Sunday, January 4, 2009

Road to Financial Freedom

Happy New Year and a warm welcome to all you voyagers reading this blog. Its been quite some time since I posted updates on my voyage ahead.I have been contemplating various options to the path I want for financial freedom.Well what is financial freedom? the freedom to choose to spend your time the way you want to. On our honeymoon last month, I was wondering what it would be like to have every day of my life like this.Is that possible?
There are some key questions you should ask yourself if you are into a job,just like me.
Does my job allow me to spend my time the way I want? No matter how terrible I may feel,I have to take still make my way to my job.Is my job that bad? Honestly no, the work I do involves a good mix of techno functional and management skills, a coveted job that many may want to have, and it is my job that gives me money to pay all my expenses.
Do I want to do the same job all my life or maybe get promoted and do what my boss does today? No, however lucrative I wouldn't want to. Moreover, when I stop working the income will stop too.
Does my job make me enough money to save for my retirement? Well thats very hard to tell.No matter how much I save inflation takes it away making all the savings and investments look so meagre.
The above reasons make it all the more important to have a plan, the financial freedom plan, a plan that will lead to the kind of life I want to live without having to work for money.That is possible if the passive income(to the unitiated, passive income is money which works for you e.g. rental income,income from stocks, bonds, royalty,real estate etc.) from other streams is enough to take care of mine and my family's expenses. To actually record your income and expenses into an excel format, you can do a google search to find a lot of sample expense organisers on the internet.
Then you can put the income and expenses columns on a separate excel sheet along with two more columns for assets and liabilities below them as shown.




Those who have read Robert Kiyosaki's Rich Dad Poor Dad would know how important this is.This simple step is your first step to financial freedom, i.e taking stock of your personal situation.By doing the above you are building your personal financial statement or balance sheet.
A brief overview on the items in the balance sheet:Assets by definition are those items that generate income, while liabilities create expense.Our homes, cars, etc. which we term as assets are not actually assets but liabilities since we need to pay for the maintenance of these items, which is an expense. In Kiyosaki's words, liabilities take money out of your pocket every month while assets put money into your pocket.
A house would be an asset only when it generates income for us i.e only when you let it on lease or rent, not when you are staying in it.
There are a wide variety of assets to invest in e.g real estate, stocks, bonds, derivatives,gold,commodities etc.
The simple trick to achieving financial freedom is simply to reduce your liabilities and create more and more assets that generate passive income.You may ask if this is so simple then why there aren't many people doing it.The reason is ever since we have been in school we have all been taught to get good grades and get a job.I was a high ranking student at school and college and have been doing well in my profession.But over the years I have been exposed to the teachings of Kiyosaki and have broadened my vision for my future. After having created the financial statement, the next question is how do I write such a plan.
(To be continued...)

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