The only Secret you need to know to Reach Financial Freedom: Passive Income

What about sleeping like this while you get paid?

Remember the formula and your goal

Saving enough money so that the passive income generated will cover all your expenses

We already talked about saving…what about passive income?

Passive Income

Passive income is the ultimate goal and dream….a vehicle that generates money 24/7 no matter what we do (sleep, golf, watching TV) thus the name passive.

Being paid to do what you like, no boss, no alarm in the morning, no customers…no bad right?

Now the question is how to build this vehicle, this mountain that will generate that lazy flow of money

Let’ s look again at our options…

While it’s good to have cash it can only lose value in time due to inflation.
Keep max 3 months of living expenses in cash and put it in some high yield checking or saving account that you can access instantly.


Don’t keep your cash in a suitcase!

Safest passive investment and because of it with the lowest return, barely matching inflation. You can make a little more money with municipal bond or bond fund with a little extra risk.

Despite the low return bond should be an important portion of the invested portfolio; the closer you are to retirement the highest the portion you should keep in bonds since it’s better during retirement not to have all portfolio allocated in stocks because a recession can eat up a big portion of your stocks portfolio and you might not have the time to recoup it.
In the USA the Bond yield typically track the interest rate of the period and the longer the maturity the higher the yield (unless the economy is closer to a recession and the yield curve is flat or inverted)
Investing in a CD insures that you will get your capital back plus the promised yield at the maturity

If on Jan 01 2010 I invest $10,000 in a 1 year CD offering an yield of 2% on Jan01 2011 I will get $10,200 (the initial $10,000 plus $200 (2% of $10,000))

Stocks Mutual Funds                                                                                                                            There are thousands Stocks Mutual Funds over there, most of them too complex to understand or designed in a fancy way to attract you and charge you expensive fees.
Forget about the products your banker is trying to sell you and go for low cost (<0.05%…even better 0 now from Fidelity) index fund that tracks the major index (like S&P 500 or FTSE).
Depending on where you live, check with your bank or financial services provider and go for it.
Again watch out the fund fee…you must select a fund with less than 0.05% fee per year (basically for  $10000 invested you pay $5 year).
If you are an absolute beginner my suggestion is to invest 80% in a passive managed low cost index fund that track total market stock (USA or European) and the remaining 20% in an as well a passive managed low cost index fund that tracks the  total market bond (USA or European).
If you have some form of pension tax deferred (like 401k in the USA) where your employer matches your salary contribution (1-5% typically) maximize this first, than maximize IRAs and only after invest in taxable accounts
Never ever underestimate tax and fee…they can wipe out your return or even worst making it negative.

Individual Stocks
The Las Vegas for stock pickers.
I have to admit, I sometimes picked some single stocks, allured by the name or the buzz around it.

You don’t want to pick single stocks

Always remember,
You are not a stock expert and very likely (excluding Warren Buffet there are none around).
Why? Because you don’t have all the information about a company to be sure your investment is solid. One legal problem with the company you invested or government changes some rules and your stock can lose 20-30% in one day Have you ever imagined 20-30 years  that company like Kodak or Nokia (add stock graph) could disappear? N(stock chart) I didn’t so who place all your money there lost everything.

To use a dramatization Think about on investing in a single stock like betting on one number in a roulette…big win if the stock soars but also high risk of lose everything.
Think about investing in the stock market through index fund on regularly betting some money on the red in a casino where red is slightly more frequent than black or zero
You will surely face temporally lose but on average and on long time you will make some money (chart stock s7p or dow)

Real Estate

Real Estate can be all you need to have a solid Passive Income

It can be a good, bad or disastrous investment.
To minimize risks:

