Financial Freedom: Affordability Is the Primary Obstacle

Gayle Kurtzer-Meyers

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Financial planning is essential for achieving financial freedom in your life. The process of planning involves taking account of your income, assets, and expenses and balancing them out to help you maintain and grow your wealth throughout your life.

While you can take on loans when faced with some emergency, you must become debt-free to be truly financially independent. Financial success will help you enjoy the good things in life and meet financial problems that come your way, without any worry.

Take a look at some of the fundamentals of financial planning that will help you throughout your life.

Financial education is a must for everyone

I believe that financial planning is an essential skill that everyone should learn in school. It is as important as learning math or communication skills.

Sadly, many people do not get an education on how to manage money or the importance of investment. A majority of young college grads and even people who are in their thirties are clueless about planning their finances.

It is never too late or early to learn, and there are plenty of successful people out there who are willing to teach you the skill for free. That's right; you don't have to spend a dime. Just select and turn on one of their podcasts, watch YouTube videos, and read articles, most of which are available for free online.

Financial education experts

Financial education experts are successful businessmen who have dedicated many years to learning investment and financial planning tools. Just like you get good at a hobby, the more you practice, you get good with your financial planning, the more time that you invest.

These educators can teach you a lot about how to manage your personal finance. You can also learn about things like investment and return analysis, liquidity management, and opportunity costs.

Two of my personal favorites are Dave Ramsey and Robert Kiyosaki. Dave Ramsey is a money-management expert who runs his own company and radio talk show. He offers practical advice on debt management and investment that has helped change the lives of millions of people worldwide.

Robert Kiyosaki, a real estate investor/author who is famous for his financial philosophy, summarized in his bestseller 'Rich Dad, Poor Dad.' He teaches that the way for business success is to build cash flow positive assets.

If you haven't heard of these two, then I highly recommend running a search on them. You don't have to join programs, but if you implement some of their advice in your personal life, your financial situation will improve.

Every step towards financial independence is a step in the right direction.

Understand your investment options

Creating a financial plan requires you to take multiple steps. First, you will need to consider your economic potential, which is called the affordability range. It is determined primarily by the income that you make, but also includes your available credit facility.

Here's a quick example. Suppose that you make $5,000 each month at a salaried job. You pay 10% in taxes, and your take-home pay after taxes is $4,500.

Your monthly expenses are $2,000, which includes rent and travel, and you have been saving up some money and having $10,000 in the bank. You have never been delinquent in payments and have a decent credit rating of 700+.

Suppose two investment options come along. The first option requires an investment of $10,000, which pays you a 3% return per annum with a five-year maturity. You get a second option that requires an initial investment of $22,000 but offers a gain of 10% with a five-year maturity.

Which one would you select as your investment?

On the surface, it will seem like you can only invest $10,000 in a new business or stock, so the only option available is the first one. However, a good credit score opens up access to credit and loans. Your actual investment scope could be as high $20,000 to $25,000.

If you are not aware of your current financial position's full potential, you may pass great economic opportunities without even realizing that they are well within your reach.

Understand what you want in life

Perhaps the most crucial question for financial success is not how much money you have right now, but what do you want to spend it on? Your business plan starts when you seriously think about the activities that you enjoy and where you want to spend your time.

Your financial plan should be built around investment in these activities if you enjoy reading and writing books. Do you enjoy shopping for art? Consider investing your money in antique jewelry, paintings, and other similar art. Love to go on tours and visit unique places? Why not invest in something that can profit from your traveling around?

Sacrificing your dreams is not necessarily the only way to achieve financial success. You can always find a way to grow your wealth while doing something that you enjoy. While the rate of return is significant, investing in projects that make you happy will make you more productive and motivated to do better.

Your happiness and a feeling of fulfillment is more important than a few percentage points of profit.

Consider your resources

Let's go back to the example of your income and available credit. It is vital to assess how many resources you already have and the income you will make each period.

If you have been able to save a lot of money up to this point, you will be better off than someone who will start saving from today. If you start today, you are better off than someone who isn't even thinking of saving and investing their money.

Someone born into a wealthy family is indeed more likely to have an easier time. But also consider the fact that even rich people lose money due to circumstances beyond their control. For every person born to a wealthy family, there are ten or more who made their fortunes through smart planning and hard work.

Side notes on resources

Although focused on money in this article, do understand that it is not the only resource that you may have. If you have built a vast network of friends that can help you find new opportunities in life, that is also a valuable resource. It is a resource that can earn you positive cash flow if you have acquired education or learned a craft.

Even a trait that you are born with, such as good sports ability or attractive looks, can be considered a resource.

Consider your income

One of the most important factors for financial planning is your ability to generate income periodically. The more, the better!

If you are motivated, there are several things you can do to enhance your income. For example, you can take on a second job in the evening or at weekends. You can invest in income-producing assets, such as a side business, stocks, and real estate.

If you are at an early stage of your life where you don't have a lot of experience or money for investment, you may need to rely on your primary activity to make an income. As you build wealth and invest, your passive income will begin to take over most of your earnings.

Your lifestyle

There are only two ways to get everything that you expect from life.

1. You make so much money that you can simply buy it.

2. You lower your expectations to match your income.

There is a third way, as well. You get everything on your credit card. However, that is the shortest and surest way to ultimate financial ruin. The only time you buy something on credit is when you intend to clear the bill and only use the card to build your score.

Financial success is a straightforward formula. Your income should be higher than your expenses. If you can't raise your revenue any further and your costs are too high to meet, it will lower your expectations and lifestyle.

Invest in income-generating assets

Investing in income-generating assets is the most critical part of becoming financially independent. Yet, most people never get around to building any income-generating assets and struggle with financial difficulties during their senior years.

All additional income over expenses that you earn during your working years should is perfect for income-producing assets. This strategy helps you build passive income streams. Money rolls in without doing anything on your part, which will help you live comfortably in your old age.

At first, this income will be quite low and only account for a small portion of your total earning. With time, this passive income will go up, match, and even exceed your salary.

Types of investment assets

Passive income assets include pension funds, saving accounts, stocks, rental properties, leased machinery, and equipment. If you start a new business or create a product that earns you royalties, then that is a type of passive income asset. If you become such a celebrity and companies pay you money to use your name on their products, congratulations have created a cash flow asset.

Summary

The more passive income-producing assets you can create over your lifetime, the sooner you can retire from working and live the life that you want.

Many successful people are aiming to retire early by building such assets. Some retire in their forties, and there are even cases of some people retiring by the time they hit thirty. You can secure your financial fate by implementing a robust plan today.

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I am a Professional Licenced Community Association Manager for the State of Florida. My top articles are about Florida RE, property management, and the many beautiful venues and activities available in the Sunshine State. Thank you for reading my work and joining me on the journey.

Kissimmee, FL
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