[Editor's Note: Today's WCI Network post is from Passive Income, MD, and is about the work involved in creating passive income streams. As discussed in yesterday's post, the easiest side gig for many high-income professionals may just be spending less money.]
Achieving financial freedom has been on my mind since my second year as a young attending. It was about that time when I realized that, while I might make a good income as an anesthesiologist, it would never allow me to truly be in control of my time. The moment I stopped showing up for work, the income would stop.
Well, that's the way most of the world seems to work. But if that was the only way to live and exist, then the whole concept of financial freedom wouldn’t exist. The thing was, in my search to figure out how to create financial freedom, I met physicians who had achieved it, and were practicing medicine on their own terms.
So I knew there had to be a way to spend my time how I wanted, rather than what was required of me.
What is Financial Freedom?
Financial freedom takes many forms. The best definition I've found is probably the most simple: Financial Freedom means that your life choices are not dictated by your finances.
In other words, you can choose to become a physician part-time — or stop working altogether — and you and your family will be fine (and even thrive) financially. You could travel for half the year and still support your lifestyle without driving into the hospital.
All that sounds great, of course. But how do you achieve it?
Well, in broad terms, that's the whole point of this blog. There are a lot of different facets and methods out there, but when it really comes down to it, achieving financial freedom is simple.
Yes, you heard me right. Financial freedom doesn't have to be this distant idea that only gurus and billionaire businessmen can comprehend.
Here's what it all boils down to – you just need to have a source of passive income that generates more than you spend, regardless of the time you put in (or don’t put in).
Sounds pretty simple, doesn’t it?
Well, it might sound as simple to you as the key to being healthy and fit: eat well and exercise. For most people, getting into shape really is that simple.
However, something can be simple without being easy.
Personally, I’ve been on a journey these last few months to get in the best shape of my life. Trust me — it has not been easy. I’ve been waking up an hour and a half earlier than I normally do to work out and start my day right.
I’ve been selective about what I put into my body, changing out high-sugar foods with fruits and vegetables. It all sounds so simple, but in reality, it takes a lot of work and discipline.
It's something that I have to constantly work at, especially because it hasn't necessarily been a priority for me for most of my life.
To bring it even closer to home, when I think about performing an epidural…it's simple. Just take a 17-gauge Tuohy needle, find the epidural space, thread a catheter, and inject medicine. Done…
It's simple, but teaching residents for ten years (and remembering what it was like to be a resident myself) has shown me it’s not always so easy.
Achieving Financial Freedom as a Physician
Achieving financial freedom as a physician is similar — simple, but not necessarily easy. People often ask me how I achieved it, and I tell them the same thing I just told you.
Whether you achieve financial freedom through the stock market, real estate, or both, it’s all the same. You’re trying to create an evergreen revenue source that provides you with enough income to fund your ideal lifestyle without having to put time into your day job.
Note that this “ideal lifestyle” is different from person to person, which is why it’s impossible to give anyone a specific number for financial freedom.
Still, there are some common ways to get there, no matter the route you choose or your personal goals. And, as you may have guessed, my favorite way is to invest in real estate.
Investing in Real Estate to Create Passive Income
Investing in real estate is a well-known vehicle for developing passive income. Just to clarify, passive income doesn’t mean there isn’t any work involved at any point.
It just means that you put the majority of the work up front, and then you're able to scale your income as compared to the time you put in.
There are a ton of ways to invest in real estate. But the main point is to create cash flow. Cash flow is what makes the world go 'round. Cash flow is what’s left over after all of your expenses are paid off.
It’s the money that hits your bank account and that you use to pay your bills, for meals & vacations, and for Amazon purchases. (You should see how many boxes we get at my house each week.)
What About Appreciation?
Appreciation, or the increase in value of a property, is great. But it can swing widely and until you convert that into cash, it doesn’t mean much.
For example, people love talking about how much their homes have gone up in value. I mean, I also enjoy seeing that the estimated value of my own home has gone up over the last seven years. It feels good to know that if you were to sell it, you could probably make a hefty profit on the property.
The problem is, it’s all potential money. Just like we saw in the big crash in 2008, home values can drop. And depending on your location, they can drop a lot. At no point in the upswing in values were you able to quit your job simply because of the appreciation.
Now, there are ways to tap into that appreciation through refinancing and a home equity line of credit, but again, the purpose is to create cash.
The thing is, investing in real estate takes work. I’ve never said otherwise. If you own your own rental properties, there is the due diligence necessary to make sure you're buying the right property.
You'll need to learn and understand concepts like cash-on-cash, capital expenditures, and net operating income.
Then there’s actually managing the properties. But as I suggest to every one of my friends: get a professional property manager. Then you’re just managing the manager and that takes far less time and effort if you have the right one.
As you can see, a lot of work is done up front, but the benefits continue to increase over time.
Even if you invest in syndication and funds (passive real estate deals), you need to learn to do the due diligence up front. How do you learn? Well, you can spend years learning through trial and error and reading resources here and there…Or you can join the Passive Real Estate Academy. (Check here to see if we're currently enrolling new students.)
Whatever the case, once you’ve made these passive investments, you really have no other responsibility than to watch for the checks to come your way.
Where To Get The Money To Invest
I think one of the major hurdles for everyone including physicians trying to achieve financial freedom through investing is having that initial money (capital) to invest.
However, in general, one advantage that we have as physicians is that we have high incomes when compared to the general population. Sure, it took years and years of education and training and often comes saddled with a hefty six-figure debt burden.
However, the fact simply is, our earning potential is high and one of the highest in terms of professions.
And when you really consider it, finding the capital to invest is simple – earn more than you spend, and save that money to put towards investments that create even more cash for you.
But again, that’s easier said than done. Being tempted by shiny objects and keeping up with the Joneses is a problem for people especially where I live in Los Angeles. I have to admit that I haven’t been totally immune to it but that's a post for another day.
The key is that I never lose sight of the major goal, which is to create as many little money-making machines as I can in order to fund my lifestyle completely. It took a while, but I eventually hit the point where I didn’t need to work in medicine any more.
Some of those sources are more passive than others, so I’m still working to streamline them as much as possible. But it's nice to have the choice to do things that interest me and I'm passionate about.
These days, whenever anyone mentions that I make achieving financial freedom sound so simple, I say that yes, it is simple — but not necessarily easy.
It will take effort on your part, putting in the time and investment to educate yourself.
Why do you think I averaged going to nearly a conference a month last year? It’s to continue to educate myself so I can improve my life and the lives of the ones I love.
Use the experience of others to help you not only mimic their successes, but avoid their mistakes.
I’ll leave you with one of the best quotes I heard recently…
“Don’t wish it was easier, wish you were better.” – Jim Rohn
What do you think? Are you actively developing channels of passive income to reach financial independence? Are you using real estate to reach these goals? Why or why not? Comment below!