Rule#1: Location Location Location
Even thought it’s not certain, buying in downtown New York or San Francisco or in front a prestigious campus means buying a property with some intrinsic value.
Same for an oceanfront property or one close to a prestigious landmark (an apartment with a perennial obstructed view on the Eiffel tower).
I understand few people can afford this properties, foe the rest of us just do your due diligence, look for places with a healthy job market, universities, landscapes.
Look for unique features , be sure the competition around you is limited (e.g., no more buildings are allowed) .
Talk with trusted realtors, ask for data on comparable sales in the area and average rental (and average vacancies as well)
Study study study
One rule of the thumb says you should get 1% month of the property value per year in order to have positive cash flow (e.g. $2000 per month if your purchase price has been $200,000).
I find that nowadays getting 1% is very hard  unless you were fortunate enough to get an excellent deal on the property or investing in some rural Midwest property during an economical expansion (but watch out at what might happen during an economical downturn to those properties).
In mature areas I find that 0.55-0.65% are more common rates during the first 5y of ownership with gradual increases.
Anyhow Real Estate when well purchased, financed and maintained can be a great investment in the long term and a good edge against the inflation since both the rentals and the values on average growth with the inflation.
Besides, based on where you have the property you can have great tax deductions increasing your ROI.

Peer to Peer Lending
A relatively new investment.
There are two kind of lending through an intermediary (usually a company with a website)
You basically act as a bank, landing money to privates (or small companies) for disparate investments from buying a car to invest in a multi-million dollars projects.
Of course the higher the risk the higher the return
Based on the country you reside you can also have detailed information about the borrower such as his credit history and based on this information the intermediary will fix the interest rate to charge him.
You can thus decide to lend money to high quality borrowers (who wants to keep that status to be able to access cheap credit) but a low interest rate or the opposite (to high risk borrowers thus charging higher interest rate)
Up to you…I personally prefer go for a mix to minimize my risks but at the same time getting some more return vs Treasury bond or other means of investment.

Still Confused? Don’t have to! Keep it simple

That’s all… and believe me it’s not so complicated like our banks or “financial advisors” want us to believe.

Don’t think investing is for Wall street gurus and complicated and the only way is to buy useless and very expensive managed mutual funds from the “financial advisors” with lower return vs the market.

Don’t overlook the importance to invest some money and time to maximize tax return, or to avoid to buy everything full price.

Believe that many people reach financial independence simply saving more money and investing wisely the difference.

Believe that there is an alternative life vs living paycheck by paycheck out there if you just want to chose it.

Just believe me

The 3 simple habits to Reach Financial Freedom

According to 2017 CareerBuilder study

Seventy-eight percent of full-time workers said they live paycheck to paycheck, up from 75 percent last year.

Overall, 71 percent of all U.S. workers said they’re now in debt, up from 68 percent a year ago, CareerBuilder said.

While 46 percent said their debt is manageable, 56 percent said they were in over their heads. About 56 percent also save $100 or less each month, according to CareerBuilder.

On this subject people, especially in the USA, discussed and are discussing ad nauseam.
But still people seems not getting the importance of it, or simply don’t care.

And this is happening in the richest and most developed economy of the world.


Mindset and Ignorance .

Let’s analyze, change them and get the first step towards Financial Independence.

Let’s start with mindset.


Western society are based on capitalism that in the last 60-70y (let’s say after the end of WW2) degenerated in the concept of need of constant growth and increase of consumption to sustain the economy.
The concept of the constant growth is a pillar of modern economy.
Economy Growth as increase of the market value of goods and services.
Basically every company should grow in order to make more money, so increasing the market value of goods and paying taxes, the services of the Country where they operate.

The concept of strong economical growth at Country level is fundamental in emerging economies where it’s urgent to reduce poverty and build basic infrastructures such as roads and access to basic services like drinkable water, electricity and gas.

Conversely in developed Countries the continuous grow became a boomerang i.e. decreasing the quality of life of people for low/no returns.
That’s where we lost happiness to get almost nothing in change.

In a nutshell: being stuck three hours in traffic to work and contribute to economic growth in a third world emerging country might be worth if I am going to use such hard earned money to feed my kids, have clean water in the house or a roof under my head.

