Total net worth or passive income: which metric to chase?

I have been thinking a lot on which metric shall I use to measure how close I am to financial independence. Both total net worth and passive income have as a basis my expected yearly expenses but whereas total net worth generally assumes a 4% net return rate, the passive income assumes that the amounts I am earning now can be replicated in the future. Both have flaws but both can be used as a guide.

In my specific case, I have invested mostly in real estate (on my way to buy property #2) and my investments yield more than 4%. Therefore, if I consider both properties and the passive income generated by them, 40-45% of my yearly expenses are already covered by these properties (potentially even more, because I can still decrease the amount of taxes I pay for both properties if I decide to create a company and deduct expenses and VAT, which I am planning to). On the other hand, if I use the total net worth metric, I am only 30% financial independent.

It is more conservative to target total net worth, which, in our case, is 870k EUR (my husband disagrees and think this is too low) but I will still celebrate when we reach 100% of expenses covered by passive income!

What about you? How do you keep up the motivation towards your goal?


6 thoughts on “Total net worth or passive income: which metric to chase?”

  1. Seems we have very similar net worth targets! It’s probably a bit low (-ish), but as long as you are flexible and frugal, there is a good chance that you’ll be fine. Especially if your yield is a bit higher than 4% and you are living of the cash-flow. We actually use both metrics to see where we are. The net worth one hoovers around 70%, the cash-flow at 80%. At least we at trending in the right direction!


    1. Amazing numbers, congrats! I think the trick is exactly that, being flexible and frugal. Plus, in our case, moving into a low(er) cost of living country after FI also helps. You are definitely trending in the right direction and almost there, must be an amazing feeling 🙂


      1. You have no idea how good that feels! Gave me enough confidence to stop working and try something new 🙂
        About that moving to a lower COL country, tried that, but it is being vetoed by Mrs. CF 😦

        Liked by 1 person

  2. I have the exact same considerations at the moment. I have started to make some income from my blog, so I can see the value in looking at passive income to cover my expenses. At the same time, I am only 10% of the way towards my FI number, so I believe it would be a bit early in the journey only to rely on my highly volatile blog income 🙂


    1. I am sure you will quickly increase the 10% with your blog and other investments. The blog can be indeed volatile but it can help you save up and invest. Plus, it is a great way to make you accountable and motivated 🙂

      Liked by 1 person

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