Obtaining Personal Financial Freedom

Your financial freedom is in your hands.

As soon as YOU make up your mind to become financially independent, the main obstacle in the path to personal financial freedom will be removed. Everyone MUST understand the basics of finance and learn to use them effectively.

Let’s start with the basics…

If you think about it, there are two kinds of income:
• Guaranteed income
• Unguaranteed income

While the former is not affected by your regularity of work and performance level, the latter depends on these factors entirely. If you stop working, assured income such as rent or dividend will not stop flowing but your bonus or paycheck will.

Similarly, your expenses can be classified as:
Fixed costs
Variable costs

Now, you need to focus on the cash flow and not the individual elements of income and expenses. More stable the cash flow, higher will be the probability of achieving financial freedom.

FREEDOM FLOW = Total Costs – Guaranteed Income

If the calculated amount is negative, you have good fund flow and have the ability to attain financial freedom. a positive figure implies continued debt burden and the need for generating more income to pay-off the expenses.

You might wonder how long it will take to achieve financial independence and get rid of a debt restricted life. Here’s a simple formula to estimate the time period required for gaining financial freedom.

N = Freedom Flow / AIOP x Plough back

In the above formula, ‘N’ stands for the number of years required for obtaining financial freedom, ‘AIOP’ is the assured income as percentage of the plough back, which, in turn is the difference between the total income and expenses.

For example:
A person may have-
Total income = $1, 00,000
Total expenses = $85,000
Assured income = $25,000
AIOP = 10%

This makes the plough back equal to $40,000 and freedom flow as $60,000 ($85,000 - $25,000).

Putting all these figures in the formula, we can calculate the number of years needed to reach the aim of financial freedom.

N = 60000 / 0.1 x 40,000 = 15 years

This figure can be influenced by changing the level of AIOP and total expenses. If the AIOP is increased to 15% and the total expenses reduced by 20%, the number of years will come down from 15 years to 5 years.

That’s the power of this amazing equation!

All you need to concentrate upon is the:

• Increase of income
• Decrease of expenses
• Enhancing of AIOP
• Maximizing the plough back

This DOES NOT mean that you can depend on this formula alone to achieve your financial freedom. There are many ways of increasing the income, both online and offline, which must be selected according to your personal abilities and goals.