But (and this is a HUGE but) if I decided to be stuck in traffic in L.A. or San Jose mainly to pay the mortgage of my 4000 square feet (where I am not very often anyhow because I am always at work to pay the mortgage!) or the loan on my new cars or the latest cell phone, camera, luxury gadget etc. is very different.

We need to spend the money (as result of the growth) in something that improve our lives as total balance.

If, in a scale 0-10 (with 10 meaning  full satisfaction) working is reducing my lifestyle let’s say by 5 points but what I can buy with the earned money is increasing +8 (to feed my kids or having clean water in the house etc) the balance is positive. (-5 +8)

Conversely if a bigger mansion or the new “toys” give me back 2 o 3 point of quality life there is something wrong.

Let’s take the car for example

Well..maybe a little newer…

I had several discussions with friends making 1300-1500 USD (or Euros) per month on this subject.

I show them that, using  a conservative calculation,   an economic  car (purchase price, repairs, insurance, tax, gas excluded) costs at least  1000-1500USD or Euros PER YEAR.
This means that they work one full month ONLY to have a metal box with the wheels on the road that they use it….90% of the time to commute to a job!
So… I need the car to go to work and I  need to work to have the car…can you see something strange here?
You might think, there is no solution, I need to work and I need the car… are you really sure?
Did you consider all the options?
Like using public transportations? Moving your house closer to your job or …biking/using a cheap scooter to go to work?
Or, if really having the car is a must, what about to buy a cheap, low consumption and used one and keep it for ten or more years ?

We are so blinded by the mantra find a job, spend your money, pay your bills and die that we don’t even realize what we are doing.

Every penny spent needs some work to do in order to earn it and this work needs your time that you will not be able to spend with people or doing things you love.

Think about it, every time you spend money think in term of time needed to earn it, time staying with people you might hate, maybe your boss, your coworkers, your customers doing a dull and stressing job.

Our mindset should shift from “We work because everyone does it” to “We work in order to be happy”

Happy because our job is IMPROVING our life either like in the case of the person living in the developing countries or if working is satisfactory or if the money are good enough to aim to a quick financial independence.


People live paycheck by paycheck because they ignore there is another way of living.

Clear, simple and dramatic.

They make 10 and they think they are entitled to spend 10 (or 12 or more especially in the USA where paradoxically everyone should be very rich compare to other places in the world ).

The solution?  Financial Independence

The only  way out that is saving to reach Financial independence (FI) like we already discussed. 

The formula is very simple:


I spend each month $XXXX
I am able to generate revenues from passive investments (rental income, side job, dividends, blogs, etc) $YYYY

If $YYYY is ALWAYS equal or greater than $XXXX I am financially independent => I don’t need to work a single day in life anymore.

Everything boils down to three numbers:

1) How much I spend each year ($XXXX)
2) The net worth I have that generate the passive income ($YYYY)
3) The interest rate of the net worth that generates the passive income (Z%)

As said the FI is reached when

Expenses <= (Equal or less than) Passive income


Passive income=Net Worth * Average interest generated by the net worth

We have:

Expenses <= (Equal or less than) Net Worth * Average interest generated by the net worth

Let’s make a practical example

Yearly Expenses=$24,000
Net Worth = $1,000,000

In this scenario we need a net interest of 2.4% ($24,000/$1,000,000 * 100) to cover the Yearly expenses
If our net worth is $2,000,000 we would need only a net interest of 1.2%.

Intuitively if we reduce our Yearly Expense to $20,000, we need a net interest of 2% ($24,000/$1,000,000 * 100) to cover the Yearly expenses
If our net worth is $2,000,000 we would need only a net interest of 1%.

Let’s examine some scenario

Gross Income with 2% return

To  get $24,000 per year with 2% return we would need $1,200,000…with $5,000,000 saved we will net $100,000per year before tax…with $600,000 we can afford a $1000/mo lifestyle.

