Freedom, as defined by Robert Kiyosaki in the book Rich Dad Poor Dad, is when your passive income equals or surpasses your monthly expenses.
If you don’t know what your monthly expenses are, you will not be clear on the amount of passive income needed to reach your freedom day.
Freedom Day: That point in time when work becomes optional. (What a glorious thought!)
I want to share with you a simple and free tool for finding and getting very clear on your monthly expenses so you’ll know the exact amount of passive income necessary to reach this coveted goal.
It’s called Personal Capital.
There are a number of things you can do with this tool…
- Income tracking
- Expense Tracking
- Cash flow tracking
- Net worth tracking
The one that is the most useful and relevant for finding the freedom number is expense tracking.
If you ignore all the other features of this platform and just focus on expenses, you’ll be in great shape for knowing exactly where your freedom number is.
The first thing that’s great about this tool is it integrates well with your bank accounts and credit cards.
We run our personal family funds through a local credit union and for whatever reason I can never get Mint.com to connect with this credit union.
Personal capital had no problem.
Once you have your accounts plugged in, the next step is to go through and categorize each expense so all your expenses will show up in the neat organized charts this tool gives you for analysis.
2 things I loved about this process.
a) You can add your own expense categories which is great for organizing your expenses in the way you want them to be organized.
b) There are some check boxes with each expense so you can select things like ‘medical’ or ‘tax related’ which comes really handy for finding those expenses you can use at tax time.
There’s also a business checkbox for business expenses – however, if you do have a business, any good tax accountant will tell you not to mix your business funds with your personal funds.
It’s a good idea to only use this tool for your personal family expenses and use another accounting software like QuickBooks online for business books.
(Unless of course you’re just getting started. In that case, using this tool to track a few business expenses so you can deduct them on your taxes would be way better than not tracking them at all.)
So I spent about 2 hours yesterday going through and categorizing all of our family expenses for this last year.
Here is the reward for my efforts.
When I finished, Personal Capital, gave me some powerful information.
First and foremost, I learned exactly what my family expenses were for this last year as well as a chart showing me how much the monthly expenses were AND – an automatic average.
Isn’t that amazing!
It serves up your freedom number right there for you to see.
There are some other super cool things you can do like drill down to see how much your spending in each category so you can do all sorts of analysis to see where maybe you could cut some expenses and make your freedom number even more achievable.
Looking at my numbers I quickly saw $550 per month that will not be there this next year which lowered my freedom number to $2,661 making it even more achievable.
This last week we’ve been studying Law of Success #3 (The Habit Of Savings) on our morning mastermind which continues to help myself and others understand why this stuff is important.
Setting up a personal capital account and getting numbers in order is a huge step in the how.
If you don’t already have a clear picture of what’s happening in this area of your finances – I hope this post can help you see the value in making a decision to set up a free account and invest the time to do it now.
To Freedom and beyond!
Paul Hutchings
PS – Are you open to increasing your monthly passive income? If so, take a peek here to see how I might be able to help you.