Contrary to what the thousands of get rich quick schemes and instant millionaire online courses would have you believe, the majority of people don’t build wealth in a short space of time.
The problem with modern society and especially since the social media age, is that people are continually enticed by examples of overnight millionaires and instant success stories. However, the reality from my personal experience and the many hours of research I have done is that 99% of millionaires have built their wealth over a long period of time including myself.
So, whether this is a comfort to you or depresses you, the reality is that you should have at least a 15 year time line for building significant wealth and in many cases, longer than this. The truth and reality is that most people take at least this length of time to become a millionaire – myself included.
The fact is that globally 80% of millionaires are over the age of 50. For the most part this is not because they suddenly hit on a big idea later in life, but because they build and add to their wealth little by little year by year.
So, the most important steps to building wealth are not exciting get rich quick schemes but are relatively mundane daily, weekly and monthly habits that you need to build and be disciplined to maintain. The exciting part is the more you build the easier it becomes and just like a giant snowball, eventually it continues with its own momentum, getting bigger and bigger. Stay tuned to my next blog post where I will share with you the 7 steps to financial freedom, but first, what is financial freedom and why does it matter….
What is financial freedom
To put it in the simplest terms possible, financial freedom is when your passive income becomes greater than your expenses. So financial freedom is set at a different level for different people depending on your needs and your lifestyle. A common myth is that you have to be super wealthy to be financially free, but this is not the case. If your monthly costs are low then the level of passive income you need does not need to be very high.
Just as people have different levels of income requirements to become financially free, so too do people have different motives for wanting financial freedom. Some people want to be financially free so that they can retire early, some people want to be financially free so they can choose to work on their passion rather than working to earn an income and some people want to create financial freedom as a step on the way to becoming super wealthy.
It is important for you to decide what your motive is as this will help you set your goals and focus on them. For me, my main goal was financial freedom to provide security for my family. I wanted to get to a point where it didn’t matter if I lost my job or my business closed because I would have enough money coming in from other means to meet all our needs.
My goal was never to become super wealthy because although I like the idea of having a lot of money I prefer the idea of having a balanced lifestyle where I can enjoy spending time with my family and friends maintain my health and not have to work like crazy – which is the reality of most people who have built their own fortunes.
What is passive income
Passive income is defined as income that you generate without having to put much time or effort into doing so. Forms of passive income can include rental properties, returns on investments in stocks and shares, interest on bank accounts, royalties on books among many other things.
One thing I would say from my personal experience is that there are not many forms of significant income that are truly passive. Most forms of income take some kind of work and effort to create and maintain. So, if you are looking at alternative sources of income be prepared to at least put some level of work and time into creating them and sustaining them.
However, the idea is to try to create a variety of sources of passive income that require minimal effort to manage and certainly do not require you to work on them on a daily basis. My main sources of passive income are; rental returns from property, capital growth on property, dividends on stocks and shares, capital growth on stocks and shares and interest on savings.
Please note that although I am financially free and these income amounts are currently enough to cover my expenses I am still working and running my own business partly because I love what I do and partly because I still feel I have a way to go to feel completely financially secure, plus I have big expenses to come, like my kids going to University.
It is also important to note that your level of financial freedom will change depending on your personal circumstances, for example when you are young and single you may require less income to cover your expenses, but once you are married and have children your level of income to become financially free will be significantly more. So you also need to build it to a level that anticipates your future required income for true financial freedom.
Financial freedom is a hugely gratifying milestone to reach. Once you achieve this level, a lot of pressure is lifted from you knowing that you no longer have to work in a job you do not like or spend the majority of your time doing something you hate or with people you don’t want to be around.
What is important to note is that once you reach financial freedom, this does not mean you have to stop working, in fact I would very much advise against it. Financial freedom is rather a stepping-stone to allow you to spend time doing what you enjoy most and potentially finding an alternative career or passion that still allows you to generate an income.
Interestingly many people often end up earning more from their newfound passion than their previous day jobs once they reach financial freedom and often once passion takes over money comes more easily.
So good luck, enjoy the journey and I hope I can support you along the way.
Next blog….Seven steps to financial freedom