We would have the flexibility to work at our own pace and devote our time to other pursuits we are interested in. Our objective of a better quality of life would be fulfilled. This is what is known as financial freedom - when one is no longer dependent upon personal efforts to maintain a desired level of living standard.
Below are some of the rules which from my experience are paramount in wealth creation and consequently, in achieving financial freedom:
Know where you are before you start
It is essential to make a complete list of one's Assets and Liabilities, Incomes and expenses (both current and expected in future) and cash flows before one starts. One cannot reach a destination without knowing where he or she is starting at.
Give priority to protection of what you have
Insure all your assets as well as payment of liabilities against unforeseen circumstances which have the potential to destroy your wealth.
Get your finances under control
This implies stopping money leakages, however small or insignificant they may seem. Most money leakages are through unnecessary tax and interest expenses, wrong spending and wrong investments. Money leakages are the most common reason for inability to create wealth.
Pay off debts on priority
Unless the debt is incurred for creating an asset which is expected to increase in value or for business purposes, it is not advisable to incur debt. Any other debt, if incurred, should be paid off on priority.
Keep the taxman at bay
Apart from interest, tax expense is the highest expense item which prevents long term wealth creation. Be prepared to pay for expert tax and financial advice. It may seem expensive at first, but the benefits will far outweigh the costs in the long run.
Understand that there are no secrets to creating wealth
There are only 2 mantras which ultimately work - spend less than you earn, and buy low and sell high.
Understand that gaining wealth is a slow process
Earning it too quickly (say a lottery or inheritance) may make you rich, but it does not give you experience in acquiring wealth, which is vital for keeping and growing that wealth.
Understand and implement the power of compound interest
Albert Einstein called it the Eighth wonder of the world. Interest compounded over a long period of time has a tremendous capacity to create unimaginable amounts of wealth.
Lastly, understand and accept that money is not the solution to all problem
It makes life easier, but does not solve all problems. It is the oil that smoothens the engine. It is not the engine. So take it easy and do not be consumed by the exclusive desire to earn more and more, as it will destroy peace of mind and defeat the objective of being financially independent.
About the Author:
The Author, Paresh Shetiya is a Chartered Accountant and Certified Financial Planner. He can be reached at firstname.lastname@example.org