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What is Money?
by: Daniel P. Matthews
'How much money do you have?' is a frequently asked question. The answer, more often than not, is about the amount of cash you have in your wallet, purse or pocket, rather than the totality of your money. People seem to use the words cash and money interchangeably. But, there is a difference between cash and money and that difference is important in the way we think about our financial independence.
Cash is dollars and cents. You carry cash with you and use it to buy all sorts of goods and services. Unfortunately, when you think in terms of cash instead of money you lessen your focus on the real measure of your personal wealth - your money.
Money is equity in your home. Money is in your checking account. Money is found in your stocks and bonds. There might be money (even cash) in your automobile, in a painting you own, your jewelry, furniture, and on and on. And, yes, money also includes the cash you have in your purse, pocket, and even under the cushions of your couch.
When you count up all your money, instead of just your cash, you might be pleasantly surprised at the real answer to the question 'How much money do you have?'
In efforts to achieve financial independence, money is your concern. Your money should be working for you. It should be growing. After all, cash just collects lint in your pocket! But, money grows and grows and grows!
'How much money do you have?' is a frequently asked question. The answer, more often than not, is about the amount of cash you have in your wallet, purse or pocket, rather than the totality of your money. People seem to use the words cash and money interchangeably. But, there is a difference between cash and money and that difference is important in the way we think about our financial independence.
Cash is dollars and cents. You carry cash with you and use it to buy all sorts of goods and services. Unfortunately, when you think in terms of cash instead of money you lessen your focus on the real measure of your personal wealth - your money.
Money is equity in your home. Money is in your checking account. Money is found in your stocks and bonds. There might be money (even cash) in your automobile, in a painting you own, your jewelry, furniture, and on and on. And, yes, money also includes the cash you have in your purse, pocket, and even under the cushions of your couch.
When you count up all your money, instead of just your cash, you might be pleasantly surprised at the real answer to the question 'How much money do you have?'
In efforts to achieve financial independence, money is your concern. Your money should be working for you. It should be growing. After all, cash just collects lint in your pocket! But, money grows and grows and grows!
Make Your Money Grow!
by: Daniel P. Matthews
Don’t plant dimes in the garden, that won't work! There are two reasons planting dimes won't work. Dimes don't grow is one reason. The other is that dimes are cash and cash doesn't grow. Money grows. Receiving a return is growing your money.
You can get a return on your money in lots of ways. But, remember from a previous essay that your money can be in lots of places. For instance, equity in your house grows as the market for real estate grows. Money in your savings account grows as the bank adds interest to your account. If your car is a classic it might be worth more than you paid - therefore your money has grown. You can grow your money, yes you can.
Interest that your bank pays on your savings is a form of return. Stock prices rise (they also fall!) and give you a return. Some stocks pay dividends - another form of returns. If you are lucky enough to own a Picasso or Renoir painting you might be able to sell it for a handsome profit - another form of return.
By now you have probably thought of several other methods of getting a return on your money. But, do you know the real driving force behind growing your money is compound interest? It is possibly the single most important subject in achieving financial independence.
Compounding occurs when you are paid interest on the interest you were previously paid. A simple example is $100 in a savings account is paid 5% annual interest. At the end of the first year there is $105 dollars in your account (Your $100 plus the banks $5 interest). At the end of the second year the bank adds another 5%, or $5.25. The difference between the first and second year interest payment is 25 cents. The 25 cents is the interest paid in the second year on the $5 interest paid during the first year. It follows then that in year three the bank would pay interest on the original $100 and the $10.25 interest paid during the first two years. The interest paid during the third year would amount to $5.51 bringing the total balance at the end of year three to $115.76.
Compounding is at the heart of your plan to achieve financial independence. Imagine if the interest rate was 8%, 10%, 15% or even higher! The results are even more dramatic. But, the road to financial independence begins with a plan. Figuring out what to plan and what is a reasonable plan is easier than you might think.
Don’t plant dimes in the garden, that won't work! There are two reasons planting dimes won't work. Dimes don't grow is one reason. The other is that dimes are cash and cash doesn't grow. Money grows. Receiving a return is growing your money.
You can get a return on your money in lots of ways. But, remember from a previous essay that your money can be in lots of places. For instance, equity in your house grows as the market for real estate grows. Money in your savings account grows as the bank adds interest to your account. If your car is a classic it might be worth more than you paid - therefore your money has grown. You can grow your money, yes you can.
Interest that your bank pays on your savings is a form of return. Stock prices rise (they also fall!) and give you a return. Some stocks pay dividends - another form of returns. If you are lucky enough to own a Picasso or Renoir painting you might be able to sell it for a handsome profit - another form of return.
By now you have probably thought of several other methods of getting a return on your money. But, do you know the real driving force behind growing your money is compound interest? It is possibly the single most important subject in achieving financial independence.
Compounding occurs when you are paid interest on the interest you were previously paid. A simple example is $100 in a savings account is paid 5% annual interest. At the end of the first year there is $105 dollars in your account (Your $100 plus the banks $5 interest). At the end of the second year the bank adds another 5%, or $5.25. The difference between the first and second year interest payment is 25 cents. The 25 cents is the interest paid in the second year on the $5 interest paid during the first year. It follows then that in year three the bank would pay interest on the original $100 and the $10.25 interest paid during the first two years. The interest paid during the third year would amount to $5.51 bringing the total balance at the end of year three to $115.76.
