Personal finance 101: Earning income is offense and a spending budget is defense. You have to score a lot of money without giving it back. Money constantly flows from those that spend it as fast as they get it to those that can manage it. If you spend more than you earn you will never have money, no matter how much you earn. Many lottery winners and sports stars have proven that money management is a skill as they go from millionaire to bankrupt when given the opportunity of a life of leisure with wealth. Self made entrepreneurs, investors, and traders are able to manage the capital that they create because they know what it takes to get it and keep it.
Most of personal finance is not completely mathematical it is behavioral. A focused work ethic can create income and a lack of self control can spend it all and then some. A net worth is built on the difference between what you earn and what you spend. Selling your time for money is not the only way to make money and definitely not the best way. Capital gains, dividends, interest, and cash flowing assets are another path to financial independence. Financial independence is a different route to personal finance that few choose, most people stay in the endless cycle of debt and paychecks. Living a life free of debts and with multiple streams of income leads to eventually no need for a job. Buying nice things is not a bad thing if you can afford them, trapping yourself in a job you hate because you have to make a list of big payments every month is usually not a path to happiness. When you combine self control in spending with a focus on building wealth you eventually reach financial freedom.
Here are ten of the most satisfying personal finance goals I have achieved in my life.
- No credit card debt: Knowing you have zero credit card debt or the cash to pay it off monthly is very liberating. You can now invest money for returns instead of having compound interest on debt work against you.
- No car payments: Owning your cars outright can be very liberating. You can save your payments for a future car and stay one step ahead instead of 5 years deep in payments. A car is just a car, wrapping self worth or status into what you drive is very expensive. If you are financially independent and live in a city you may not need a car if you have access to Uber and Lyft, that could be cheaper.
- Home can be paid off: If you have no mortgage or the cash to pay it off it can be very liberating to know that the bank does not own you, instead you own your house. A home is a great hedge against the inflation of rent and if you buy in the right area it can lead to large tax free capital gains when you sell it.
- No debt: When you owe no one any money, you are no one’s servant. This creates a kind of freedom that you have to experience.
- Emergency fund: Having enough money to solve a big unexpected problem, live off of if you quit or lose your job, or if your income is irregular frees you up to take bigger risks and pursue opportunities.
- Big retirement account: A big retirement ensures that one day you can stop needing income and live off your life’s work.
- Big trading account: A big trading account enables you to seek returns in the financial markets and grow your capital.
- Cash flowing assets: A cash flowing asset pays you while you are sleeping after you build it or create it. It removes your time from earning money.
- No financial pressure: The reduced stress from not having to make a big mortgage, big car payment, and even not take a lot of crap from your boss going forward is a feeling few ever get to experience.
- Financial independence from a job: You gain time freedom to do what you want. Work on what you want and give back. The biggest change is that you free up time for a focus on health and happiness and get off the hamster wheel of earning and spending.
The favorite arguments of broke people is that money isn’t everything and you can’t take it with you. They are right but it is the freedom and peace of mind that it buys that makes all the difference.