Financial Independence - A Desirable Objective In Life That's Never Accomplished

Financial freedom eludes so many men and women these days, who by all logical conclusions and observations ought to have obtained it. It's commonly cited as one of the most significant and sought after objectives in life and however is seldom attained.

This article does not attempt to offer you a magic formula for success, but I do reveal to you the choices that made a difference to me and can help you, if you choose put yourself well on the road to freedom.

Consumption

You'll be able to choose to spend some or all your funds on "consumption" items. These include food, entertainment, holidays, housing, motor vehicles, hobbies, and so on. These are things we must 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, stocks, interest bearing deposits, companies that produce revenue, and so on.

You've got the option of going public with a company or investing in a company restructuring. Seek advice from a business adviser for information on companies restructuring.

Consumption or investment

Two important factors really need to be understood about the very 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).

Spending on investment items aims to boost your net worth. The second factor is the fact that you have choice. You'll be able to pick between paying for consumption or investment items.

Obviously, the best spending patterns are those that aim to achieve a balance between spending on consumption and investment items.

Shades of Grey

There's, 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 generally 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 revenue from it. In case you plan to sell it in a few years to make a profit on its increased value, then it might be an investment. However if you have to get a different home to live in are you really any better off?

With regards to investing, time is on your side.

Of course, 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, along with the annual rate of return.

It's not possible to systematically accumulate significant wealth (millions) without looking at a time frame of a number of years (say 5 to 10).

If you're attempting to make more money in less time, then your objectives may not be realistic. Maybe crossed fingers and substantial quantity of luck could generate your desired result, but don't hold your breath waiting.

The effectiveness of compounding

In the above examples there is an additional element at work. The entire return was reinvested and participated in earning the same rate of return as the first investment. None of the investment profit was withdrawn and used on consumption items.

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