There are some apparent answers to this. A well-known one is retiring. This is usually the reply folks think of, but it’s far away from being the most significant. For many working people, retirement life is so far away, that saving for it appears irrelevant. This is the reason so many people delay saving for retirement until it’s too late. This is a big oversight, yet an easy one to make if you operate like the average person. Think about it? Why might any person sacrifice a cent of hard-earned salary for something so remote that it’s just about impossible to picture? I believe it’s crucial to save money, but not for retirement in the traditional sense. There is a more suitable solution to the work save retire grind.
What’s actually the most important reason for saving cash?
The key reason for saving money is it enhances the quality of your lifestyle by helping you to attain financial independence. I define financial independence as being in a position to do whatever you fancy without having to worry about money. In short, in the event you spend any time doing something you don’t want to do for the sole reason of obtaining money, you are not financially independent. Naturally, all people have to possess money for basic essentials in life. However, if you are financially independent, the way you generate that cash is separate from how you decide to spend your time. Financial independence is what everyone ought to strive for and saving money is a component of that regardless of who you are. How big a role it plays depends largely on how you earn money.
WII: Work-Independent Income
Now that I’ve defined financial independence, I shouldn’t need to sell you on why it ought to be a serious goal of yours. The freedom to do whatever you want obviously improves your mental and physical health together with your enjoyment of life, both other components of The Magic Trio. What you’ll need for financial independence is work-independent income (WII). There are simply a couple of approaches to earn WII:
1. Earn passive income (cash flow that is generated while you sleep, i.e. investment income, interest, royalties, rent checks)
2. Earn active income (income you must spend your time to earn, i.e. an occupation) by spending time doing a thing you’d do anyway
You become financially independent when you earn enough to live comfortably with a combo of these two methods. Maybe it’s 50/50. Maybe you earn half of this figure, your minimum required income (MRI), from working a job that you adore and you’d perform for free and the rest of it through interest. Maybe you get all of it from real estate purchases. Maybe you earn it all by way of a career you love.
The majority of people don’t make any WII.
These people don’t generate any passive income and they don’t make active income doing something they truly love and would do anyways. If you’re among the rare folks who doesn’t have this problem, then you can bypass this section. If you’re not, then the whole premise driving your personal financial strategy should be fixing this problem. This implies obtaining or building a job that you adore, generating passive income, or both. I urge you to do both, but the former could take some considerable time and soul seeking, so while you bring this about, you can also start building passive income. For passive income, unless you’ve developed a good or service that makes you cash while you sleep, you’ll require some capital. Whether that capital is used to generate interest or to make investments in real estate or other projects that make a positive cash flow, you’ll require some.
Enter savings.
The more|The harder} you save, the quicker you build capital. The quicker you build up capital, the sooner you’ll be able to begin playing around with it and generating some WII. How much capital you’ll need depends upon the minimum required income you intend to finance. It’s as basic as that. The rest is just details, many of which I’ll dive into later on. The reason for this section is to focus in on the “why”. Many personal finance books will advise you to begin saving as soon as possible (in your early twenties when you begin working, if not sooner) so that you will have a sufficient amount of money to retire once you turn 65. I say begin saving as early as possible to enable you to free yourself from the demands of money, hopefully a long time before you turn 65! Don’t merely work, save, retire old. Work hard early, save hard, and enjoy yourself!