I know a lot of people out there may be going through the same predicament, so I decided to provide this simple guide to address the issue of financial freedom, at least from the standpoint of common sense.
As we begin, I like to submit that some of the ideas I'll be sharing here are obtained from sources I believe to be reliable and from my own personal experience as an entrepreneur, but your due diligence is still needed in the application of the knowledge or ideas.
That said, I want you to realize first and foremost, that you are the vehicle to your financial freedom. You are responsible for your success or failure in the financial front, and you are the only person to depend on.
You can choose to be financially free by reprogramming your mind, investing in financial education and quickly taking action on the valuable ideas presented to you.
Action is the only thing that counts. Even clumsy or misguided or inefficient action will bring results. Maybe not wonderful results, and maybe not the right kind of results, but action always creates an outcome.
By taking action, you can avoid debt or get out of the rat race. By taking appropriate action, you can manage money and use it to create wealth. And the truth is, even if you make lots of mistakes, you can still accumulate a fortune and be financially free at the end of the day.
Wealthy people make far more mistakes with their investments than most of us - they just recognize them sooner, adjust quicker, and are always taking action to move forward. As long as you take action, you will get results.
Financial freedom is not difficult to attain once you understand the fundamentals. You just need to know that it hinges on the basic principle of earning enough money with your career by being employed or self-employed and both if possible.
You must earn money and reinvest it to work for you, not you working for money.
Mark Knopfler once said, "I don't like definitions, but if there is a definition of freedom, it would be when you have control over your reality to transform it, to change it, rather than having it imposed upon you..."
Based on this, we can safely define financial freedom in terms of your ability to manage your money in such a way that you have sufficient funds to live the life of your dreams without being constrained or requiring assistance from others. In other words, you have enough money to meet all your needs whether you physically work or not.
But the practical question remains, what strategies can you put in place to achieve this, and at what point can you have enough money whether you work or not?
Well, read on to discover the secrets.
Categorically, there are four strategies to achieve financial freedom, and your degree of freedom is contingent on which strategy you adopt.
There may be various combinations and a few exceptions (like winning a lottery or a reality show), but there are only four primary ways to achieve financial freedom.
1. FREEDOM THROUGH EMPLOYMENT
This means getting a job with a good company, hopefully doing work you enjoy, and earning promotions and pay raises over time, until you are rewarded with various bonuses and a substantial paycheck.
Unfortunately, this is not a very efficient strategy for achieving financial freedom. The reason is because income is taxed at very high levels, and taxes are deducted from your paycheck, so there is little or no chance to invest before the government takes its share.
Again, there are very few jobs that pay enough after taxes to facilitate the accumulation of significant wealth. And as you get the raises and bonuses, the percentage of income lost to taxation actually goes up, usually even faster than your raises.
And remember, employers must pay you less than your skills are worth. Employers rightly expect to make a profit on the capital, management skills, and risks they invested to create your job.
Additionally, in the global economy, there will always be more and more competition for the good-paying, high-value jobs that are available. As a result, both salaries and job security will continue to go down as society evolves.
You can now see why earned income (a job) is an inefficient way to provide value or achieve financial freedom. It only becomes an efficient strategy when you combine it with one or more of the other strategies explored here.
2. FREEDOM THROUGH SELF-EMPLOYMENT
This is the choice of many professionals and home-based businesses. From an income perspective, there are two main advantages.
As the self-employed owner of a small business (often called a "micro-business"), you can set your hourly rate, and you have some freedom to work when and if you choose. You can adjust your schedule and workload according to family responsibilities, your personal preferences and take a day off when you want to.
And, the government offers substantial tax advantages in exchange for the risks you take in creating your own job. As your own boss, you are responsible for your own office, your tools, marketing, management, billing and production.
The down-side is that, while we refer to it as a business, in fact, it is usually still a job. For most self-employed people, their income stops the moment they get sick, take time off, or retire. And, many people find that being both the boss, and the most important employee, is very stressful.
As a self-employed professional, with perhaps a small number of employees working for you, the bulk of the responsibility is on your shoulders.
If you take a leave of absence or are not able to do your work as a solicitor, accountant, sales person or graphic designer, your income usually stops. "No work, no pay" is the rule, and very few self-employed professionals ever move past this level.
Many independent contractors, artists, multi-level marketing professionals and other small office, home-office business are in this category. The freedom and independence are wonderful, but it is still a hard path to financial freedom.
