MOST people think that the Return on Investment (ROI) is the most important, if not only, factor for them to manage in order to achieve their financial freedom.
To them, they have a higher chance of achieving financial freedom if they can get good ROI for their investment. A good and high ROI will help to increase their investment fast to achieve whatever financial goals they have.
If they do not get a good ROI, then they think that they will have little chance of achieving their financial freedom.
As a result people focus too much on ROI in their financial freedom plan and neglect other equally important factors.
In my opinion, the importance of ROI in achieving one's financial freedom has been over-rated. ROI is not the only important factor. There are another nine factors that you can manage to achieve financial freedom.
The nine factors
The other unknown or under-rated factors in achieving financial freedom are:
- The time you start taking action
The earlier in life you start to take action to achieve your financial freedom, the better position you will be in achieving your financial freedom.
Someone who starts planning and acting on his financial freedom plan at age 30, put himself in better position than someone who starts at age 50. The earlier you start investing, the lower ROI you will need to achieve the same wealth accumulation goal.
However, many people just ignore this and do not use it to their best advantage in achieving financial freedom.
- The amount you save
The more you save from your income, the more money you will have to fund your financial goals. As a result, you can achieve your financial freedom easier.
In addition, the more you save, the less ROI is needed to generate to achieve the same accumulation goal.
- Your family income
The more income you have, the more money you can save. As a result, you will have more money to fund your financial goals. When we talk about your family income, it includes your spouse's income. Having extra sources of income is definitely better than having only one source of income.
- Children's education expenses
The more you spend on your children's education, the less money you will have for your other financial goals. So, someone who spends less on children's education or has fewer children is in a better position than someone who spends more on children's education or has many children.
- Your dream home
If you want to have an expensive dream home, you will have less money for your other financial goals. Someone who wants to have a RM2 million bungalow will definitely put himself in a more challenging position to achieve financial freedom than someone whose dream home only cost RM500,000.
- Your vacation expenses
The more you spend on your vacation, the less money you will have for your other financial goals. Someone who spends RM20,000 a year on vacation is in a better position to achieve financial freedom than someone who spends RM50,000 a year on vacation.
- Your retirement age
When you retire, you stop having active income. So, the later you retire, the more income you generate to fund your financial freedom. Someone who chooses to retire at age 65 will need a lower ROI to maintain his retirement life style than if he were to retire at age 55.
- Your living expenses during retirement
The more you intend to spend on your retirement living expenses, the more money you will need to fund your retirement. Therefore, you will need to achieve a higher ROI. On the other hand, if you intend to spend less on your retirement living expenses, you will need a lower ROI for your investment.
- Your medical fund provision
The more you need to provide for your medical fund, the less money you have to fund other financial goals. You can reduce your medical fund provision by transferring your risk to insurance company. You can also choose to use public healthcare service rather than private healthcare.
After going through the nine factors, you may think that they are nothing new. However, in the journey to achieve your financial freedom, what you know is not important. What matters more is what you do with what you know.
When you are able to manage your financial freedom plan using all the 10 factors, you will be able to place the importance of ROI in the right context and let other factors play their roles.
As a result, you will be able to exploit the compounding and synergistic power of the 10 factors to attain financial freedom.
Without considering nine factors, your financial freedom car is only powered by one horsepower engine rather than 10 horsepower engines. And that's a great waste.
In fact, there's another angle to consider when using the other nine factors: your ability to control a particular factor. The more control you have on one factor, the easier it is to manage that factor to achieve financial freedom.
Out of the 10 factors, ROI is the one that you have the least control.
You will never be able to guarantee your ROI no matter how much effort and knowledge you put into it. The truth is that no one in this world has an absolute control on ROI. Not even a great investor like Warren Buffett. Therefore, it is an illusion if you believe you can control ROI by putting in great effort.
However, you will find that you can have better control on the other nine factors. You can control when you want to start taking action, the amount you want to save, what your dream home should be, how much to spend on your vacation, when you want to retire, how much to spend on your children's tertiary education and how much money to set aside for your medical expenses.
You can also control on how much to spend on living expenses during your retirement and your much income to generate if you really want to.
I must agree that you can't completely control all these factors. However, you definitely have better control on these factors than the ROI factor.
Therefore, the wiser way to achieve financial freedom is to understand that ROI is only one of the 10 factors to achieve your financial freedom and the least controllable one.
If you are serious about achieving your financial freedom, start exploring the other nine financial freedom factors and put them to good and full use.
To do that effectively and efficiently, a tool that comes in handy is the Roadmap to Financial Freedom.
In fact, the roadmap has been designed in such a way that you can manage all the 10 financial freedom factors easily.
source: NST online
No comments:
Post a Comment