Financial Flexibility - A Desirable Objective In Life That Is Seldom Accomplished

Financial freedom eludes so many individuals these days, who by all logical conclusions and observations should have obtained it. It really is commonly cited as one of the most significant and sought after goals in life and yet is seldom attained.

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

Consumption

You can choose to spend some or all of your funds on "consumption" items. These include things like food, entertainment, holidays, housing, motor cars, hobbies, and so on. These are things we have to 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 of your funds on investment items such as revenue producing real estate, shares, interest bearing deposits, companies that produce revenue, etc.

You have the option of going public with a company or investing in a company restructuring. Consult a business adviser for info on companies restructuring.

Consumption or investment

Two important factors have to be understood about the simple concepts of consumption and investment.

The 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 increase your net worth. The second factor is that you've got choice. You'll be able to choose between spending on consumption or investment items.

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

Shades of Grey

There is, of course, some spending that's not clearly defined as consumption or investment. Buying your own home is deemed by many to be an investment. It isn't!

The purchase usually is financed and the payments are a liability. The upkeep of a house costs money. You can find rates and taxes payable on it.

You do not get any revenue from it. If you strategy 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 buy another home to live in are you really any better off?

In terms of investing, time is on your side.

Of course, you may not be 21 anymore and you might wish to accumulate wealth at a faster rate. This really is possible by increasing the amount invested, and the annual rate of return.

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

If you are trying to make more funds in less time, then your objectives may not be realistic. Maybe crossed fingers and large amount of luck could generate your desired result, but don't hold your breath waiting.

The power of compounding

In the above examples there is an additional factor at work. The whole return was reinvested and participated in earning the same rate of return as the initial investment. None of the investment return was withdrawn and spent on consumption items.

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