Money management is one of the most critical aspects of life. Every person wants to be financially independent, but what does financial independence mean, and how can we achieve it?
Before we talk about financial freedom, we must first talk about wealth. According to Robert Kiyosaki, wealth is not just about the amount of money you have but how long you can live without working.
This definition sheds light on the fact that money is just a measure of time and not money itself. To achieve financial freedom, we must aim to live infinitely longer without working.
There are two ways to achieve financial independence, and in this article, we will explore both methods in detail.
Make a lot of money
Making a lot of money is the simplest approach to achieving financial freedom. Most people aim to make so much money that they cannot spend it in their lifetime.
The question is, how much is enough?
How long does it take to make those money?
What is the effort required in the process?
What is the opportunity cost in terms of health, family, etc.?
Unfortunately, many people work very hard to make money only to realize that they have lost their health and family in the process. When they are old with money, it may be too late.
Make monthly passive income
The second way to achieve financial independence is to make monthly passive income. This means that your monthly income should be more than your monthly expenses.
Suppose your total monthly expenses are $10,000. If you can generate passive income of $10,000 from businesses, property rentals, stock dividends, and/or bond interest, then you have technically achieved financial independence.
This may sound difficult, but if you start with a goal of $1k monthly passive income, then getting a few hundreds from each of the sources mentioned above is not difficult.
As time goes by, you can increase your passive income, and eventually, you will achieve financial independence.
However, keep in mind that using the second method does not provide any lasting financial freedom.
During an economic crisis, your passive income is likely to decrease significantly, but your expenses are likely to remain the same.
Therefore, it is important to keep reserves and keep your expenses reasonably low. Also, keep in mind that any form of passive income will still require ‘work.’ But this ‘work’ is not an 8 to 5 job, and ideally, it is something you love to do.
Building a business around what you are doing and working towards creating your passive income while keeping your expenses reasonably low is the key to achieving financial freedom.
Asking yourself the question, “What will I do when I retire?” and if your answer is “I’ll do what I’m already doing!” Then you know that you are on the right track.
Conclusion
Achieving financial freedom is a matter of time. Building a business around your passion, keeping expenses low and reserves in hand, and the reward of financial independence and doing what you love are the ultimate goals of money management.
Start small, and over time, you will see your financial fitness improve. The key is to stay focused, disciplined, and persistent.
