Financial freedom from so many people today, who should by all logical conclusions and observations, it will have. This is often cited as one of the most important and sought-after goal in life, but rarely achieved. The article does not attempt to give a magic formula for success, but I share with you the options that make the difference for me and, if desired, for you take on your way to freedom.
consumption
You can choose to spend all or part of your money on the products ‘consumption’. This includes food, entertainment, leisure, home, car, hobbies, and so on. These are things we need for daily life. They are also made of articles that we want this service and to improve such lifestyle.
Investment
You can choose to spend part or all of your money in capital goods such as income-generating real estate, stocks, interest-free deposits, businesses, generate income, etc.
consumption or investment
Two important factors that need to understand the simple concept of consumption and investment.
The first factor is that the spending on “consumption” tag results in reducing the total value of assets (net assets). Spending on capital goods to increase your wealth. The second factor is that you have a choice. You can choose between spending on consumer goods or investment.
Of course the best shopping patterns those seeking a balance between expenditure on consumer goods and investment to be achieved.
consumption or investment
You now know the difference between consumption and investment expenditure and that of choosing between the two.
All you have to think about is before you can spend. Consumption can contribute to your lifestyle (to drive a new car is fun, even if it was bought on credit and has a duty of three to five years of payments). to offer investment expenditure and income and wealth.
Shades of Grey
Of course there are some issues that not clearly defined as final consumption and investment. Home is considered by many as an investment. It is not! Purchases are usually funded and payments obligations. The cost of home care costs money. There are prices and taxes paid on them. You will not be recorded. If you plan to sell in a few years to make a profit from the increase in value, the possible investment. But if you buy another house to live is really better off?
Expenditure investment required to build wealth
To build wealth, some capital expenditure that is required. The more goes into the capital expenditures that are larger and faster growing your wealth. However, if too many go in investment spending, and its not enough for consumption, then the lifestyle can be a bit. But you can choose.
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Most people are not born rich. Of course, some inherited wealth, but the results do not appreciate. Some of the wealth to win the lottery, but ironically, perhaps because they do not work for you, or are not used to it, could end up wasting the wealth while.
Each person, however, have one thing in common. The same amount of time it is, our past together, and at the same level. How to use a considerable amount of time.
Imagine, at the age of 21, you invest $ 1,000 at an average annual return of 10%, and then when you reach 65, you will have accumulated about $ 70,000 without doing anything else.
When investing at age 21, you invest $ 1,000 at an average annual return of 10%, and every month an additional $ 100, so that when you reach 65, you will become a millionaire without doing anything else to do.
If you do not, then pass away at the same time, and you will no accumulation of wealth.
Examples of these investments, very deliberately with a reasonable amount by most, and if for investment, not consumption, probably can not escape.
In terms of investment, time is on your side.
Of course, you are probably not 21 more and you may want to accumulate wealth, to a faster rate. This is possible by increasing the investment and annual returns. It is not possible to systematically collect significant wealth (million), without a period of several years (eg 5 to 10). If you could try to make more money in less time, then your goal to be unrealistic. Maybe a lottery ticket, crossed fingers and a large portion of luck was to produce the desired results, but do not hold your breath waiting.
power of compounding
In the example above, additional factors are at work. The return back of all and invested part in getting the same income as the investment. There is no return on investment withdrawn and spent on consumption terms.