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There are three factors which I consider as crucial to get started on the journey towards financial freedom. To get started, I would define financial freedom to be the ability to sustain your desired lifestyle with little or no further work. That means that without having to work, there will still be income being generated from other avenues that can meet or exceed your expenses.

What are these factors which I consider as crucial ? These three factors are Earnings, Savings and Investment. These three factors are closely linked to each other and the combined strength of these factors is greater than the individual sum of these factors alone. If you are able to do well in just two of these factors, you should be rather financially stable after all. But if you can do well in these three factors, you should be able to achieve financial freedom after a period of time. The three factors are being elaborated below.

Earnings

The ability to generate earnings can give rise to a higher proportion of savings which can give one much more capital to channeled it into investment, which can then give rise to a higher absolute return. Consider the case of two persons who are earning $1,000 and $5,000 monthly. Let’s say that both are able to save 20% of their salaries. At the end of each year, both of them will be able to accumulate $2,400 and $12,000 respectively. If both of them are able to generate the same investment return on their savings, who will take a shorter time to hit $100,000 ? This answer is pretty obvious for the one who earns less must either take a longer time or generate a higher investment return to hit his investment target.

Savings

The ability to save is equally important too though this factor is usually not deemed to be as important as earnings generally. Irregardless of your earnings, if you are not able save much, there will not be much capital left for investment. Without capital, it will be difficult to acquire assets which can generate streams of income. As such, both earnings and savings are equally important to me. Read more…