Last week one of my friends was talking to me about her weekend filled with her perceived much needed bout of “retail therapy”. She talked about all the new clothes and shoes, and even more clothes that she bought! She upgraded her iPhone to the latest version and she even managed to go out to both lunch and dinner twice!
We both know what happened after. I completely lost it! “Are you nuts?!” I exclaimed, “I cannot believe my ears!”. She smiled and retorted in sarcasm, “I know… I know… I went a little overboard, but I work hard so I deserve it!”. Ironies abound, what she didn’t realize was she was about to start working even harder just to cover the costs of all of these material possessions. Believe me, I was once in this trap for several years of my life… I know this situation all too well.
After some coaxing I convinced her to reveal the details of her purchases over the weekend so that I can create a case study to present back to her (I got her permission to post it to my blog as well). I just couldn’t take it that she was about to set herself up for decades of suffering and I had to at least try to pull her out of the trap of first-world slavery (self-inflicted by the lust for unnecessary physical possessions).
Over the past several months I’ve had dozens of discussions with family, friends and colleagues surrounding various topics related to investing in order to achieve financial freedom. These discussions have blurred a number of different topics – What are the best investments? What exactly is financial freedom? How do I approach an opportunity? How do I get over my fears? And the list goes on.
Today I’d like to cover one of the most important topics to achieving financial freedom. This topic in particular revealed both significant discomfort and resistance from the majority of my colleagues during our conversations – saving for financial freedom!
Saving for financial freedom isn’t a new concept. It’s not even a complicated one, it’s simple, spend less than you earn and save the rest; optimally save as much as you can. After all, if you aren’t capable of saving, you won’t have very much money to invest towards achieving your financial freedom! Ironically, in almost every instance where the topic was brought up, the reactionary comment was something along the lines of “I can’t save any more money; I’m already barely getting by!”
Although people often confuse the two, financial freedom isn’t the same as being rich. One individual could be completely financially free earning just $20,000 annually, while another could be trapped even with millions of dollars of annual income.
So then, what is financial freedom? Financial freedom is a state of mind achieved within an individual by no longer needing to worry about money. Money is no longer the dominating force behind the personal or professional decisions within an individuals’ life.
Why is financial freedom more important than wealth?
While many individuals can consume a limited amount of food, once they’ve reached their limits, individuals will discontinue eating and their thoughts will no longer be occupied with eating.
Last night, my business partner Reid and I attended the Ontario Real Estate Investors Organization (OREIO) monthly event at the Travelodge Hotel on Carling in Ottawa. This month I was very excited, because this month the presenter was one of my mentors and educators and the catalyst which brought me out of the phase that many investors get into known as “analysis paralysis”. The presenter was none other than Don Campbell himself!
For those of you who don’t know Don Campbell, he is one of Canada’s most experienced real estate investors. He wasn’t born into riches, didn’t have a silver spoon, he started when he was working at a customer service desk at Sears and worked his way to where he is today, one accomplishment at a time. It wasn’t an easy ride, there’s no such thing as easy money, but he worked through the challenges as he faced them and any real estate investor can save themselves thousands or even millions in mistakes learning from his experience. He is a realist at heart, and isn’t afraid to share both the successes and challenges he’s been through.
Most people think their house is an asset. I disagree. One of the reasons that most people are struggling these days is because they’re identifying their liabilities as assets. They’ve been programmed by traditional financial and investment companies to think they’re richer than they are and to over-invest in their own personal liabilities (most would call them “personal assets”).
Why is that? Why would the banks and the government do this? It’s simple, in order for them to make money they need to charge you interest, the more liabilities that you have, the higher their income!
So what’s my definition of an asset versus a liability then? It’s quite simple actually… an asset puts money into your pocket and a liability takes money out of it. Even if your house is paid off, it still remains a liability – you still have insurance, property taxes, maintenance, etc. Based on my definition, even when investing in real estate, an asset can quickly become a liability when the property becomes vacant or is not collecting rent.