Since I was young, people would tell me that nothing is free in this world, and they were right! Everything has a cost, including your financial freedom. So what is the cost of your financial freedom and how does it get paid?
Your Financial Freedom Membership
I like to look at financial freedom as a membership to an investment club that requires a consistent payment structure. This makes you both a member and the owner of the investment club.
As a member, you must pay your dues on time to maintain your membership. How much your membership fee costs will fluctuate based on the financial goals of the club. Paying the club fee is the mandatory fee that you consistently pay yourself, whether that is semi-annually, monthly, or weekly. And make no mistake, you must pay your membership fee to stay in the club. However, just like any other membership fee, once it is paid, it can never be used for anything but for club purposes. There are no refunds!
The no refund policy forces thought and planning before paying the fee. After paying the fee, it eliminates the ability to access any of the money for personal use. I often hear people say that they had to take from their savings for the purchase, or that they will dip into their other account to afford whatever it is. All that tells me is that they have a poorly planned financial strategy, or they are not disciplined enough to stick to their strategy. What is the point of putting money into savings, if you are just going to spend it?
You may say that you need it to pay the bills, or it was an emergency. If you need to pay bills or have an emergency, do you ever contact Netflix and tell them that you need your subscription money back because something came up? Of course not! That money has been spent. You find another way to pay the bills or work around the emergency. The same should be true with your financial freedom membership money.
Rainy Day Fund
Now I know there are times when unexpected expenses come up, and they rarely ever come up at convenient times. But should they really be unexpected? If you created a solid financial plan, then even the unexpected should be expected! In your financial plan, there should be a rainy day fund that is meant just for these types of occasions.
Dave Ramsey insists that people have a rainy day account that accounts for six months of expenses. I believe this is a great start; however, I would promote eventually having one year worth of expenses set aside in this rainy day account. This account is specifically created for the unknown; and although you don’t know what it’s going to be, you can still plan for it ahead of time.
Intentionally Invest, Don’t Gamble
As the club owner, your job is to invest the membership fee and create passive income. Notice that I said “invest,” not “gamble.” Many people put their money into “investments,” that they know little or nothing about, but that is not what a responsible club owner would do. Everything you invest in should be pre-calculated, and you should always know what you’re investing in and what return you can expect from the investment. If you don’t understand the investment and the investment strategy, then you are not investing, but rather gambling.
Warren Buffet said, Risk comes from not knowing what you are doing The more you know about the investment before investing, the less risky the investment becomes. As the club owner, you must become very familiar with the investment before you invest. Although you may not need to know everything if you are going through a financial advisor, you still must understand what your investment is and how much to expect the return to be. Be diligent upfront so you will be rewarded at the end.
Follow us now and stay tuned for our next blog titled, “Turning Your Membership Fee Into Passive Income.” We will explore several smart investment opportunities that are proven avenues for producing wealth over time. We will also discuss investment strategies and next steps. Please give us a like if this blog was helpful, and also let us know how we can provide more value by commenting below.