MoneyWise and Personal Musings

Most people think that financial success is a very visual thing with a high paying job, house in an expensive area, driving expensive cars and spending lavishly on vacations, parties and anything and everything else. But really, does SPENDING money like that mean financial sucess?

Most often not. We have seen this over the last few years. Those people who were on the “top” of the neighborhood silently disappear after the economic downturn and they somehow were not able to hold on to some of their assets. Some lost their homes in foreclosure and short sales and some had to move to lesser digs so that they could then unload their heavy chains of debt loading them down. These folks didn’t do what almost all financial advice says to do as one of the first or second steps. Build up several months of emergency funds to pay for all expenses in case the money stops coming in. Well when times are tough you must have savings to lean on.

Also with real estate I found it very troubling that all the real estate seminars promising that if you follow their directions (and buy into their courses, programs or plans) then you can’t help but get rich. But real estate must be treated differently than any other more liquid investment. If you can’t find a renter and the market values tumble then you have to have that holding emergency source of cash to stay with the long term plan for the long term. It’s also no time to then listen to those gurus telling you that you should have listened to them and gotten out. I believe real estate is a long term investment. I never really bought into the short term get rich real estate methods. That was just too risky because you have to have the staying power if you can’t get out when you wanted to. So since you have to plan for the long term why not work the plan into your nest building?! So take this lesson deeply into heart – real estate is a major investment and you must have a lot of emergency money set aside just for each property.

I love the book the Millionaire Next Door.

In this book you find out and based on research that the average millionaire is someone you don’t think is a millionaire. They don’t waste money on those visual things that most people associate with being wealthy. They buy used cars and drive them ten years, they don’t waste money on super fancy clothing with star studded name brands, and they make it their first priority to pay them selves first! This means that for every dollar they earn they put aside a percentage (at least 10%) into their investments. They learn to live on much less than they earn and this is the real difference. The more you save and invest the faster you will get to financial freedom.

As for Financial Freedom, what does that mean to you? To me it means that you have been investing and have passive income coming in that is equal to or more than your expenses. See this as math problem PassiveIncome minus Expense equals Success
So when Passive income equals Expenses you no longer have to work although you probably still want to do the work that you love. But you get to choose. The second term expenses you want to keep at a minimum, expecially fixed expenses since those can’t be changed as easily. In the Millionaire book you find that Millionaires are somewhat “cheap” (an outdated term if there ever was one) meaning they don’t want to part with even a dollar unless it makes sense. Looking at the math term above if you can keep expenses low then the passive income needed for your financial freedom is that much lower and more easily attainable! Isn’t that reason for doing that?

Bottom line, our country needs to change their perception of financial success, learn about passive income and make saving and investing in our future the number ONE priority!

What do you think? Do you agree or disagree? Please comment and share. Thank you.