If You Do Not (Do)FINANCIAL FREEDOM Now, You Will Hate Yourself Later

A serious look at what I believe wealth management, investing and saving is all about. I’ll detail the choices that I made and the ones that I wish I made which hopefully will open your eyes to the choices that you have.

Financial independence eludes a large number of individuals these days, despite the fact that they should have it based on all logical conclusions and observations. It's often mentioned as one of life's most essential and coveted objectives, yet it's seldom achieved. This essay does not purport to provide you with a magic recipe for success, but it does share with you the decisions that have made a difference in my life and may set you on the road to freedom if you choose to make them.

Consumption

You may choose to spend part or all of your money on things that are considered “consumption.” Food, entertainment, vacations, housing, automobiles, and hobbies are just a few examples. These are things we must live with on a daily basis. They also include products that help us get what we desire and therefore enhance our quality of life.

Investment

You may invest part or all of your money in things like revenue-producing real estate, shares, interest-bearing accounts, revenue-generating companies, and so on.

Investment vs. consumption

Two essential aspects of the basic notions of consumption and investment must be grasped.

The first is that spending on “consumption” goods reduces the value of your assets overall (net worth). The goal of investing is to enhance your net worth. The second point to consider is that you have a choice. You may spend your money on either consumption or investment goods.

The ideal spending habits, of course, are those that seek to strike a balance between consumption and investment.

Consumption versus investment

You now understand the distinction between consumption and investment expenditure and how to select between them.

All you have to do is consider your options before you spend. Consumption expenditure may influence your way of life (driving a new car is fun, even if it was bought on credit and has created a liability of three to five years of payments). Income and riches are generated via investment expenditure.

Shades of Grey

Of course, some expenditure isn't easily classified as either consumption or investment. Many people consider purchasing a house to be an investment. That's not the case! In most cases, the purchase is financed, and the repayments constitute a responsibility. A house's maintenance is expensive. Rates and taxes must be paid on it. It does not generate any income for you. It may be an investment if you intend to sell it in a few years to benefit from the improved worth. However, are you really better off if you have to purchase a new home to live in?

Building wealth necessitates investment expenditure.

Some investment expenditure is required in order to create wealth. The more money you put into investments, the larger and faster your money grows. However, if too much money is spent on investments and not enough on consumption, one's lifestyle may suffer. You do, however, have a choice.

Over time, accumulation occurs.

The majority of individuals are not born wealthy. Some people do inherit money, but they may not appreciate it. Few people win large sums of money in lotteries, but they may wind up wasting the money because they haven't worked for it or aren't accustomed to it.

Everyone, on the other hand, has something in common. For everyone of us, the same amount of time passes at the same pace. It's crucial how you spend that time.

Imagine investing $1,000 at the age of 21 at a 10% yearly rate of return, and by the time you're 65, you've amassed almost $70,000 without doing anything else.

If you invested $1,000 at the age of 21 at a 10% annual rate of return and added $100 each month, you would be a billionaire by the age of 65, without doing anything else.

If you didn't do any of these things, the same amount of time would have passed and you wouldn't have amassed any riches.

These investment ideas purposefully utilise sums of money that most people can afford, and which, if spent on investment rather than consumption, would likely go unnoticed.

Time is on your side when it comes to investing.

Of course, you are no longer 21 and may want to earn money more quickly. This may be accomplished by raising the quantity of money invested as well as the yearly rate of return. Without considering a period of many years, it is impossible to systematically build substantial money (millions) (say 5 to 10). If you're attempting to earn more money in less time, your goals may not be achievable. Maybe a lottery ticket crossed fingers, and a lot of luck may bring you your desired outcome, but don't hold your breath.

Compounding's Influence

There is an extra element at work in the instances above. The whole profit was reinvested, resulting in a return of the same rate as the initial investment. None of the investment profits was taken out and spent on personal goods.