What is Financial Freedom?

As you know this blog has been inspired by financial freedom. While there are differing opinions about what financial freedom, this article will present financial freedom from my personal perspective.

What is financial freedom to me?

Financial freedom to me is having enough money to live without ever really having to work again. Now this does not mean you never have to work again. Instead it means that you work on your own terms.

You never have to worry about the stress of losing your job. You don’t have to worry about whether you have clients or not. When you are financially free, work no longer becomes a requirement in life but rather a choice.

How would you get there?

There are a number of ways to achieve financial freedom. The most effective way is by building passive income streams. This is done in a few ways shown below.

Have Your Money Make You Money

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Build up enough cash so that it will generate money-almost like planting your very own money tree.

The first way to build a passive income stream is to build up enough cash so that it will generate money. Use your cash to purchase dividend paying stocks or bonds which pay you interest. You could also purchase annuities which would pay you over the life time of the annuity.

For example, if you have $5 million in cash right now you could invest in bonds which pay out 5% a year. Just by having those bonds alone, you will generate $250,000 a year in interest income!

Imagine, $250,000 in your pocket and you don’t have to do anything at all! You can accomplish this with dividend paying stocks as well.

Stocks pay a wide range of dividends, and are not quite as reliable as bonds for paying you out every month.

But stocks do have the advantage of appreciating in value over time, so that when you sell the stock you have a chance to make more money.

I don’t have $5 million to put away, what should I do?

Fair enough. Most of us do not have $5 million in liquid cash at our disposal at any time. So what should you do instead?

Create a Business which Produces Cash with Minimal Effort

While I was writing that subheading, it sounded a tad bit scammy. Just like one of those spam emails which tell you how some guy makes $5,000 a day just by clicking a few buttons.

There are people out there with legitimate businesses that do not require much effort on their part.

They do this by doing one of two things

1)      They automate their business so they don’t have to do most of the work or,

2)      The create a product which they can sell to the masses

In order to accomplish number one listed above you would do a few things. First you would have to build a business up from scratch (if you can’t buy one initially).

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Automating your business by hiring employees is one method you can use to become financially free.

Then you would look to hire employees to help do the menial tasks that you don’t want to do. Then finally you would hire a manager to help oversee the employees and take care of the higher level duties that you don’t want to do.

This leaves you to plan for the future and grow, and takes you away from the day-to-day tasks that you would be doing at any typical 9 t
o 5 job.

For the second item, you would create a product that you only need to create once or can be created by others, and sell it to the masses.

Key Point: Learn How to Separate Time From Money

The key to building a passive income business is separating your time from money. Most jobs will pay you for every hour you work.

It has been engrained in us that we get paid when we work and don’t get paid when we don’t.

What if you did get paid when you didn’t work? How would you like to get paid when you didn’t work? When you are sleeping? When you are on vacation?

If you have an automated business, you will no longer trade your valuable time for money.

There are a ton of ideas to help you build up passive income streams. One of the best books to help you understand the different types of business systems is “The Millionaire Fastlane” by MJ Demarco.

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Check out The Millionaire Fastlane, one of my favorite business books that I’ve read recently

In that book he lays out the “Five Fastlane Business Seedlings” which are business systems which produce passive income for the owner. Those five systems are

  1. Rental Systems
  2. Computer Systems
  3. Content Systems
  4. Distribution Systems and,
  5. Human-resource Systems

If you want to find out more, check out the book on Amazon. It really is a great resource and I would recommend it to any entrepreneur or wantreprenuer looking to get started.

My Top Three Reasons for Wanting to Achieve Financial Freedom

I have told you what financially freedom is to me. Know I want to elaborate on why it is my goal to achieve financial freedom.

Reason #1: I want to have the freedom to do what I want when I want

If I want to sleep in until 12 I can.

If I want to meet friends for lunch on the other side of town at the last second I can.

If I want to go on vacation at the drop of a hat I can.

I would also have freedom to pursue hobbies that you enjoy but would never really make you money.

For example, I enjoy playing basketball and golf. I am not really good at either one of those. I could play those whenever I want.

Reason #2: I want to explore the world

Many folks don’t have to be financially free to explore the world, but I think it would be pretty amazing being able to travel all over without a timeline to get home like you would when you work.

I have never traveled much, and I think it would be great to be able to see the world.

Being financially free would allow me to travel on my own time, and have the money to do so.

Reason #3: Spend more time with those I love

I am personally not a workaholic. I’ll admit it.

I will work really hard doing the job the needs to be done. Once it is complete I go home and do the things that I want to do.

