Your Freedom Number

The Passive Income Needed For Financial Freedom

Picture of by Dr David Phelps

by Dr David Phelps

In the Freedom Founders community, we focus heavily on the five freedoms.

The first one from bottom to top is financial freedom. Then freedom of time, freedom of relationships, and freedom of health.

At the top are purpose, significance, meaning, and impact all in one.

Freedom Number - Freedom Founders - Financial Freedom

We start with the base of that pyramid, financial freedom.

Financial freedom is when you have passive income replacing and surpassing the amount of money you require to live off of (your freedom number). Therefore, to attain financial freedom we must calculate and focus on what I call the “Freedom Number.”

Why I Found My Freedom Number

I coined the term, “Freedom Number,” a few years after I surpassed my freedom number with passive income from my real estate investments.

I didn't have a word for it at that time, but specifying that number was the entire advent of giving myself, my logical rational brain, the ability to leave my dental practice when I was in my 40s and have that opportunity to spend more time with my daughter.

That's a monumental decision to make.

It is probably not the decision you have to make in your life right now. You might still be figuring out, “Do I have enough? What is my game plan?”

When will I have enough to exit my business, my practice, and have enough of a nest egg to support me and my family the rest of my life.

Those were the questions that held the key when I was determining how and if I could feasibly make this change.

I wanted to be physically and emotionally with my daughter. I was spending too much time over many years in my practice, running a profitable business, being the provider of the family (a good thing but there had to be a better way to do it).

Jenna, my daughter, had leukemia, epileptic seizures, and then finally a liver transplant. I had to do something different, but I still needed to be responsible as well.

I couldn’t just leave my duties and abdicate my commitments without consideration of the future. As Jenna was sleeping in her hospital bed after her liver transplant some 20 years ago, I was thinking about where I was in my life, and what was most important to me.

Yes, it is important to be a good dentist, a good business owner, to take care of patients, take care of staff, but also be a good father, a good spouse, and fulfilling all those roles successfully at the same time is very, very difficult.

So I calculated what I had in my real estate operations. I had built a portfolio of single family houses for about two decades, using the compound effect of acquiring assets and paying down the debt.

The tenants paid down most of the debt. I steadily snowballed down the debt on a number of houses. That was my strategy, just picking up houses over the years and paying them down.

I didn't have all the houses paid down when Jenna was in the hospital. I had a significant number paid off but I'd never taken an accounting of how much of that “passive income” I had coming. 

The reason why I hadn’t done that yet is because when evaluating a practice exit, it’s always tempting to think you need “more”. Should you exit? Should you do it this way or that way? When should you do it? You're always seeking certainty that you have enough. And you ask, how much is that?

How much is enough? 

The problem for the vast majority is they were never taught how to turn their nest egg, their investment equity, their practice equity into replacement income. Without the ability to create replacement income, it is difficult to know how much is “enough”. 

Cash Flow is the Answer

It's all about replacement income. Cash flow. Yes, growing net worth is important and you can do that over the years while you have an active income. But when it comes time to stop your active income, you must either deplete your nest egg (the traditional model) or find another source of income. 

Chopping down my assets has never been part of my game plan at all. It’s never made sense to me. I want to maintain the golden goose that are my assets and have that spitting out golden eggs that are what I live off. I don't want to start chopping the goose down over time and get down to the last little bit of the goose and hope that it doesn't run out before I die.

That's not the way to go.

Tangible assets, hard assets that produce income is what I recommend. Real estate is the best example I have found. Commercial real estate or single family real estate, it is the best asset I know that provides the sustainable income I need.

So when I made that accounting when my daughter was in the hospital, I realized I had enough cash flow to take care of my needs. My daughter’s health crisis forced me to a decision. If I sold my practice, I realized I could take that equity and put it to work in ways I knew would give me sustainable, predictable income.

Doing that logistical, rational thinking in my brain on the back of a scrap piece of paper gave me the permission and was the impetus of the decision to sell my practice.

What I Do Today

I sold my practice thinking that I would take no more than 18 months off to spend time with my daughter after her liver transplant.

I never went back. Why? The space, the margin of time that I was given when I exited (not for myself, it was for my daughter) allowed me to be more creative. It allowed me to evolve into who I am today.

Today I help other doctors and dentists advance their freedom goals using tangible assets like real estate rather than relying on that old tradition model of uncertainty.

Uncertainty and worry is not going to cut it. You need a plan. 

If you're like me you’re not going to abdicate your responsibilities. That's why so many people get stuck when trying to sell a practice, trying to figure out how much is enough? 

We're in an environment today of economic volatility like we've never seen before. Inflation is up and it will stay there. It's going to be more difficult to navigate forward.

But it is an opportunity for you to understand how to do it so you're not left in the dust like, unfortunately, the majority will be.

It's up to you to focus on your freedom and figure out a game plan.

It is very important that you work on this. Not tomorrow, not next year. Start doing it now.

To your freedom!

– David


P.S. Whenever you’re ready, here are some other ways I can help fast track you to your Freedom goal (you’re closer than you think) :


1. Schedule a Call with My Team:

If you’d like to replace your active practice income with passive investment income within 2-3 years, and you have at least $1M in available capital (can include residential/practice equity or practice sale), then schedule a call with my team. If it looks like there is a mutual fit, you’ll have the opportunity to attend one of our upcoming member events as a guest.

2. Become a Full-Cycle Investor:

There are many self-proclaimed genius investors today who think everything they touch turns to gold. But they’re about to learn the hard way what others have gained through “expensive” experience. I’m offering a free report on how to become a full-cycle investor, who knows how to preserve and grow capital in Up and Down markets. Will you be prepared when the inevitable recession hits? Get your free report here.

3. Get Your Free Retirement Scorecard:

Benchmark your retirement and wealth-building against hundreds of other practice professionals, and get personalized feedback on your biggest opportunities and leverage points. Click here to take the 3 minute assessment and get your scorecard.

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