Know what makes you money. Whenever you receive any income from your wages or salary or any other source such as a gift, you are faced with a choice, and the choice you will make will mean the difference between achieving financial freedom and staying trapped in the rat race. It’s a choice that anyone can and does make every day, from the poor through to the middle class right up to the rich and the ultra-wealthy. The option is whether you’re going to use the money you’ve just received to buy an asset or spend it on a liability.
So, what’s the difference? Essentially, an asset is something that makes you money. Assets include things such as real estate that provide you with a rental income each month. Stocks and shares that give you regular dividend payments or precious metals like gold and silver can be bought and sold on the open market for capital gain. On the other hand, Liabilities take money from your pocket when you buy them but don’t give you any money back. In fact, it often continues to make money through maintenance and servicing requirements in the long term.
Liabilities are anything you buy and consume, such as food, fuel, vacations, cars, and other day-to-day expenditures. They also include our significant commitments, which typically include credit card debt, personal debt, the mortgage we have at our home, or the rent we pay to our landlord. You can also add to the list of liabilities anything you buy and later sell on at a loss or simply throw away. Most high tech consumer goods that we spend so much on, like computers and TVs, fall into this category—each time you do that, you’ve just lost money.
Of course, some of these liabilities are just an essential part of living. Of course, some of these liabilities are just a necessary part of living. We can’t do without food or clothes, for instance. And if you don’t want to live like a hermit, then the occasional luxury keeps you sane. But all too often, we consume things through habit or to impress our friends with must-have items that we don’t need at all. However, while the poor and middle class focus on using income from their jobs to buy liabilities, the wealthy focus on buying assets that will generate more and more cash.
They concentrate on building up their asset base by acquiring real estate, creating a portfolio of stocks and shares, or setting up businesses that others run to provide them with passive income streams. This is the great secret to building wealth. And there’s a tactic that you need to adopt if you achieve similar financial freedom for yourself. However, most people don’t think that way, and they never confront the reality that they’re burning money as fast as they’re generating it.
Instead, they believe themselves wealthy because they have a large house and a luxury car parked outside it. But suppose they accumulate these consumables before they have generated enough passive income to pay for them. In that case, all they’re doing is taking money away from acquiring assets and using it to create liabilities instead. You might even say these people are working exceptionally hard to make themselves broke. If you’re not going to be like them, you need to start using the financial strategies to make you financially free. There are more ways than ever to make yourself financially free right now.
Thanks to the Internet, there’s not only all the information you need to help you do that but also the technology that will allow you to sell the whole world and not just your little patch of it. And to do this day and night, wherever you are.
So, if you’re ambitious, you can easily create a lifestyle for yourself and your family that will enable you to do what you want when you want. And that is the essence of true financial freedom. And when it comes to deciding how you’re going to build your wealth and make money, you have lots and lots of choice, but which way you will go will depend in large part on your personal circumstances at the time, how much risk you want to take on, or how safe you want to be, how quickly you want to make your money, what things interest you most, and what you don’t like doing at all.
But having said all that, there are only two main routes that will make you financially free. You’re going to start your own business. Many people think about this but then never get going because they believe it will be too difficult. But it’s not. You only have to look around or read the press or watch the news to know there are many thousands of Australians who each day decide to set up their own business and succeed in creating products and services that people want to buy. And you can do the same with some thought and planning.
But whatever business you decide to take on, you must base it around something you enjoy. If you don’t choose something that doesn’t appeal or that you can’t get excited about, you won’t be motivated to spend the time and effort to get it off the ground. And that’s important because starting a business generally does mean long hours of work, perhaps even more than in your original job.
But even if things can be a bit tough to start with, it’ll all be worth it because you’re investing in your future, and you’ll reap the rewards when the business generates your real income that then turns into wealth. Fortunately, you can start up a business with very little cash because of the Internet and new technologies. Many people have done this with less than AUD $100. And through the global power of the Internet, we can find customers and clients worldwide 24 hours a day and build up highly successful businesses.
The good news is that setting up your own business doesn’t mean that you have to quit your day job to do it. It’s sensible to start small and keep money coming in from your current position while things get going in your own business. And that’s why many people take this approach.
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The Internet is an excellent way to testing whether anyone will want what you are offering. You can try out an idea, and if it doesn’t work, it hasn’t cost you much. That allows you to develop your business over time until the proven product or model is successful, and you can start working on it full time. There are many books on setting up a small business, and these will provide you with invaluable background information on what you should be doing. Once you’ve read a few and started to grasp business basics, arrange a meeting with an accountant or a business advisor who can help you set up your business in the best way right from the start. If setting up a business doesn’t sound quite the way for you to go, you could consider becoming an investor in property.
Of course, doing this is still all about running a business, but it’s doing it in another way.
So, rather than making something that you sell on to others, or people paying for your time with property investment, your business is all about acquiring assets that will earn you a passive income. In other words, your assets become a money-making machine that go out to work for you every day, 24/7, 365 days a year, regardless of what you were doing at the time or where you are. It may take slightly longer to achieve the substantial wealth you are after. But it’s a route taken by many who are determined to become financially independent. If you are still in any doubt, here’s a statistic that should set you thinking. Seven out of 10 millionaires have created their wealth through property.
While you will start to see returns on your property investments quite quickly, it may take five years before you build the level of income-generating assets you need. But in another five years, you should be sitting on substantial wealth. And you can begin that process today by starting to redirect your spending away from liabilities and towards acquiring assets. Remember, if it doesn’t make you money now or in the future, it’s a liability. If it does, then it’s an asset.
Property investing is one of the significant ways in which people become financially free. And it’s something that many ordinary Australians, men and women from every walk of life, can do. You don’t need vast wealth to begin. You’ve probably taken a step towards achieving financial freedom for yourself without even knowing it simply by being a property owner sitting on the unused equity that’s already in your home.