#4 - Declare Your Financial Independence !

Money is a terrible master but an excellent servant. 

P.T. Barnum

Although this blog is officially about things like money, investments or real estate, it's driving ideal is somewhat more noble and romantic. At the end of the day, it is all about freedom. Financial freedom, but freedom nevertheless. In my fist post I set out to prove that, either we want it or not, we all take part in "the money game". In the second post, I emphasized the need for financial education as a way to perform at a higher level in the "money game". In this essay, I wish to clarify the end goal of the "money game" when it is played intelligently. In other words, I wish to talk to you about a concept called financial independence, which is the only way to achieve true freedom in our economic society.

One achieves financial independence when one does not need to work anymore in order to pay for one's living expenses. This is how most rich people live. It is not how the poor or the middle-class live. In fact, for most people in the low and middle-classes, financial independence is little more than a mirage or a crazy notion. It is hardly a serious consideration in their lives. I want you to think differently from them. Financial independence is a real thing. Many people in the world are financially independent, so why shouldn't you be? Set it up as one of your goals and you have a good chance of attaining it if you are willing to think and act as a rich person. Think, act and become financially independent.

Some people might ask why should they even want to become financially independent. After all, there is an entrenched notion in the poor and middle classes that we should always work for our money. To them, the only time it's okay not to work anymore is when they are old and ready to receive a retirement pension from the state. This makes perfect sense to them. I must confess it doesn't make quite as much sense to me. In fact, the idea of spending my whole life working for money truly bothers me.  I don't want to be a life-long slave to a job or even to the necessity of having a job. I don't think that is real freedom. If you are always obliged to structure your life around a money-making activity that takes up most of our time, are you really free to pursue your true interests and goals in life? In my case, I don't think so. it's for that reason that I decided to make financial independence a primary goal in my life. I don't think I have a moral obligation to spend the best years of my life helping someone else get rich. I much rather work towards achieving my own financial independence.

In order to achieve financial independence, you must learn to think differently than most people. You have to stop thinking as a poor or middle-class person and start thinking as a rich person. The financial vocabulary of a poor person or a middle class person is composed of words such as: salary; boss; work ethic; 9 to 5; retirement age; retirement pension; safety; unemployment; wages; getting paid; paying bills; work to eat; vacation; holyday; weekend; Sunday football; mortgage; credit card debt; 10 dollars per hour; benefits; seniority; 20 dollars per hour; job stability; etc... These words define the poor and middle classes.

The rich, on the other hand, have very different words. Their words are: financial freedom; financial independence; passive income; assets; liabilities; financial statement; financial literacy; investments; interest rate; equity; return on investment; appreciation; capital; inflation; deflation; p/e ratio; income statement; balance sheet; compound interest; or infinite passive income, among other terms. Now notice that most people don't even understand most of these words and that is why they will probably never be rich. If you want to become rich these words will have to become a part of your financial vocabulary. These are the concepts that make the rich, rich, just like the concepts in the previous paragraph are what makes the poor, poor and the middle class, middle class. Our thinking patterns define us. Our words shape us. Think and talk like a poor person and you are guaranteed to remain poor. Think and talk like a rich person and you might just become rich too.

So, if you're serious, like I am, about achieving your financial independence, you must locate and master the concepts that will lead to it. Thus, you must understand that working for money is not the way to wealth. If you want to be financially independent, you must learn to make your money work for you. Or, even better, make other people's money work for you.

In order to do that, you will likely have to change your thought process in all things related to money. This is the financial equivalent of when Neo is offered the chance to see a new reality beyond the matrix. You have the choice to stay poor or middle class or embrace a new reality and see the world as rich people see it. This is the choice you must make now. If you want to change, than you should keep reading. If you want to conserve your poor/middle class mental framework, then this blog is not for you. You can stop reading now. 

