Financial Independence - A Desirable Goal In Life That's Rarely Accomplished
Financial freedom eludes so many folks nowadays, who by all logical conclusions and observations ought to have obtained it. It is generally cited as one of the most significant and sought after objectives in life and yet is seldom attained.
This article does not attempt to provide you with a magic formula for achievement, but I do give you the choices that made a difference to me and can help you, in case you choose put yourself well on the road to freedom.
Consumption
You'll be able to choose to spend some or all of your funds on "consumption" items. These include food, entertainment, holidays, housing, motor vehicles, 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 can choose to spend some or all of your funds on investment items including revenue producing real estate, shares, interest bearing deposits, companies that produce revenue, and so on.
You might have the option of going public with a company or investing in a company restructuring. Talk to a business adviser for information 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 lowering the total value of your assets (net worth).
Spending on investment items aims to improve your net worth. The second element is the fact that you have choice. You'll be able to pick between spending on consumption or investment items.
Obviously, the best spending patterns are those that aim to achieve a balance between paying for consumption and investment items.
Shades of Grey
There is certainly, of course, some spending that is not clearly defined as consumption or investment. Buying your own home is deemed by several to be an investment. It isn't!
The purchase usually is financed and the payments are a liability. The upkeep of a house costs money. There are rates and taxes payable on it.
You don't get any income from it. When you plan to sell it in a couple of years to make a profit on its increased value, then it might be an investment. However if you have to get another home to live in are you really any better off?
When it comes to investing, time is on your side.
Obviously, you might not be 21 anymore and you may wish to accumulate wealth at a faster rate. This really is possible by increasing the quantity invested, as well as the annual rate of return.
It isn't possible to systematically accumulate significant wealth (millions) without looking at a time frame of a number of years (say 5 to 10).
When you are attempting to make more money in less time, then your objectives may not be realistic. Maybe crossed fingers and substantial amount of luck could generate your desired result, but don't hold your breath waiting.
The effectiveness of compounding
In the above examples there's an additional element at work. The entire 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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