Why all of this hype about property? What is it that makes people move towards property investing? Why is it that most of the worlds riches people either made their wealth in property or hold their wealth in property? Property Investing creates freedom. Financial freedom and time freedom. On day 3 of the #21DayPropertyChallenge, we are going to look at finding your Freedom Number.
We are finishing off the first weekend of the lock-down and #21DayPropertyChallenge with a little more preparation, so that when the week day’s start, we’ll be ready to start looking at property. Let’s dive in.
Overview of Income from Property
The benefits of property is that it creates passive income. When you are making money without being actively involved in the day-to-day generating of this money, you have created Passive Income.
Of course, there is work involved in finding a property, renovating, finding tenants, etc, but once the upfront work is complete, the tenant generally pays you an income every month. Besides all of this, most of the work can be outsourced, while you, the property investor, manages and oversees the process.
We look for cash flow positive properties. This means that the income from this property is greater than the expenses of the property. Thus, you have created cashflow positive, passive income.
For more details on the basics of investing, check out our previous post – Back to the Basics.
What is a Freedom Number
Financial freedom is reached when your passive income is greater than your monthly expenses. This means that your expenses will indefinitely be covered and you will no longer need to actively work for income.
So, what exactly is your Freedom Number? Its the amount of passive income that you will need to make for you to be financially free. In basic terms, it is your monthly expenses that need to be covered.
Calculate your Freedom Number
In today’s challenge we are going to sit down and calculate your freedom number. This shouldn’t take too long, but be sure to dedicate 30mins of your day to working this out. Grab a pen and paper, or open an Excel spreadsheet and lets get started.
I’m sure that most people have a budget, either in your head or hopefully, it is documented somewhere. At the end of the month, when you need to make payments, you have a document to reference?
This will form the basis of today’s challenge. Make a list of all of your expenses. Let’s break this into categories to make it a little easier.
Standing Expenses
- Bond/Rent
- Car repayment
- Rates & Taxes (if you own your house)
- Levies/Home Owners ((f you own your house)
- Gym membership
- Medical Aid
- Life Insurance
- Short-term Insurance
Variable Expenses
- Electricity
- Water
- Cellphone
- Data
- Food
- Petrol
Nice to Haves
- Entertainement
- Going Out
- Parties
These items are just to give you some ideas and pointers. Items can move between the different headings, depending on your current situation.
If you already have property, it would be better to rather create a separate income/expense for each property. Exclude this income/loss from the Freedom Number calculation.
Take the expenses for each property:
- Bond repayment
- Municipal Rates & Taxes
- Levies or Home Owners
- Maintenance allowance
- Management fees
Rental Income – Expenses = Passive income/loss
Finalising your Freedom Number
Once you have taken all of your expenses into account, you will now have reached a very accurate number that you need to achieve.
This number is called your FREEDOM NUMBER.
Remember to always consider for unexpected expenses that may arise. The third column above is named Nice-to-Haves. If you are serious about achieving Financial Freedom, this is the column that you can reduce quite substantially. Remember delayed gratification. When you achieve your freedom and can effectively retire financially free, you will have all the time you wish to enjoy the Nice to Haves.
Need some help? Head over to The Property Collab Forum and drop a note there and the community can help you out. Don’t forget to invite your friends and challenge them to complete #21DayPropertyChallenge.
Good Luck and see you again tomorrow.
