Financial freedom is the ability to financially support oneself through ones savings or other investment plans without being dependent or unemployed. Passive income earned without necessarily having to work an extra job is called passive income. This type of income is considered completely expendable, meaning that the same money that can support you for one year could run out in less than a year if you do not save it. There are several different financial vehicles through which one can accumulate this type of income, but the most preferred are the stock markets and real estate investments.
Both these options allow for financial freedom because the value of the assets increases over time, thereby providing an increase in wealth relative to the amount of money that you are spending. The stock market, on the other hand, works under the concept of dividends. If you purchase more stocks or mutual funds during a given period of time, your profits increase and so does your income potential. However, you have to make sure that you are able to purchase the shares at the right time in order to realize the full benefit of your investment. The same holds true for the real estate sector; if you purchase properties at the right time, you will be able to earn a good return and develop equity that can be used for future projects.
The key to realizing financial freedom through these types of investment options lies in compounding returns; however, there are many people who do not understand how this works and end up losing their money rather than earning it. One way of avoiding this pitfall is by using the compound interest method in order to compound interest. This works in that a certain amount of your initial investment, compounded over time, results in a greater amount of money that you can use. This can be used to fund retirement accounts, make home improvements, and a variety of other things like paying off debts.