(Updated: 01.04.2015) My ultimate goal is to reach financial independence. Financial independence is reached when one’s passive income is larger than one’s expenses. This blog is to share the journey to our financial independence. You can follow the journey by reading the series of monthly updates. Another interesting number to follow is savings rate. Because when one wants to reach financial independence through passive income, a large proportion of one’s income should be invested into various investment products.
Our passive income is generated from various investment products such as stocks (dividends), loan interests (real estate, P2P) and some other projects that do not require any active work or involvement. To track our progress, we have found that the best number is passive income ratio into expenses. To smooth out the graph we use rolling average of last 12-month of expenses and last 12-month of passive income, because in Estonia dividends are usually paid out once a year.
To achieve to financial dependency the passive income % of expenses should be at least 100%. Our first target is about 130% because fluctuations can occur and our all calculations are pretax. For example in Estonia one must pay 20% of income tax from passive income.
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