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Incorporating Passion Income: The Innovative Way to Financial Freedom 🚀💰

Prudence Zhu

CPA/PFS, CBVS

Posted on:
June 5, 2023

In the pursuit of financial freedom, the traditional path has been to amass enough assets that produce an income capable of covering your living expenses indefinitely. While this definition remains fundamentally sound, there's a fresh perspective that is worth exploring - one that not only focuses on the financial aspect of freedom but embraces the full spectrum of our lives.

💡 Revealing the Power of Ikigai

Ikigai, an age-old Japanese concept, perfectly encapsulates this broader view. It's an intersection of four primary elements: what you love, what you are good at, what the world needs, and what you can be paid for. When these four aspects converge, you've found your Ikigai - the source of value or what makes one's life truly worth living.

In the realm of personal finance, "Ikigai Income" translates to the income you derive from doing what you love. It's sustainable, fulfilling, and brings a sense of purpose, making work not longer work.

🔮 Recasting Financial Freedom

So, how does this Ikigai concept fit into our financial freedom goal?

Let's add passion income into our financial freedom formula:

Financial Freedom = (Annual Expense - Ikigai Income) * (1/Annual Rate of Investment Return)

Breaking down the formula:

1️⃣ Annual Expense: This is your yearly cost of living, reflecting your desired lifestyle.

2️⃣ Ikigai Income: This is the income you make from pursuing your Ikigai, or doing what you love.

3️⃣ Annual Rate of Investment Return: This represents the average annual real return from your investments.

This formula gives a clearer perspective on how the income from your Ikigai can help offset part of your living expenses, thus reducing the amount you need to generate from your investment returns. And let's look at an example-

🌈 Ikigai Income in Action

Imagine your lifestyle demands an annual expense of $100,000. Following the traditional 4% rule, you'd need a whopping $2.5 million in your nest egg to fund your life indefinitely. However, suppose you've found your Ikigai, say teaching pottery classes, which brings in $40,000 annually.

In the scenario where you've invested in an S&P 500 index fund, and assuming a historical average return rate of about 10.5%. After taking out 3.5% inflation, that's a real return of 7%. Here's how your financial freedom equation would look:

($100,000 - $40,000) x (1/7%) = $857,143

That's a drastic decrease from the initial $2.5 million!

Now, let's push it further. Imagine, in addition to teaching pottery, you're also an active investor who has managed to push your average investment returns up to 15%, or real return of 11.5%. With these inputs, your new financial freedom equation becomes:

($100,000 - $40,000) x (1/11.5%) = $521,739

That's a far cry from the original figure of $2.5 million. By incorporating your Ikigai income into your financial plan, financial freedom appears not only more attainable but also more enriching. You're living your passion while building your wealth.

And if you're questioning whether a 15% return on investment is feasible, my video titled "I Regret Not Doing It Sooner" might inspire you. It chronicles how I achieved a 25% ROI in my early wealth accumulation days. Check it out here. Who knows, you might glean some practical insights to boost your investment returns too.

🔭 Charting Your Financial Freedom Path

It's time to carve out your path towards financial freedom, infused with purpose, passion, and prosperity. Here's how to embark on this transformative journey:

1️⃣ Discover your Ikigai: This is the intersection of what you love, what you're good at, what the world needs, and what it will pay for. Unveiling your Ikigai is the first step towards an income stream that doesn't feel like work, but rather, fuels your zest for life.

2️⃣ Gauge your lifestyle costs: Evaluate your annual living expenses, reflecting the lifestyle you desire. This isn't about cutting corners but finding a balance that feels right for you.

3️⃣ Assess your investment returns: Take a look at your investment portfolio. Are you content with the returns? Could there be potential for tweaking your strategy to yield higher returns?

4️⃣ Plug into the formula: With these three components - Ikigai income, annual expenses, and investment return rate - you can apply our redefined financial freedom formula. You might just find that your goal is much closer than you initially thought.

Financial Freedom = (Annual Expense - Ikigai Income) * (1/Annual Rate of Investment Return)

Now you know where you're heading. Want to speed up your path to financial freedom? I invite you to check out my YouTube video, "Do This to Become A Millionaire". It's filled with valuable insights on how to amass wealth effectively - a crucial aspect of the financial freedom equation.

Remember, the essence of financial freedom goes beyond dollars and cents. It's about architecting a life that's abundant with joy, fired up with passion, and buttressed by financial stability. So, let's challenge the traditional notions and embrace a reimagined concept of financial freedom, where Ikigai income plays a critical role.

The new era of financial freedom awaits you. Are you ready to step in? 🚀🌟

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