Financial freedom eludes a lot of men and women nowadays, who by all logical conclusions and observations should have obtained it. It's 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 offer you a magic formula for achievement, but I do share with you the choices that made a difference to me and can 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 vehicles, hobbies, and so on. These are things we really need to live on a day-to-day basis. They also consist of items that service the things we want.
Investment
You can 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, and so on.
You have got the option of going public with a company or investing in a company restructuring. Consult a business adviser for information on companies restructuring.
Consumption or investment
Two important elements have to be understood about the simple concepts of consumption and investment.
The initial factor is that spending on "consumption" items results in lowering the total value of your assets (net worth).
Shelling out for investment items aims to boost your net worth. The second element is that you have choices. You can choose between paying for consumption or investment items.
Obviously, the very best spending patterns are those that aim to achieve a balance between paying for consumption and investment items.
Shades of Grey
There is, of course, some spending that is not clearly defined as consumption or investment. Purchasing your own home is considered by many to be an investment. It isn't!
The purchase commonly 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 don't get any income from it. If you plan 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?
With regards to investing, time is on your side.
Obviously, you may not be 21 anymore and you may wish to accumulate wealth at a quicker rate. This is possible by increasing the amount invested, plus the annual rate of return.
It isn't possible to systematically accumulate substantial wealth (millions) without looking at a time frame of a number of years (say 5 to 10).
When you are trying to make more money in less time, then your objectives might not be realistic. Perhaps crossed fingers and large quantity of luck could generate your desired result, but do not hold your breath waiting.
The effectiveness of compounding
In the above examples there's an additional factor at work. The entire 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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