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Are you one of the 95% trapped in a financial prison?
Saturday, 11 February 2006
Most people in free countries still have one master with absolute control over their existence - money. No matter how much we like to pretend it doesn't matter, our financial situation has a powerful hold over us.
Don't believe me?
Try this thought experiment then. What things would change in your life if someone gave you a billion dollars tomorrow? Quite a few, I imagine. Suddenly your choices on how to live your life would increase vastly.
Money may not necessarily make us happy, but it gives us freedom from financial prison. It solves a great many of our problems and allows us to explore what makes us happy. Or alternatively, it can enslave us.
There are plenty of people who appear rich who are, in fact, trapped in a financial prison. They may have a big house, a nice car and go on good holidays, but they do so on credit. They must work hard, and make difficult choices simply because their financial situation has them trapped. It has control over their lives, and the nice car and big house are small reward for allowing that to happen.
How can you measure your financial freedom?
Simple. It's calculated in the amount of time you can spend without working before you go bankrupt.
If you live an extravagant lifestyle - filled with luxury hotels, restaurants, cars, travel and houses, but you would go bankrupt within one month of losing your job, then your level of financial freedom is poor. If you live a modest lifestyle, but have investments generating enough that you can go a few years without working, then your financial freedom is good.
Financial freedom is usually created from lazy income. That is, the income you don't have to work for. Examples are interest, dividends from shares, rent, and royalties. The more of this lazy income you generate, the more financially free you will become.
Financial prison is measured in lifestyle expenses - housing payments, car expenses, food, entertainment, medical expenses, school expenses and the like. The higher your lifestyle expenses, the more difficult it will be for you to achieve financial freedom, because the more income you need to maintain yourself.
The ultimate in financial freedom is when your lazy income exceeds your lifestyle expenses. Not only are you able to cover your lifestyle with your lazy income - you're actually getting richer as you have more income than outgoings. This should be your aim.
Money can buy a lot of great things - real estate, cars, holidays, nice food and attractive clothes. But the best thing it can buy is freedom from financial prison. Those who achieve financial freedom can live as they please. Nobody has power over them. They have escaped the one trap many people in free countries never escape.
Take steps to educate yourself how to generate lazy income. Learn about shares, private businesses, royalties, rent and interest and how to accumulate them. A strong financial education may seem boring and frustrating to achieve, but the reward is marvellous. Use that education to build up your income generating assets, in as low risk a way as possible.
Then maybe one day you too can own the ultimate thing that money can buy - freedom from financial prison.
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