starbucks every single day for the rest of my life for free! My phone bill is covered for the rest of my life, too! I never have to worry about paying for these things again. Well kind of… Let me explain.
Some of my investments earn me enough passive income to cover some basic expenses. When investors were freaking out in October 2015, I picked up some index funds that pays me enough dividends to cover my phone bill. Forever. I have a S&P 500 index fund that pays enough dividends to cover a few cups of coffee every week. Forever. And this is just a portion of my portfolio.
I have a lot of fun keeping track of my financial independence progress by comparing my investment income to monthly expenses. Eventually, I will earn enough income from my investments to never have to worry about working again. But that will take quite a while. So in the meantime, I like to watch the progress this way. Every time I knock off another expense, it feels great! One more step towards freedom! In the end, money is only as important as the freedom and happiness it buys you, so always relate investment income to something tangible you love!
A TASTE OF FREEDOM
Imagine: never having to worry about any bills to pay. Wouldn’t that feel great? How about if you could just knock out a few regular bills, what you chose? I always hate filling up Betty’s gas tank (my V6 24 mpg Mustang from 2000). I could purchase enough Chevron or Exxon Mobile stock, so that the dividends would cover my gas bill. It would almost feel good filling up the tank, since in a way I am paying myself. I am helping Chevron earn a solid profit by purchasing their gas, and they give me back some of that profit in the form of steady dividend payments. You scratch my back and I’ll scratch yours right?
Financial Independence is all about covering your expenses. You can even assign levels to it, depending on how many bills you investment income can pay for.
- Safety: You have enough investment income to cover basic living expenses such as your water, electric, garbage, and property tax bills. If you have a paid off house and enough income to achieve Financial Safety, you will always have a comfortable place to stay.
- Comfort: You have achieved Financial Safety and your investment incomes will now cover your food and health insurance bill as well. No need to ever worry about food stamps or dying from a bad case of the flu, you are covered!
- Independence: You have Safety and Comfort down. You also have enough income to your car insurance, gas bill, and a little extra for home repairs, new clothes, and gifts. At this point most people are ready to retire, but why stop here! There is another more glorious level to be had!
- FREEDOM: You have all of the above and then some. Your investments generate enough income to go on vacations with your family 6-10 weeks out of the year! You can pay for dinner out with the extended family every week (if you want to see them that often)! Your happiness will not be limited by money or a budget ever again. Although if you get to this point by reading this blog, hopefully you have figured out that mindless consumer spending is not the key to happiness anyways. It is memories with loved ones and mastery of your craft. Money will just make those things easier and life less stressful.
KEEPING TRACK ALONG THE WAY WILL MOTIVATE YOU
Once you start earning enough investment income to cover a few bills, you will be even more motivated to save and invest. Freedom is damn addictive! You will start to daydreaming about never having to answer your boss again. What would it feel like to working when you do not need to? You can keep working if you like the job, or you can tell your boss to shove it! Most people keep working for a bit, turn a hobby into a business, or try a new career path they have always daydreamed about. A lot of people steer away from the career they really wanted because it did not pay enough. Everyone wants to be a musician, firefighter, or athlete when they are young, but decide they probably will never make much money doing it and get a job in corporate America.
Having my coffee, phone, internet, and gas/electric bill payed for might seem small, but it is exhilarating and progress has been very quick! Keeping track of my progress towards Financial Freedom this way helps me stay focused and motivated. It is because I can see small successes and I keep jumping over this little hurdles one by one. If you just have one big goal of generating $100,000 a year in passive income, you are in for one long and boring ride. Break it down into some of your basic expenses and see how much more motivated you are to save.
Readers: how many expenses can you cover right now with your investment income? If you are just starting out, what expenses are you aiming to knock out first? Do you ever daydream about tell your boss to shove it or are you already doing what you love?