Financial freedom eludes a lot of people nowadays, who by all logical conclusions and observations ought to have obtained it. It really is commonly cited as one of the most important and sought after objectives in life and yet is rarely attained.
This article does not try to give you a magic formula for achievement, but I do reveal to you the choices that made a difference to me and may help you, if you choose put yourself well on the path to freedom.
Consumption
You'll be able to choose to spend some or all of your money on "consumption" items. These involve food, entertainment, holidays, housing, motor cars, hobbies, and so on. These are things we should live on a day-to-day basis. They also include items that service the things we want.
Investment
You'll be able to choose to spend some or all of your money on investment items like revenue producing real estate, shares, interest bearing deposits, businesses that produce income, etc.
You might have the option of going public with a company or investing in a company restructuring. Seek advice from a business adviser for info on companies restructuring.
Consumption or investment
Two important factors have to be understood about the very simple concepts of consumption and investment.
The first factor is that spending on "consumption" items results in reducing the total value of your assets (net worth).
Shelling out for investment items aims to increase your net worth. The second element is the fact that you've got choice. You can pick between spending on consumption or investment items.
Of course, the very best spending patterns are those that aim to attain a balance between paying for consumption and investment items.
Shades of Grey
There's, of course, some spending that's not clearly defined as consumption or investment. Buying your own home is considered by several to be an investment. It isn't!
The purchase usually is financed and the repayments are a liability. The upkeep of a house costs money. You will discover rates and taxes payable on it.
You do not get any income from it. In case you strategy to sell it in a few years to make a profit on its increased value, then it may be an investment. However if you have to purchase another house to live in are you currently really any better off?
In terms of investing, time is on your side.
Obviously, you might not be 21 anymore and you might wish to accumulate wealth at a faster rate. This is possible by increasing the quantity invested, and the annual rate of return.
It is not possible to systematically accumulate substantial wealth (millions) without looking at a time frame of several years (say 5 to 10).
When you are attempting to make more funds in less time, then your objectives may not be realistic. Perhaps crossed fingers and significant amount of luck could produce your desired result, but do not hold your breath waiting.
The power of compounding
In the above examples there's an additional element at work. The whole return was reinvested and participated in earning the same rate of return as the initial investment. None of the investment profit was withdrawn and spent on consumption items.
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