I'm debt free... financial freedom!? Part 2 of 2

(Click here for Part 1)

Mr. Leemubu, is a humble man. He leads his life comfortably with his wife, Eliza and 2 children, Sam and Dash. Sam is studying engineering in UK, while Dash is studying medicine in Australia. They are staying in a single storey house which is on mortgage and a fully paid compact car. Mr.Leemubu and his wife bring back home $20,000 from their job.

Since Mr.Leemubu started to work at the age of 24, he saved almost 20% of his salary every month, and now he is 45 years old. Even thou he had the money to pay off his mortgage, but he didn’t. Instead, he invested part of his savings in stock market and the rest in low cost apartments. For his apartments, he only paid 50% down payment and the rest he took mortgage. Whatever money he gains from his investments he reinvests them by buying more stocks or properties, and he took more mortgages to cover his properties.

One fine day, Eliza received a phone call from Mr.Leemubu’s office. She was shocked. Mr.Leemubu admitted to hospital. Eliza rushed to the hospital and found out he had a stroke and paralyzed. Eliza was worried. She was worried about their financial commitment, as her salary is only $7,000 and it’s not enough. She was worried on how to support their children’s study. Mr.Leemubu is released from his job as he is unfit to work. But, Mr.Leemubu wasn’t worried at all.

Fast forward into the future, Mr.Leemubu had recovered almost 90%. His recovery rate was quite fast, thanks to his wife’s loving care. Eliza quit her job just to take care of him. His children had completed their studies and back home. Their house is still their and in fact they are planning to move to a bigger house. How this can happen? Isn’t Mr.Leemubu had a lot of debts due to his mortgages? Even Mr.Mubulee, who was debt free, could get into a personal financial crisis. How did Mr.Leemubu and his wife,Eliza manage it?

The answer is Mr.Leemubu’s idea of financial freedom is totally opposite of Mr.Mubulee. Even thou he had a lot of mortgage; his passive income is equivalent to his active income. Yes, that’s right, he earn rental income from his properties and dividend income from his stocks. But he has to pay his mortgage, how is it possible?

Mr.Leemubu make sure that whenever he invest in property, his monthly rental collection is higher than his mortgage payment. This is to ensure his income is always a positive flow. Since reinvest his passive income, he managed to use ‘Law of Compounding’ to accelerate his passive income and made his active income and his passive income equivalent. Then, how is it possible his wife to quit her job? Isn’t her income will be still needed to support the family?

The answer is Mr.Leemubu made sure, whenever he buys a property, he’ll take a MRTA insurance coverage. MRTA which stands for Mortgage Reducing Term Assurance is a insurance which is used to settle your mortgage incase some unforeseen circumstances happen, such as death and permanent disability. So, when he got stroke, he’s declared unfit to work due to his disability.

Now, Mr.Leemubu and family have passive income to cover the entire family expenses as well some extra money to invest.

Conclusion

Being debt free doesn’t mean you have achieved financial freedom. The main keyword in financial freedom is ‘passive income’. Only when your passive income could support your life or lifestyle without working or doing any active job, that’s when you can declare yourself, has achieved financial freedom.