Compounding is at the heart of your plan to achieve financial independence. Imagine if the interest rate was 8%, 10%, 15% or even higher! The results are even more dramatic. But, the road to financial independence begins with a plan. Figuring out what to plan and what is a reasonable plan is easier than you might think.
How Should I Start?
by: Daniel P. Matthews
You could run right out and put $20 into a savings account. Perhaps something even more ambitious, like deposit $1,500 into a mutual fund. Either of these would be a start. But, you should consider beginning down the road to financial independence by thinking. That's right, thinking.
Indeed, start by thinking.
You could run right out and put $20 into a savings account. Perhaps something even more ambitious, like deposit $1,500 into a mutual fund. Either of these would be a start. But, you should consider beginning down the road to financial independence by thinking. That's right, thinking.
Indeed, start by thinking.
Vision, Goals, Action and Persistence (VGAP) ©
These are the keys to unlocking the secrets of financial independence.
Vision means quietly contemplating your future to get a clear Vision of the way you think you want your life to unfold. What is life like at age 65, 70, 90 even 100. Some people want untold wealth. Others want comfortable surroundings. Some even say they picture themselves maintaining their current lifestyle forever. You must decide on your own Vision. Whatever your Vision it must be clear. Also, you must visit it often; make your Vision a frequent moment of reflection. Your Vision is the stepping off point for your Goals.
Goals are the stepping stones that lead you to your Vision. You set Goals as an interim step to achieving your Vision. For instance, your Vision might have you spending two weeks each year at the beach. An interim step might be to enjoy next years vacation at that beach and while there visiting real estate opportunities (condos, time-shares, etc.) with the purpose of accumulating information that would allow you to set a future Goal of owning your vacation spot - another step toward your Vision. Goals are dynamic - they change. As you accomplish one Goal there is another to be conquered, each in turn moving you closer to your Vision. Your Goals are important. But, another important key is Action.
Action must be taken in order to accomplish your Goals. Without Action all you have done is create a Vision and some Goals but nothing happens. This aspect of your road to financial independence is the most often point of failure for beginners. It is easy to say things are too hard. It is easy to say you'll get to it tomorrow though tomorrow never comes. It is easy to forget to do one little thing, then another. It takes Action to accomplish your Goals. You must know that all the Actions you will take will not be successful. Fear not, Persistence is the last key to your success.
Persistence is what delivers the goods. Ray Kroc failed at numerous ventures before finding McDonalds. In our example of owning a vacation spot on the beach it is quite possible that the first offer you make will be rejected. So, make another offer. Or find another property for which your offer is acceptable. The point is Persistence pays off. Persevere and financial independence is within your reach!
Finally, a word about life systems. Understanding in your head and heart what is right and what is wrong is very important. Your Vision, each Goal you set, every Action you take should be based on what you know is right. Such fundamental life systems exist and you must decide yours.
After you spend some time envisioning your future and contemplating your life system you are ready to start down the road to your own financial independence - take the fourth and final step.
Vision means quietly contemplating your future to get a clear Vision of the way you think you want your life to unfold. What is life like at age 65, 70, 90 even 100. Some people want untold wealth. Others want comfortable surroundings. Some even say they picture themselves maintaining their current lifestyle forever. You must decide on your own Vision. Whatever your Vision it must be clear. Also, you must visit it often; make your Vision a frequent moment of reflection. Your Vision is the stepping off point for your Goals.
Goals are the stepping stones that lead you to your Vision. You set Goals as an interim step to achieving your Vision. For instance, your Vision might have you spending two weeks each year at the beach. An interim step might be to enjoy next years vacation at that beach and while there visiting real estate opportunities (condos, time-shares, etc.) with the purpose of accumulating information that would allow you to set a future Goal of owning your vacation spot - another step toward your Vision. Goals are dynamic - they change. As you accomplish one Goal there is another to be conquered, each in turn moving you closer to your Vision. Your Goals are important. But, another important key is Action.
Action must be taken in order to accomplish your Goals. Without Action all you have done is create a Vision and some Goals but nothing happens. This aspect of your road to financial independence is the most often point of failure for beginners. It is easy to say things are too hard. It is easy to say you'll get to it tomorrow though tomorrow never comes. It is easy to forget to do one little thing, then another. It takes Action to accomplish your Goals. You must know that all the Actions you will take will not be successful. Fear not, Persistence is the last key to your success.
Persistence is what delivers the goods. Ray Kroc failed at numerous ventures before finding McDonalds. In our example of owning a vacation spot on the beach it is quite possible that the first offer you make will be rejected. So, make another offer. Or find another property for which your offer is acceptable. The point is Persistence pays off. Persevere and financial independence is within your reach!
Finally, a word about life systems. Understanding in your head and heart what is right and what is wrong is very important. Your Vision, each Goal you set, every Action you take should be based on what you know is right. Such fundamental life systems exist and you must decide yours.
After you spend some time envisioning your future and contemplating your life system you are ready to start down the road to your own financial independence - take the fourth and final step.