Ask Mr. Fix it

Financial freedom eludes so many people nowadays, who by all logical conclusions and observations should have obtained it. It's generally cited as one of the most significant and sought after objectives in life and however is rarely attained.

This article does not attempt to give you a magic formula for achievement, but I do share with you the choices that made a difference to me and can help you, in case you choose put yourself well on the road to freedom.

Consumption

You'll be able to choose to spend some or all your money on "consumption" items. These include food, entertainment, holidays, housing, motor cars, hobbies, and so on. These are things we should live on a day-to-day basis. They also consist of items that service the things we want.

Investment

You can choose to spend some or all of your funds on investment items including revenue producing real estate, stocks, interest bearing deposits, businesses that produce revenue, etc.

You might have the option of going public with a company or investing in a company restructuring. Consult a business adviser for information on companies restructuring.

Consumption or investment

Two important factors have to be understood about the very simple concepts of consumption and investment.

The initial factor is that spending on "consumption" items results in decreasing the total value of your assets (net worth).

Spending on investment items aims to increase your net worth. The second element is that you have choice. You'll be able to pick between paying for consumption or investment items.

Of course, the best spending patterns are those that aim to attain a balance between paying for consumption and investment items.

Shades of Grey

There is, of course, some spending that is not clearly defined as consumption or investment. Buying your own home is deemed by several to be an investment. It isn't!

The purchase commonly is financed and the repayments are a liability. The upkeep of a house costs money. There are rates and taxes payable on it.

You do not get any income from it. If you plan to sell it in a couple of years to make a profit on its increased value, then it might be an investment. However if you have to get a different house to live in are you really any better off?

In terms of investing, time is on your side.

Obviously, you may not be 21 anymore and you may wish to accumulate wealth at a faster rate. This really is possible by increasing the quantity invested, plus the annual rate of return.

It is not possible to systematically accumulate significant wealth (millions) without looking at a time frame of several years (say 5 to 10).

When you are trying to make more money in less time, then your objectives may not be realistic. Maybe crossed fingers and significant quantity of luck could produce your desired result, but don't hold your breath waiting.

The power of compounding

In the above examples there's an additional factor at work. The entire return was reinvested and participated in earning the same rate of return as the initial investment. None of the investment profit was withdrawn and used on consumption items.

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