3. FREEDOM THROUGH BUSINESS OWNERSHIP
This is a much rarer and riskier, but potentially more rewarding path to financial freedom. Businesses are systems that deliver value by organizing and combining the efforts of many people. Creating a business requires leadership, organizational and management skills, and capital.
It means taking risks, and reaping the rewards if things work out. Restaurants are great examples of systems that multiply effort, create jobs, and create wealth. You're probably familiar with a business like McDonalds. The system delivers burgers, and makes money whether the owner is present or not. Most self-made millionaires are business owners.
There are many disadvantages and difficulties in starting a business, particularly compared to the simplicity of having your own company as a self-employed professional. (Remember this distinction: all businesses are organized as a "company", but not every "company" is run as a business!)
Starting or running a business requires great skill at understanding and managing people, inventory, cash flow, and sales. As a business, you'll have employees to hire, train, supervise and sometimes, fire. There are legal and accounting complexities and you'll need talented (and expensive) professionals to advise you. But, the huge advantage of owning a business is that the system, if it is designed and managed appropriately, can largely "run itself".
The owner of a well-run restaurant does not have to be physically present every moment the restaurant is open for business. The owner of a manufacturing plant does not personally box and ship every widget that goes out the door.
Once a business is running smoothly, it creates value (and cash) indefinitely. The critical value-added component of a business is rarely the product or service it produces directly, but rather the value of the jobs it creates and the business' ability to organize and focus effort to get a specific result.
To take an extreme example, Microsoft is generally acknowledged to be among the most successful businesses in modern history. But the little CD's they sell have almost no intrinsic value.
In fact, the cost of producing CD's is so low that many companies give them away as advertising freebies. Bill Gates' genius is in organizing a diverse army of programmers, engineers, visionary thinkers, shipping clerks, lawyers, janitors and advertising executives to produce and deliver thousands of CD's that contain code to make our computers work.
The company is immensely profitable because it has been able to organize the talents of many different people. By bringing the contributions of different people together, Microsoft produces value-added software that has made Mr Gates, and thousands of his employees and stock-holders, rich.
Starting, organizing and running a business is one of the most reliable paths to financial freedom. There are tax incentives, and if things turn out well, it can create a stream of cash that lasts for generations.
Business ownership is clearly not for everyone, but it is one of the most reliable paths to wealth and financial freedom.
4. FREEDOM THROUGH INVESTING
This simply involves using your money in ways that create value and wealth over time. The classic universal investments have been land and buildings, stocks and bonds, and precious metals or other commodities. The modern era offers even more investment options like multilevel marketing, startup financing and cryptocurrency.
The key to achieving financial freedom through investing is that you are permitting other people to use your money (your accumulated and easily transferable value) to create businesses of their own. In return for the use of your money, you share in the wealth created by their business.
In the case of investing in an office building, for instance, you use your money to create a physical location where other people can conduct business. In exchange for your investment in the property, they pay you "rent", which is really a part of the proceeds from the business they transact inside the building.
If you buy stock in a company, or loan it money in the form of bonds, the relationship is even more specific. The managers of the business take your money (and pool it with money from many other investors) and add their organizational and leadership abilities to create a business. If there are profits, you are entitled to share in the proceeds.
Non-investors often think investing is an easy way to make money, but that it requires lots of cash to get started. In my opinion, the reverse is true. You can begin investing with your little savings, but it does take skill, knowledge and discipline to understand great investments.
Too many beginning "investors" are really gamblers, and like gamblers, they eventually lose everything. Serious investing is not gambling or a matter of luck. Skilled investors educate themselves about the property, stocks, or other ventures they are considering for investment.
They read, compare one investment with another, and seek expert advice. Gamblers, who would never take the time to learn the basic rules of investing throw their money into 'get rich quick' schemes or rush to buy shares of the latest miracle story on the stock market.
That is not investing!
Investing is a carefully considered decision to invest your accumulated skills, effort and abilities in a specific business venture, in the form of cash.
Over the years, I've observed that the investors who make the most money, those who routinely get returns of 50% to several hundred percent on their money year after year, are very cautious.
They read and study investing, and they learn from both their own mistakes and by observing the wins (and the losses) of other skilled investors.
Consult with experts and develop your skills through practice and education. But to achieve financial freedom or accumulate great wealth, you must invest!
Have an amazing day!
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