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Financial freedom

What is financial freedom?

Financial freedom is a state in which, either on your own or at the household level, you are no longer dependent on your income from work.

Financial independence

You can achieve this if:

  • you have accumulated enough money in the form of savings, investments
  • you get stable, predictable money not from wages but from any other source

Financial freedom is synonymous with financial independence.

By achieving this, you are no longer dependent on your employer or any other boss. If you have a job, you do it because you want to do because you like it. Not because you would otherwise starve to death under the bridge. Of course, this means that you don’t have financial problems and you don’t even have to worry about money.

This is marked by many as an achievable goal, which is not a problem. The problem can start when exclusivity is given to a 1-1 direction.
So you can only achieve financial freedom if you have accumulated enough money to cover all your expenses. Or the other extreme: forget investing because you can only achieve financial freedom if you build another revenue stream.

In my view, neither extreme is healthy, at least not at the proposal level. Both ways work, just know how to use it.

Achieving financial freedom through cash flow

You can hear from many places that you have passive income in order for financial freedom to be yours. This sounds perfectly fine so far, it is another question that there is typically a correlation between the active or passive level of a given investment and the income it can generate.

The example of real estate is often cited as a completely passive income. Buy a property and you will make a good living from the rents, what’s more, you will get better and better as the rents go up.

However, this is only partially true. With a well-chosen property, your situation is really easier. BUT:

  • you need to be able to choose that house properly
  • you need to find a reliable tenant
  • you must have adequate equity (either for the full purchase price or for a home loan)
  • you need to be able to rent at a price you win, but at least you don’t lose
  • you have to renovate the apartment from time to time
  • etc.

As you can see, you may also have income from real estate, but this is either a second job or the easiest is to entrust it to a real estate management company. Then you have to pay them, but they take a lot of the burden off your shoulders.

Financial freedom through capital accumulation

Going along the strategy, it accumulates a large amount of capital in various investments. It can be any security, i.e. it can be a stock, a bond, an investment fund, anything. The point is that a really significant portion of your income will go in that direction to increase your capital as quickly as possible.

The faster you increase your investment, the sooner you will reach a level that can already sustain you because of its own weight. This is often referred to as when you can retire earlier because of financial freedom.

How much do you need?

We have already explored the topic somewhat on the subject of pensions, I suggest you also read the article on the 4% rule.

As a general rule of thumb, I can say that 25x your annual income means a basic level of service to you. This, of course, does not include tracking inflation, nor does it include wanting to live at a higher level after a while.

Comparison of capital accumulation and cash flow

In order to be able to choose the direction that best suits you, you have to see the differences and similarities between the two. This is just a generous comparison, obviously one could divide to infinity.

However, it is suitable for you to choose the traits that you like from one or even the other. Depending on which one is closer to you, you can use it to achieve financial independence. Don’t despair if you feel that while the end goal is sympathetic, you wouldn’t commit so much to either. After all, there are many who use the two side by side.

Through cash flow Through capital accumulation
Requires a lower level of investment in your income (15-40%) Requires a higher level of investment in your income (up to 50%)
Investments are the most cash-generating investments (real estate, dividend-paying shares, bonds). You expect an exchange rate rise, chooses a security accordingly (usually growth-shares, crypto currency, etc.)
Requires moderate savings High savings are required
You make a living from your cash flow (capital remains) You withdraw money from your investments (capital or just its returns decreases)
Your net worth may be depleted, but the goal is to thrive In an acute situation, your wealth may be depleted, but the goal is to take out returns only
You want to be sure that the money taps will not close You want to make sure that the capital will not run out prematurely


The structure of financial freedom

You can’t achieve financial independence just by falling into your lap. This, like any of your larger goals, can be broken down into steps and built on.

You may have read about the structure of this before. Both the Road to Prosperity and the Maslow Pyramid of Money have shown that they are made up of overlapping levels, and by reaching the top level you will achieve what many are already waiting for as the very first step.

No matter what approach you take, the very first step is to live within your own frames. Make a budget for this, and be sure to stick to it. If you don’t do this, you will never reach the top of the financial pyramid as you live up the money you have saved. This is called lifestyle inflation.

To make planning easier, use the designer available from Silver Moon:

Download the budget planner

How do the rich live?

If you look at the people in your environment who have become rich on their own, you can see that of course they have also achieved financial freedom. And it doesn’t matter here whether they were able to do it from cash flow, capital accumulation, or a combination of the two.

What they have in common, however, is that they are not talking about financial freedom, but are still concerned with maintaining their own financial health. (Whether with their business or any branch of revenue)


  1. Which method would you choose to build your financial freedom?
  2. Which budget planning do you use for this?
  3. According to the above, what do you think you can react to if you go beyond your frame?

If you have any questions, feel free to ask. You can contact us here.

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