There’s a difference between financial freedom and a high salary. Many people assume that the higher your salary, the more financially free you are, when that’s simply not true. Financial freedom occurs when your monthly expenditures are equal to the passive income you generate. For example, mortgage brokers often receive “trail”, a small percentage of the monthly payment of loans they prepared. This is passive income: they have done 100% of the work associated with that loan, and now receive this money every month with no extra effort involved. Once a mortgage broker has written enough loans so that his or her trail is equal to monthly expenses, they could do absolutely no work and still be receiving enough money to live from. This is financial freedom.

Compare this to an executive of a company with a salary of 1 million dollars per year. Should they lose that job, their lifestyle will likely take a hit: they may have to downgrade homes, cut back on use of vehicles, maybe even sell a car. The executive’s lifestyle is directly related to their salary, their direct income, not their passive income.

One of the phrases you’ll hear me use the most often is that you should make your money work for you, not the other way around. Passive income is the perfect example of this. It’s not difficult to get passive income: I met a man once named Derek Foster, who retired when he was 34. When he was in University, he started putting aside $200 every month to purchase high-yield dividend stocks. These stocks accumulated, and every three months he would receive dividend cheques. These cheques became larger and larger, and there was no work required from him, other than saving $200 every month and choosing whether he should put it into Coca Cola or Colgate Palmolive. When he was 34, these cheques became large enough that they equalled his expenses, and he retired.

Dividends from stocks, rental income from investment property, trail commission: it’s all ways to get passive income, which is the “true” way to get rich. Once you’re financially free and living off passive income, any extra money you make can go to other investments, savings, etc. You should always aim for passive income, always aim for this financial freedom. It’s much less stressful to be financially free than to have a higher salary but still be working that 9-5 job.

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