Financial freedom eludes a lot of individuals nowadays, who by all logical conclusions and observations should have obtained it. It really is generally cited as one of the most important and sought after goals in life and however is seldom attained.
This article does not try to provide you with a magic formula for achievement, but I do reveal to you the choices that made a difference to me and may help you, in case you choose put yourself well on the path to freedom.
Consumption
You can choose to spend some or all your funds 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 consist of items that service the things we want.
Investment
You'll be able to choose to spend some or all your money on investment items such as revenue producing real estate, stocks, interest bearing deposits, companies 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 elements have to be understood about the simple concepts of consumption and investment.
The very first factor is that spending on "consumption" items results in minimizing the total value of your assets (net worth).
Shelling out for investment items aims to improve your net worth. The second element is that you've got choices. You can choose between paying for consumption or investment items.
Obviously, 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. Purchasing your own home is considered by many to be an investment. It isn't!
The purchase generally is financed and the payments 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 couple of years to make a profit on its increased value, then it may be an investment. However if you have to buy a different home to live in are you currently really any better off?
When it comes to investing, time is on your side.
Obviously, you may not be 21 anymore and you might wish to accumulate wealth at a quicker rate. This is possible by increasing the amount invested, along with the annual rate of return.
It's not possible to systematically accumulate substantial wealth (millions) without looking at a time frame of several years (say 5 to 10).
When you are trying to make more funds in less time, then your objectives might not be realistic. Perhaps crossed fingers and big quantity of luck could generate your desired result, but do not hold your breath waiting.
The power of compounding
In the above examples there's an additional factor at work. The whole return was reinvested and participated in earning exactly the same rate of return as the initial investment. None of the investment return was withdrawn and used on consumption items.
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