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Financial Escape Velocity

Financial escape velocity is a situation in which your lowest expected completely passive earnings for every month is greater than or equal to your highest expected expenditures for every month.

Clarification

I’ll explain the definition backwards.

  • By “highest expected expenditures” I mean the most amount of money that you need to live off. I say “most” because some months have more bills than others. Pick the most expensive months for this definition.

  • By “completely passive earnings” I mean money that comes in even if you don’t lift a finger for it - not even a little maintenance or paperwork.

  • By “lowest expected earnings” I mean that you estimate what is the minimum that you expect to earn each month.

The point of financial escape velocity is that you can be sure to have enough money to get by with even if you do nothing at all. If you want to be particularly certain, you can give yourself some leeway in case you fear that earnings might drop or expenses go up. In this case you raise the requirement by a certain percentage in order to have escape velocity.

Additional Notes

The term ”financial escape velocity” is my own but since I’m going to be using it a lot on this site, this definition might come in handy.

Reaching escape velocity is a pivotal moment, the most important one perhaps in your journey to becoming rich. It’s the equivalent of the first year in which a business breaks even.

For everyone the requirement to reach it is different and it will also vary from year to year. In my case I would have to earn at least $1 500 each month from passive income in order to have financial escape velocity.

Reaching financial escape velocity (FEV from now on) is the hardest part of the journey to becoming wealthy. Most people never make it this far. However, those who do, will easily be able to go on to accomplish anything else. It’s a downhill ride from thereon. I see reaching FEV as the biggest test in my challenge to become a millionaire. If I pass it, and I will, then I will become a millionaire eventually.

Until you reach FEV it’s a struggle, hard work for little pay. After you reach FEV, it’s the other way round. Time is running with you now and you can get ready to become wealthy or retire early. The choice is yours.

 

More Information

Money Math

Passive Income

Passive Residual Income

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