We check whether and how much our passive income covers our expenses as a part of monitoring our monthly income-to-expense ratio. The percentage shows how far we are from financial freedom. We think that this metric is so important, so we named it “Distance to Financial Freedom”. This is the first year that we have added this metric to our goals. It has been said many times that goals should be measurable, and having an important metric such as our distance to financial freedom is awesome. Like any company that shows its growth in terms of revenue and profit, we would like to see continuous improvement in all of our goals, including the “Distance to Financial Freedom” metric. Another aspect of this metric that I like is its dependability on both expenses and income, i.e. we can advance it by reducing expenses and increasing income. We have verified our passive income covered 7.43% of our expenses in 2016. This year, we would like to see passive income covers more than 10% of our expenses.
We removed capital gains because it does not work for us.
- Distance to Financial Freedom above 10%
- Total annual savings: 14,400 CAD (1,200 CAD x 12 months)
- Receive annual dividends 6,000 CAD
- Income from rental properties: 4,800 CAD (400 CAD x 12 months)
- Start a blog about our financial journey