Ok, since you are willing to continue reading, it's because you're probably interested in changing the way you think about money and start your journey towards financial independence. In order to do that, the first thing you must do is change the way you think about money itself. Most people see money as a thing they would like to have so they can spend it. Rich people, however, see money in a very different way. To them, money is a commodity they wish to gather and accumulate as much as possible of. Poor people want to spend a lot of money. Rich people want to accumulate a lot of money. That's a huge difference!

Rich people want to accumulate as much money as possible, not spend it, because they understand, unlike poor people, how money works. Money is not just something you can use to pay for your bills and a variety of luxuries. Poor people and middle class people see money simply as a currency, as means to achieve an end. To many of them, the highest use for money is to go to Disneyland, buy expensive clothes, live in a mansion or a penthouse or build a collection of sports cars. Even if, by a matter of luck, they ran into lots of money, like some famous athletes, musicians or actors, the truth is that they would still think essentially as poor or middle class people. They would continue to look at money as something you spend. The more money you have, the more you spend. I mean, if you look at middle class families you will realize that whenever they get a raise or a better paying job they spend all that extra money on a bigger house, a better car, luxurious vacationing or in luxury goods such as a huge flat screen TV or a boat. This is not how rich people deal with money and that is why middle-class families very rarely transition into rich families. They might even earn enough money for a while, but they don't possess the right mindset. As far as money goes, they remain uneducated.

The difference between rich people and poor people is that rich people recognize the ability money has to generate more money. They see each dollar or euro as a little soldier or worker ready to work for them and make more money and recruit more little soldiers and workers. If you manage to keep money, instead of spending it straight away, you can put it to work for you and, if properly trained and commanded, your money can make you loads of money, a lot more money you could ever make by working yourself. This is why rich people make their money work for them while poor people and middle class people choose to spend most of their time working for money. When  a poor person sees a pile of a million dollars what he sees is a bunch of sports cars. When a middle class person sees a pile of a million dollars,  he or she is seeing a nice single-family home, a big, comfortable, safe BMW and a nice boat to go sailing on the weekends. A rich man sees a million dollars and what he's really seeing is an army of little workers who will pay for his immediate retirement. He sees freedom.

Now you will probably be wondering how you can make your money work for you or, in other words, how can money generate more money. The answer to this question is passive income. There are two essential types of income: 1) Active income which comes from one's labour, usually in the form of a salary; and 2) Passive income which comes from one's assets, who generate money without the direct intervention of their owner. Passive income is how money generates more money. It is also the primary form of income of the majority of wealthy people. Some examples of money generating assets are stocks, bonds, real-estate or businesses.

In reality, achieving financial independence is just a matter of accumulating enough money-generating assets, which will in turn generate enough passive income to pay for all your expenses. That is, if you can accumulate assets capable of generating enough passive income to cover for all your expenses every month, and as long as you can maintain those assets indefinitely, what you will have is infinite passive income, capable of supporting you for an infinite number of years. When that happens, you will never be forced to work for money again. You will be financially independent. You will be free to choose whether you want to work or not and what you want to work in. You will never have to spend most of your time doing something you don't like just because you have bills to pay for. Your assets will cover the bills, they will buy your freedom.

Obviously, acquiring assets capable of generating enough passive income to buy your financial freedom is not an easy task. It will take time and effort. You will have to put in the time to study finances and get to know the different markets for financial assets. If you are unwilling to make such an effort, I recommend you make this post the last one you read in this blog. If, however, you are wiling to work hard for a number of years in order to buy your financial freedom, please keep reading this blog every week and don't stop there! Read the best books out there on personal finances. Work harder to generate income. Save money every month. Take the money you save and put it into investments. Start buying assets. The more you buy, the faster you buy, the better. Learn as you go. Learn from your mistakes. Buy your first bond. Buy your first stock. Buy your first rental property. Start a business. The art of asset accumulation is the art of getting rich. Make today a great day, make it the day in which, at least in your mind, you declared your willingness to achieve the goal of financial independence. Make it your goal to: 1) buy assets; 2) generate an increasing amount of passive income from those assets and; 3) declare your financial independence! Let other people work for their money and make sure you start making your money work for you!