What Is Your Passive Income Goal?

Do you know how much your lifestyle is costing you each month? Have you ever broken it down to see where your money goes? And, if you aren't living the lifestyle you would like to, do you know how much that lifestyle would cost you each month? Once you have the answers to these questions, you can begin building up passive income until you reach a state of financial freedom, living the lifestyle you desire.

Before we get into that, though, we should take a minute to discuss the meaning of financial freedom and passive income. Financial freedom is having enough passive income to afford the lifestyle you choose to live.

Notice that this doesn't mention any specific amount of money or income. It is all about the lifestyle you choose to live. If you want to live in a small home and keep your bills to a minimum, you can achieve financial freedom with a much lower amount than if you want to travel to exotic locations and buy a luxury car. It will work for either one, but you'll need more money to have more luxuries.

Passive income is just what it sounds like. It is income that you get without having to work for it. This doesn't necessarily mean you don't ever work, just that whether you work each day or not, the money continues to come in. Some examples of passive income would be royalties from a book or song, or interest on an investment.

What you need to do, in order to know just how much passive income is required for your financial freedom, is to determine just how much your desired lifestyle costs. If you want to live just as you do today, this is an easy calculation - you need just about as much as your present income. If you are willing to scale back, you can cut out unnecessary expenses and reduce the amount you need to have.

Of course, if you want a more luxurious lifestyle, you'll need more. Either way, we should start by looking at where you are now. Take a piece of paper and write down all of your current monthly expenses, and be sure to add in the irregular expenses like car registration or property taxes by taking the annual cost and dividing by twelve.

If you're like most people, you'll find that your list doesn't cover nearly everything you spend money on each month. Small expenses, like coffee on your way to work, add up over the period of a month, but you may not be counting these into your total. Go back and figure out where all of your money goes.

Once you've done that, you may find that there are some very obvious expenses that should be cut, and there may be others that don't mean that much to you that you can also cut. And some will most likely be tied into your job, so those may go away if you quit after reaching financial freedom. Work out this budget until you are fairly certain you have it as close as you can to what you really want.

If you want the luxurious life, now is the time to start adding in the car payment for the luxury car, or the higher mortgage for the more expensive house. Don't be shy about this, it's your future life we're budgeting for right now.

With this broken down to the monthly expenses, you know just how much passive income you'll need each month. Now you simply need to find the best way for you to develop passive income. Saving and investing is one option, and creating businesses that run on autopilot is another.

By: Chris Steiner

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