Everything you need to set yourself financially free

The financial freedom glossary

Every term you'll meet on the path, defined in one breath.

Live Free Number

The invested capital needed for passive income to cover your expenses: annual expenses ÷ portfolio yield. Spending $5,000/month at a 10% yield means a $600,000 Live Free Number.

Passive income

Money generated by assets you own — dividends, interest, rent, fund distributions — rather than hours you work.

Financial independence (FI)

The state where income from assets covers your living expenses permanently, making work optional.

Savings rate

The share of after-tax income you keep and invest: (income − spending) ÷ income. The single best predictor of how fast you reach financial independence.

Compound growth

Returns earning their own returns. At 10% annually, money doubles roughly every 7.2 years (the Rule of 72).

Yield

The annual income an investment produces as a percentage of its value. A $100,000 holding distributing $8,000/year has an 8% yield.

Safe withdrawal rate (SWR)

The percentage of a portfolio you can withdraw annually with high confidence it lasts. The classic research figure is 4% for 30-year horizons; ~3.25–3.5% for longer ones.

Accredited investor

An investor meeting SEC thresholds — $200K+ income ($300K joint) or $1M+ net worth excluding primary residence — permitted to invest in private securities.

Cap rate

A property's net operating income divided by its price. A $300,000 property producing $21,000 of NOI has a 7% cap rate.

Preferred return

In private funds, the profit hurdle (commonly 6–8% annually) paid to investors before the sponsor shares in profits.

Distribution

A cash payment from a fund or partnership to its investors, typically monthly or quarterly.

Sequence-of-returns risk

The danger that poor market returns early in retirement — while you're withdrawing — permanently deplete a portfolio even if long-run averages turn out fine.

Depreciation

A tax deduction for the wear of an income property (1/27.5 of building value per year for residential), often sheltering rental cash flow from current taxes.

1031 exchange

A US tax provision letting real estate investors defer capital gains tax by rolling sale proceeds into a like-kind property.

Syndication

A pooled investment in a single large asset (e.g., an apartment complex) where a sponsor operates the deal and investors supply capital as limited partners.

Expense ratio

A fund's annual fee as a percentage of assets. Index funds charge as little as 0.03%; active funds often charge ~1% — a difference worth ~25% of final wealth over 40 years.