Money does not make us rich

You may disagree with me

Before I start getting a whole lot of “But Kay, I don’t agree”, let me hasten to define what it is that I mean by rich.

Definition

Rich – having an abundant spiritual and family life; having valuable life experiences; being financially free.

The financially free part of the definition

Today we will be looking at the being financially free part of the definition. A quick search on Google for the term financial freedom turned up the following:

Financial Freedom is the ability to do whatever a person wants to do without being limited by money.

Please note that this does not necessarily mean that we need to:

• have a 6 or 7 figure salary; or
• become a millionaire; or
• live in a gigantic house; or
• drive the most expensive car.

These notions actually make financial freedom seem very out of reach for the average person.

If financial freedom is not all that, what on earth is it then?!?!

Not to worry, I am about to tell you now.

The financial freedom formula:

our passive/residual income > our monthly living expenses

From the formula above, we need to earn enough passive or residual income to cover our monthly living expenses. We all know that try as we might, those pesky bills just keep coming.

As long as we exist in this world, we need money to live. A key point to note then is that if we want to be financially free, we need to know how much it costs us each month to live. Secondly, we need to know what is meant by passive or residual income.

Passive/residual income

Passive or residual income is money we earn over and over and over again from work that we did one time.

There are several ways to earn passive income, for example, income earned from:

• a book that we authored;
• owning a business or a franchise;
• network marketing;
• affiliate marketing;
• a rental property;
• revenue sharing sites.

Earning a 6 or 7 figure salary does not necessarily make you free

Now that we have a working definition of financial freedom, let us look at why earning a 6 or 7 figure salary does not necessarily make us free. We will use Marjorie as an example.

Example

Marjorie is at the top of her game. By most people’s standards, she is very successful. Most would say that she is living the good life. She came from humble beginnings and she has worked very hard to achieve all that she has thus far.

Marjorie is currently a Vice President at a Fortune 500 company. She is well-loved and respected among her staff and her colleagues. Needless to say, Marjorie earns the salary of a vice president and she is the main breadwinner for her family. This is her only source of income because she is simply too busy to dedicate time to anything else. Marjorie and her family are not in need of anything and they do not live from paycheque to paycheque.

The board of directors of the company where Marjorie works met and made the executive decision that they should re-brand the company and change the strategic direction in order to remain competitive. This new direction would mean mass redundancies from the top down. Marjorie’s life is now in a whirlwind. A once comfortable and secure lifestyle is now faced with great uncertainty.

You see, even though Marjorie is currently earning more than enough, she is not financially free because no job = no pay.

Being a millionaire does not necessarily make you free

We hear time and time again of people winning millions in the lottery only to find themselves flat broke a few years later.

The way forward

To be free, we need a long term plan. No matter where we are right now, we can take control of our finances – it starts with financial education.

Financial freedom is much more than having money. If you want to be financially free we are going to have to become a different person. Some of us were taught to go to school, get a good education so that we can get a good, safe, and secure job. This safe and secure job would then make us rich. We should have realized by now that this plan has significant flaws.

Summary

To summarise, I have included a short presentation. This was presented at a Women of Worth (WoW) meeting. WoW is a cashflow club and investment study group.