Let’s see what happen when we bump our saving rate to 3% – 5% – 7% – 10%.

Here it is the gross income with 3% return


A juicy 7%


An incredibly handsome 10%


Thus Making, Spending and Investment Return  is all what you need to know


1) Making

Making is the active action of making money i.e. you are doing some actions to generate that cash and if you stop doing it that cash flow disappear almost immediately.

Typically the sources are:

1) Your primary job (9-5pm or entrepreneur)
2) Side job (selling stuff, blogging with revenues, uber driving etc.)
3) Passive Income from Investments (dividends, royalties, real estate rents, peer2peer lending etc.)

Usually you know what’s the average income you can get from these activities, let’s forget for a while the possibility of inventing a great product that will skyrocket your income and let’s focus on your average income.

You know what you are making but maybe you are under evaluating how much you can increase your income.

Typically (unless you are already in a high expense area with well above average salary) you can double your income  simply changing job description and/or Country.

Yes double.

I know several people (me included) who doubled or tripled their salaries simply changing function or more commonly workplace.

But guess what…?

Not so many…why?

Because People are resistant to change

They prefer 40 years of paycheck to paycheck agony vs 10-15 years maybe far from home or in an unconformable job but with a solid income and reaching a financial independence.
Comfort and agony….if we add no tight expense control to equation you are doomed to 40 years of mediocre job and life.
You might be happy, sure, but honestly today I found that 90-95% of 9-5 people are complaining about their job, peers, boss etc. and their hobbies, vacation or family time is never enough to compensate the 80% of the time they spend for job related activities.

Being happy while you spend almost all of your low income is not the pathway to happiness…we know that…

So….what should we do?
Changing radically our job or location?

Yes (in case you missed it this was a big yes…)

Listen, if you are lucky maybe you don’t have to change location but it will be almost impossible to double your salary remaining in the same industry and region (unless you are enslaved in the actual one).
One alternative is to change industry and move to a better paid one. You might need to go back to school and get more skilled for that.
Or get skilled on making money on the internet flipping stuff or blogging or become an influencer in something
Whatever it is you need to take BOLD actions.

2) Spending

This is the easiest part, believe me.

I am already hearing you “come on man…I am already cutting corner everywhere…where can I find that extra $10!”
Are you sure?
Do this exercise for me.
Track every expense for a month (to the dollar, euro, rupia, yen, rmb…whatever else) and analyse it.
Are you still sure you cannot reduce eating out so often? Or using that car? or cancel the expensive subscription you never use? Or reducing wasting food?
Or not buying the thousands of expensive and useless gadget? Or in vacations?

Yes you can and you must to reach FI.

Reducing expenses is much important than revenues because it has a double effect:  for every dollar saved you reduce the money you need to reach the financial independence AND you can invest that dollar that will produce passive income

3) Investment Return

That’s the tricky one, especially if you are not skilled in investing.

It’s intuitive the fact that higher is your Return on your investment (or Yield) higher is your monthly check from the investment…but what is high and what is low?

The easy part…Higher the risk higher the return

The difficult…find a sweet spot between risk and returns

There are 3 or 4 way of investing after tax money…here they are

Rate of returns…



I bet it is but it might be much more simple than you think…

What’s next

In next post we will go through these difference way of investing…for now just keep in mind that the solution is simple: saving enough money so that the passive income generated by your investment will cover all your expenses.

This is call Financial Independence, i.e. you are independent (free) from working to have your finances covered

To most of the people Financial Independence is like a dream….something not real…something only for very rich people.

Whenever I talked about it most of the people dismiss me with a gentle “whatever“, like I told them they only need to win the first price of the lottery tomorrow to make it.

These are the same people who live a miserable life of paycheck to paycheck slavery…I wonder if there is a connection…

But if reach the end of this post you will not end up like with those people.. I promise you…just wait for next post…