The Template of Financial Freedom
THE SLAVE OF MONEY
When it comes to financial freedom, being rich with good returns on investment (ROI) is one of the SEXIEST talked-about term.
In fact, many people are of the opinion that ROI is the single most important factor when it comes to investing. In their minds, the better the ROI, the higher their returns, and the more quickly their money can grow.
This is also one of the reasons why many webinars, and investment “gurus” drum up content to share the “best-kept secrets” to profit from the narrative.
The truth is, ROI is overrated, and has become too much of an obsession for the majority who are looking to grow their wealth. In my opinion, ROI is just one of the many factors that will contribute to your FINANCIAL FREEDOM.
Financial freedom means that you get to make life decisions without being overly stressed about the financial impact because you are prepared for it. You are in control of your finances instead of being controlled by it. In other words, you know your needs and wants, and how the money you have can take care of these things at any stage of your life.
In The Slave of Money, I’m going to highlight eight other factors that are crucial in achieving your financial freedom:
Factors That Are Crucial In Achieving Your Financial Freedom
Financial Freedom Goal To Achieve
First and foremost, all wealth begins in the mind. By knowing your financial freedom goal, you are like a ship sailing with clear direction. With a clearer understanding of the financial freedom numbers, you will be better guided – you might even be surprised to find that many of us have in fact already achieved our basic financial freedom numbers.
What would you say to achieving the basic financial freedom numbers first, and thereafter, to elevate your financial goals? Surely this would allow you a much clearer vision in achieving your goals in milestones.
Your Money In The Context Of Your Life
What are your needs and wants to live your life to the fullest? Define wealth creation, preservation, accumulation, protection and distribution to your best understanding; it is like a compass for your sailing ship as it helps you make monetary decisions along your life.
Some examples are how much you intend to allocate for your own house to stay and car to drive. Those could be the biggest sum of money in single item you might be spending in credit. Buying a property can impact you for the next ten to 30 years, as you will be locked in to pay monthly property loans.
Compared with a RM750,000 property, you will have less money saved up and forced to achieve a higher ROI for your financial freedom numbers if your dream home was a lavish RM2mil bungalow.
Besides, how you want your children to be educated would be another biggest expense in your life. However, the more money you spend on your children’s education, the less money you’ll have to fund your financial goals.
Your Stage Of Life Now
In money quotient stages, whether you are in the beginning stage of earning personal positive cash flow, stage of committing liabilities or stage of positive liquid net worth; it would differ you from the age or the point in life and sum of possible cash flow/money in how long and how much you can invest. The more time your investments have, the more time they have for compounded interest to build up.
Therefore, the earlier you start investing, the better the position you will find yourself in. When time is on your side, you can even go for less riskier investments with lower or consistent performing ROI, to achieve your plans for financial freedom.
For example, if you start investing in your 20s, there’s still plenty of time for your money to grow and compound even with a low to moderate ROI. We are talking about additional 30 investing years until retirement.
In contrast, if you start investing when you’re in your 50s, you will have only about 10 years for your wealth to grow. This could get stressful, especially when you’ll be forced to look for investments with higher ROI to make up for the lost time.
Your Cash Flow Management Habits
Building a good savings habit is crucial. The more money set aside for savings on a monthly basis, the more you can DIVERSIFY and accumulate to fund your financial goals.
When you have consistently saved, the added security will give you choices; when you have more money to invest also means to be able to achieve early financial freedom with more option to decide for your life. For example, there’s more than one way to grow money without taking unnecessary risks with high ROI investments and you will always have funds as reinvestment capital even when the market is down.
Your Household Cash Flow Management
Household cash flow management in this context refers to the income that both you and your spouse make and spend. The more your household income and the less your spending is, the more access you have to save and contribute towards financial freedom.
Compared with a single-income households, it is definitely easier when both spouses are working and share on some basis expenses like spaces, vehicles or utilities.. Besides, if someone is able to generate alternative business income through multiple means, it is just as crucial, if not more crucial, than chasing a high ROI.
Your Luxury Expenses
Wedding, house renovation, luxury hobbies or holiday expenses are another luxury item that slowly add up. Don’t worry, being financially free is not asking you to sacrifice your desired lifestyles altogether.
However, in terms of reaching your financial goals, someone who spends active income versus passive investment income for luxury expenses would definitely make the differences in achieving elevated financial freedom. Someone who spends RM20,000 a year on luxury expenses with passive investment income would definitely be in a better position than someone who spends RM20,000 a year with merely active income.
Instead of splurging all your hard-earned money on one occasion, why not channel what would have been your luxury expenses fund into your investments to attain elevated financial freedom in milestones while spending only the reasonable amount according to your cash flow plan.
Your Medical And Healthcare Provision
Medical and healthcare bills are expensive as health but is more important than wealth when it comes to a certain point of choice. They usually get costlier as you get older. It goes to say that the more money you spend on your medical provision, the less resources you will have to spend on other financial goals.
Thus, the most common way to mitigate future medical fee is to get an insurance plan to cover unpredictable medical costs while you compound your good habits to stay healthy as long as possible.
Of course, there’s also the choice of going with public healthcare instead of private healthcare.
Your Retirement Age And Desired Lifestyle
Once you retire, you lose your access to active income. Therefore, the earlier you retire, the more income you’ll need for your financial freedom, and the higher the ROI you’ll need to get there.
No one wants to work forever, but someone might be able to live a pre-tirement lifestyle, which means you can decide your way to continuously contribute your values with your own liking and pace of living to constantly generate income while you have achieved the basic financial freedom.
Besides, the kind of lifestyle you want for yourself would determine the cost of your pre-tirement or retirement. The more you’ll need to save to fund your retirement expenses; the higher the ROI you’ll need to achieve to attain financial freedom.
The eight factors that are listed here are not ground-breaking information.
If you can stop obsessing on ROI alone and start focusing on all nine factors to unleash the full potential of your wealth, you will find all these moving parts working and compounding simultaneously to attain the financial freedom that you are seeking.
Out of the 9 factors covered, only one aspect is out of our locus of control, which is ROI. Therefore, it makes even less sense for anyone to zoom into the one factor that lies beyond our control, and commit all our effort and hopes for it to grant us financial freedom.
Meanwhile, the rest of the eight factors here are within your control.
You can control how much to save, how much to spend on your vacation, when you want to retire, how much your children’s education expenses should be, how much your medical expenses provision should be, how much your living expenses should be in retirement, and, to a certain extent, your household income. Therefore, if you are committed to achieving your financial goals and financial freedom, start looking at your finances holistically from the standpoint of all the nine factors that I’ve highlighted here and start taking appropriate action.
Ideally, everyone should get a holistic financial plan done to manage these nine factors effectively. Consider yourself to engage a Licensed Financial Planner to coach you along the path to financial freedom.
THE SLAVE OF MONEY
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