It’s not even that I am lazy, but I just like to enjoy life and do those things that I want to do.

I don’t want to feel obligated to go into some place five days a week for the next 35 years of my life.

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You now know my reasons for wanting to achieve financial freedom. What are yours?

I enjoy spending time with family and friends, and financial freedom will allow me to do this.

Down the road when I have kids, I want have the ability to spend time with them. I want to be a part of their life.

I don’t want to be at work all of the time and come home and be too tired to spend time with my family.

This is what financial freedom is to me. This is why I want to achieve it. What is financial freedom to you? Why do you want to achieve financial freedom?

Photo Credits (in order)

Flickr/Shari’s Berries, Flickr/Phil Whitehouse, Flickr/Kalyan Chakravarthy

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Businesses know how to make you buy a product. Don’t become a victim of their mind tricks.

What an amazing deal! I can’t believe I’m getting such a steal! 

When buying a product on credit, it’s not hard to fall victim to believing you got a great deal. Big companies know how consumers think and they know how to get a product into their hands as quickly as possible. Millions of dollars are spent advertising and researching consumer behavior.

One technique companies use to peddle their product onto consumers is to make them believe they are getting an amazing deal. I’m sure you’ve seen infomercials which tout that you can buy a product with “6 easy payments of $99 a month, no money down!” Would you still but the product if they told you it was “$600 dollars plus interest at a ridiculously high interest rate!” I don’t think so.

This same thing goes for cars. In the last article I discussed the negatives of taking out car loans. Once again, companies with throw out phrases like “only $299 a month for 60 months.” For them, it’s all about framing and making your gigantic purchase seem not so gigantic. When you spend a little amount over a long period of time you are dying a very slow but painful financial death of a thousand cuts. You become a servant to the lender and lose any chance at financial freedom.

The little things add up on both sides of the coin

You know how saving small amounts over time can add up? Well spending small amounts over time can have that same effect, except you suffer instead of benefiting. Don’t get fooled into thinking you aren’t paying a lot. Don’t look at purchases as payments in monthly installments. Take a step back and realize what the total cost of your purchase is, and then decide if it is really worth it to you.

We are all victims of the instant gratification bug

Instant gratification. We are all guilty of it. How could we not be. We live in the of the fastest generations ever. I was on Amazon the other day looking for books to read and stumbled across one that was on my short list of books to read. I went to the page for the book and in less than 10 seconds and the click of a single button, that book was delivered to my Kindle. I even commented to my friend how scary it was that I just bought something with the single click of a button.

With how quickly it is to buy things now, it is easy to get tripped up and knocked off the path to financial independence. In a matter of seconds you can spend hundreds, heck, even thousands of dollars. Back in the olden times you actually had to get in your car, drive to a store, find the item you wanted before you could even purchase it. You had time to think about the purchase you were about to make before you made it. By the time you got to the store you may have even reconsidered making the purchase altogether.

Once again, companies are behind making it easier for consumers to buy products. The faster you can buy a product, the less time you have to think about whether or not you truly needed it. It is their job to figure out how to get a product into your hands as fast as possible. Look around you. It’s everywhere. Fast food, Wal-Mart on every corner, one click purchases.

Considerations you should make before a major purchase

1)      Do I really need this product?I advise you, before you buy a product, take exactly three minutes before you click buy and consider the following:

2)      Will I still be satisfied with this product in six months?

3)      Does this product help improve my life?

4)      Is this not an impulse purchase?

5)      Can I afford this product without going into debt?

6)      Finally, Do I have a good reason for this purchase?

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The more “Yes” answers you have, the more likely it is that your purchase is a good one. It can be a dangerous trap when you combine instant gratification with credit cards. Not only are you mindlessly buying something, you are buying it with debt which can take months or years to pay off. This is precisely why I advise you take at least three minutes to really think about what you are about to do. Don’t set yourself back two years for a purchase you made in ten seconds.

Summary

  • Companies know how consumers think, and will make a large purchase appear smaller by giving you the cost per month instead of the total cost of a product.
  • Just like saving a little bit adds up over time, spending a little bit in monthly installments will add up over time. Understand the actual cost of your purchase.
  • Companies know consumers seek instant gratification and have responded by making products quicker and easier to buy.
  • Take into consideration the six questions I listed above before you make a major purchase. Don’t let a split second decision set you back years.

Photo Credit/Flickr User Paul Inkles

Why do you worry about money so much?

