The three freedom ratio bands
Passive income ÷ monthly expenses. Example: 12,000 ÷ 48,000 = 25%.
The formula
Passive income a month, divided by expenses a month, as a percentage. That is all. If you spend 48,000 a month and your assets pay 12,000, the ratio is 25%.
The three bands
- Starting, below 25%. Most households begin here, including many with large portfolios, because growth is not payout.
- Building, from 25% to just under 100%. The middle years, where each new paying asset is visible.
- Free, at 100% and above. Your assets cover your life. This is the Rat Race Exit.
A fourth state, unknown, shows while there are no expenses to divide by.
What moves it
The numerator moves when an asset pays out: dividends, rent, interest, distributions, or manual passive income you enter. The denominator moves when you change what you spend. Cutting a recurring expense is the fastest lever most households have.
What it ignores, on purpose
Price growth. Unrealised gains. Future salary. Inheritance. The ratio is about money that arrives without work, today. Scenario Lab is where you try assumptions about tomorrow, and it saves nothing.
Where you see it
On the Rat Race Exit Planner as a gauge, with the gap to close beneath it. On Home as part of your stage. A freedom ratio above 25% is one of the three milestones for stage 5, Big Commitments.
