Today is July 4, 2012. In the United States this day is called Independence Day, because it was on this date in 1776 that the Declaration of Independence was signed. People celebrate this day in many ways, but most eat picnics and launch fireworks.
Take a look at your financial records. Are you free? Are you enslaved to your JOB? Most people will say that they are enslaved, because Just Over Broke is a good description of their finances. You go to work to earn money to pay your expenses and buy gas so you can go to work. With the high cost of gas many will choose not to travel this summer, because they just can’t afford it.
This is how I view financial independence. It is not necessarily how much money you make.
Can you go to the store and buy what you want or what you need?
I remember a few years back when my children were young and I would go grocery shopping. I did not take the time to add up the items in my cart, and just put in what I felt we needed for the week. When I got to the register and they added up my total it was more then I had, so I had to put back some items. Let me tell you that was embarrassing! This happened more then once I am sorry to say, but I decided that I would eventually make enough money that I would never have to do that again.
I am not saying that I want to be able to buy out the store. I am saying that I would like to be able to buy what me and my family needed for the week without worrying about whether I have enough to pay for it. It would also be nice to have enough to buy something extra that I may not need at the time, but is what I want.
Do you have any extra left over at the end of the week to put into Savings?
This is something that many people over look in their life. Life is full of surprises and mishaps. If you are not prepared for them, then you could loose everything you have when the first big problem arises. What if you get sick and can not work for a period of time, do you have enough saved to carry you through? What if your car breaks down, do you have enough to fix it? These things can happen any day to any one, even you.
My goal is to make more money then I spend, and to put away as much as I can in Savings, Bonds, or Trusts. Save up for major expenses that may come along. Plan ahead for the expected things too, such as College, Weddings, Children, and anything else that you can foresee.
Do you Save up for major purchases, or do you take out loans?
Take a look at your mortgage if you have one. Say you borrow $100,000.00 to buy your home, you could actually pay the bank back over $300,000 depending on your interest rate and the time to pay back the loan. That is a huge difference. The way the payments are scheduled you pay almost all the interest in the first few years of the loan. This is why after paying on your loan for several years your principal or the amount you still owe has not gone down very much. That is robbery when you consider how much they are making from just your loan, now consider a thousand loans. It is no wonder there are so many banks and loan services.
Take a look at your automobile loan, if you have one. Say you borrow $20,000 to buy a car, you could actually pay the bank back over $30,000 depending on the interest rate and the time to pay back the loan. This may not be as much as the home loan, but most car loans are only 3 - 7 years, instead of 20 - 30 years for the home loan.
When you owe money to the bank, then you are enslaved to them. True financial independence would mean that you save up your money and pay cash for even the major purchases. This will take discipline and penny pinching, but it can be done. Check out most other countries in the world. People there do not have home loans or car loans, and they must pay cash for everything they buy.
Do you take out loans or use credit cards to go on vacation?
Using a credit card is not bad in itself. As long as you can pay off the balance every month, then the credit card can be very useful. On vacation it is so much easier and safer to use a credit card instead of carrying a lot of cash. Using a credit card and then only paying the minimum payment is bad. Credit card companies charge the highest interest of any type of loan company. Just paying the minimum payment is only paying the interest for the month, and very little goes toward your principal. It would take a very long time to pay off a credit card at that rate. This is definitely enslavement.
Taking out a loan for a vacation is a bad idea from the start. As discussed earlier, the interest on the loan means you will end up paying back a lot more then the vacation cost. Not to mention the enslavement to the loan company. It is far better to save your money in advance to pay for your vacation.
My opinion on Human Nature
This is my opinion and is actually based on observation of myself and others. People will always tend to spend what they make. As they start to make more, then they will tend to spend more. Once you get locked into a certain lifestyle you do not want to go back to the previous lifestyle. The tendency will be to advance to a higher lifestyle, because we are not satisfied with what we have.
This philosophy is mirrored in the TV commercials. You are considered an outcast if you do not have the latest cell phone, mp3 player, clothes, accessories, etc. etc. etc. Then there is the whole keeping up with the Jones’s. Your neighbor buys a new car, so you have to get one better, etc. etc. etc.
There is nothing wrong with spending money, if you have it to spend. The problem is when we become insolvent, meaning our debt is much higher then our assets or income. This happens with cars and houses, when you owe more money then the property is actually worth.
True Financial Freedom Comes With Effort
You must change they way you think in order to become financially free. You must break the cycle of spending more then you make. You must make the effort to put money away for a rainy day. You must make it a practice to save for major purchases.
Making a million dollars every year will not give you financial freedom. Making a million dollars a day will not give you financial freedom. It is only when you decide to spend less money then you make, that you will find true financial freedom.
Look for my post on Monday and I will give you some ideas for making extra money online to help you in your goal for financial freedom.
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