“Financial freedom is freedom from fear.” Robert Kiyosaki
In my previous article, I mentioned financial ignorance and its effects. In this article, I will focus on financial freedom. According to research, people around the world are divided into three classes; roughly as 5%, 15%, and 80% according to their financial strength. Those in the 5% slice have generational wealth. They’re transferring their financial wealth from generation to generation. In general, this class has for $5 million and more in assets. Since there are 7.5 billion people in the world, it means that approximately 375 million people are in this privileged class. 15% is the middle class. Middle-class people live in a beautiful house, they have cars, go on holidays, they have accumulations. They cannot live very luxurious, but a considerably quality life. The remaining 80% need the help of state or family members in terms of living standards. They work hard, but they live a life of hardship. They are the families whose children have to create their own success in order to have a good life. Isn’t that a familiar family model for all of us? Many families enter this class as income structures.
Let’s put aside the current financial order in the world for a moment and return to the wrong financial preferences I mentioned last week. Although some expensive objects in our lives provide happiness for a limited period of time, they do not generate any income, they only make us spend our money. It can be said that you have not made the right decision financially if you own those expensive toys with any debt. On the contrary, if our reason for taking credit is to provide financing for an income model, this can be considered as a good debt. It is a bad debt if the debt will not generate any income, or even worse if it will only result in additional expenses. The most famous examples on this subject are the examples of cars and mobile phones which I have exemplified in detail in my previous article. Not only they do not provide us with any income, but they also cause extra payments for most of us. Of course, you should spend money on the pleasures of life, but bear in mind that it is wiser to create separate financing for them without getting into debt.
Important issues such as learning the concept of money, budgeting, smart spending, etc. are not being taught in schools. For this reason, many people become a victim of financial ignorance and greed. Learning budget management and teaching it to our children and other family members; teaching the difference between the necessary consumption and the unnecessary spending are some of the most important issues determining our quality of life. The concept of financial freedom is one of the issues I have long been interested in and researched. One of the most interesting points about the concept of financial freedom is that it is related to how much you spend, rather than how much you earn. What is meant by financial freedom is that the income of investments, i.e. passive income, is sufficient to sustain life. For example, imagine a person who has 2 houses as an investment and has a rental income of $2500 from these houses; and is able to live the way he wants in his life with that money. It means that this person is not financially dependent, he has the financial freedom.
Robert Kiyosaki describes financial freedom as being able to live without the need for an institution, any person or government income. According to this, it is not an independent life to get a pension and maintain life with it. We don’t expect the pension to be cut. But somehow, if the pension was reduced or couldn’t be provided in any extraordinary circumstances, people wouldn’t be able to sustain their life and would be miserable. Kiyosaki emphasizes this situation and says that “People should be ready for any possibility. They should make smart choices. Should be a smart consumer and at the same time a smart investor.”
A summary of the books I read about money and financial literacy can be summarized in 5 important points;
1- The concept of financial freedom is mostly about how you spend your money and how much you spend. The amount of money you earn has less importance.
2- Every loan, every debt is not bad. The planned debts, which can provide more revenue, are good debts. There are risks, but well-calculated risks can be afforded.
3- If you are going to take a debt, it should be a smart debt which might generate a possible income. It is not wise to get into debt for your pleasure.
4- You can have all of the things you want in life, but you should find resources for them and if required you should know to wait for the convenient circumstances.
5- Financial literacy is very important in the current world order. In today’s world, the education of financial literacy cannot be achieved or is very limited. We need to keep an eye on the financial world and should always keep ourselves up-to-date.
The most important rule on the road to financial freedom is to need as little as possible to live. Your living cost should be lower than your income. If you spend more than your income, you will kill yourself financially. If you spend as much as your income you can never be free. Financial freedom can only be achieved by the need of less than income.
K.