The other day I was walking around with my sister when the topic of money came up. I told her how I didn’t really like to spend money on things that I didn’t need. This was when she asked me the following question: “Why do you worry about money so much? Money doesn’t buy happiness” I thought about the question for a split second and replied, “It doesn’t buy happiness, true, but it does buy freedom.” Her reaction was priceless. “Woah. You just blew my mind.” The funny thing is, a lot of people don’t look at money in this manner.

While it is true money doesn’t buy happiness, it gives you freedom to do what you want. If you are fortunate enough to save enough money, you will be financially independence. As a result, you will be able to “retire” from work a lot sooner than your counterparts. Instead of sitting in traffic five days a week on your morning commute for forty years of your life, you will be able to sit back and live life the way it’s meant to be lived.

For me personally, I don’t want to be a part of the 9 to 5 until 65 club. I plan on achieving financial independence a lot sooner than that. I want to enjoy my life as much as I can. I want to have the ability to travel. I want to spend as much time with my future children and spouse. I want to be in control of money, not let it control me. In order to do this I have to make some sacrifices, and I am perfectly content with that.

What is your view of money? Are you in control of your money or do you let it control you?

Invest Young: A Few Simple Tips Will Make You a Millionaire

In my last article I made the argument that fear was the leading cause of young people investing. I illustrated how not doing anything with you extra cash will make you lose money. In this article I will go more into detail about how implementing an investing plan at a young age will make a giant impact on your life. I will also present a few simple steps that will help you become a millionaire.

Long-Term Impact of Investing When You are Young

Compounding and time value of money is a powerful thing. In a prior article, I showed how small changes coupled with time value of money can add up to giant sums of money. Time value of money also plays a huge role for your retirement and is the reason you need to start saving today. To illustrate my point I will discuss two different people. These people are Sally the Saver and Sam the Spender.

Sam and Sally are very similar. They had the same major in college, graduated at the age of 22, and got a job at the same time. Both make pretty good money working. They don’t have too much student debt.

Sam the Spender likes to spend money. As soon as he makes money he spends it. He continues this way until he hits his 30s. It is then that he realizes he has nothing put away, and he needs to start taking his investments seriously. Sam saves $500 dollars a month from his paycheck. He puts this into a stock market fund that returns an average of 8% a year. He continues on this path for 35 years, until the age of 65 when he retires. By the time Sam is 65 he will have put away $1,033,900! He is a millionaire!

Sally the Saver likes to save money. As soon as she makes money she saves it. She “pays herself first” if you will. At the age of 22, Sally begins to save $500 a month. She also puts this into a stock market fund that returns an average of 8% a year. She continues on this path for 43 years, until the age of 65 when she retires. By the time Sally is 65 she will have put away $1,977,500! This is almost twice as much as Sam and all she did was start saving eight years sooner!

Investing at a young age is the best decision you could ever make. When you put away cash when you are young, you open yourself up to so many more options as you age. You could continue to save up as you work. Or, you could have enough money to give you financial independence which would allow for you to start your own business. You won’t be on the constant treadmill where you work for a paycheck only for it to be gone two weeks later. The key here is financial independence. Being free from the shackles of work will make you happy. It will enable you to take chances in life that you wouldn’t otherwise take.

How to Become a Millionaire?

Becoming a millionaire isn’t as difficult as it may seem as displayed above by Sally and Sam. To become a millionaire you must be willing to save money. It doesn’t necessarily have to be a lot, but it has to be enough that will accumulate over time.

Don’t spend money on things you don’t need. You need to create a budget for yourself and stick to it. How can you force yourself to stick to a budget? Pay your investment plan first. Whether it is a 401(k) or just a plain old brokerage account, force yourself to make a payment to that investment plan first. Whatever money you have left over will be used for all of your other expenses you budgeted out.

Big financial decisions can lead to big savings

When you are buying a home or a new car, keep the long-term financial impact in mind. Make sure you can get the best deal you can on a new home or car. Don’t buy something that is unnecessarily big. Live below your means and you will achieve financial freedom. It’s these big decisions that either make or break people financially.

Don’t make dumb investments

If you are new to investing, don’t try your hand at picking stocks. Chances are that you are not going to beat the market. It is hard enough for people who do it for a living to beat the market. My recommendation is to put your money into a total stock market exchange traded fund (ETF). One good ETF for this situation is the Vanguard Total Stock Market ETF (VTI). This ETF tracks the market as a whole, has extremely low expenses, and will help reduce your risk. As you begin to learn more and more about investing, then you can start picking individual stocks.

A call to young people.

Start investing as soon as you can. If you have money leftover at the end of the month, open a brokerage account and begin putting it into a total stock market ETF. The longer you wait, the more you have to lose.