Have you ever wondered what would need to dramatically change in your life to boost your future levels of joy and choice?
The familiar term ‘financial freedom’ holds an attraction for all of us who have experienced dire material shortage at some point in life and yet have retained our optimism for a brighter future.
Experiencing financial constraints, especially when we’re young, often results in subtle scarring on our psyches that affects how our grownup selves perceive financial resource availability throughout our lives. Individuals like us, with such scar tissue, form the overwhelming majority of humanity.
My experience and research suggest that well in excess of 95 per cent of all people, encompassing both urban and rural dwellers, have lived through significant periods of economic lack. That’s most of the human race.
Sadly, not all of us possess a clear path out from such scarcity. Just ask those still living under the boot heel of those tin-pot dictators our human race hasn’t yet eradicated.
Thankfully, the economic systems of most countries today have sufficient elements of democratic capitalism embedded in them to permit us as proactive individuals the opportunity to turn our backs on our painful, personal histories and, instead, work hard and smart, exercise delayed gratification, generate consistent cash flow surpluses, and then save and invest much of those precious surpluses to propel ourselves and our families toward true financial freedom.
As we do all that work — by building our Portfolios of Wealth (PoWs), which spin out passive income (PI) in the form of interest, profits, dividends, distributions and rental — we reduce our overall reliance on our active income.
Once we understand the ultimate goal of such an evolution of our TIP or Total Income Profile from an absolute reliance on our active income (AI) to a combination of reliance on our AI and our PI to a total reliance on our PI, we will be much closer to charting a course toward true FF or financial freedom.
FF IN REAL LIFE
We will attain true financial freedom when a specific set of conditions is met. (Note: Your thrilling trek to FF doesn’t need to be tough; but it will be long (on the scale of decades) and ideally, it needs to be steady.
By the way, three non-financial traits are required as preconditions to succeed in attaining FF:
1. Immense clarity of purpose;
2. Dogged determination; and
3. Phenomenal patience.
Most people will never attain financial freedom because they never make it an explicit written financial goal. Among the relatively few (like you) who dare harbour the aspirational goal of reaching FF, many will still fail for a lack of any of those three crucial non-financial traits I’ve listed or from a lack of understanding of what constitutes FF.
While I can’t do a thing about your internal resolve and commitment toward such a worthy economic goal, at the very least I can assure you that if you were to invest 15 to 20 years heeding the ‘Rajen Devadason Blueprint for Financial Freedom’ (Google that term for my earlier forays, explanations and explorations of the blueprint), you would stand a high chance of succeeding.
At its core, my blueprint dictates that when our PI is equal to or more than our operational expenses (OE) PLUS our regular ongoing payments toward our Portfolio of Debt (PoD) we would have attained FF.
That’s because FF describes a state when we no longer need to toil to earn our AI. Of course, there is nothing stopping you from working at a job or building a business that keeps bringing in your AI because you love your work and would rather do it than anything else. When that happens, your vocation has morphed into your avocation; your work has turned into your hobby!
LIBERTY TO CHOOSE
Not HAVING to work for your money because your money works effectively for you is a rare accomplishment that opens up many of the world’s best experiences and opportunities to you and your loved ones. Financial Freedom buys us many things, but most importantly it buys us the liberty to choose more intriguing future paths in life.
The total cash we need each month, say, comprises the sum of our OE or Operational Expenses (what we spend on our chosen lifestyle each month) and our RPoPoD (Regular Payments on (our) Portfolio of Debt) for that month.
Clearly, therefore if our monthly (or quarterly or annual) PI is = to (or preferably > than) our total expenses for that period, our NEED for AI drops to zero. Our WANT for AI is another matter!
If you are willing to review my last seven columns, which I structured to help you better understand this column on my FF blueprint, you will have a complete written guide to help you embark upon this journey to genuine FF. You may access all those columns (and many others) at www.nst.com.my/authors/rajen-devadason
I suggest you print them all and file them in sequence for future reference, guidance and — I trust — inspiration. I also hope you enjoy your journey ahead toward Financial Freedom. Bon voyage!
Next week, we’ll explore the parallel between a common piece of hardware and our financial peace of mind.
© 2019 Rajen Devadason
Rajen Devadason, CFP, is a Licensed Financial Planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com; he may be connected with on LinkedIn at www.linkedin.com/in/rajendevadason, or via rajen@RajenDevadason.com You may follow him on Twitter @RajenDevadason