To achieve financial freedom, you need to think like you are running a business.
To put it in other words, cash flow is the king.
If a company’s financial statement shows profits, yet there is negative cash outflow, the company must be having a liquidity issue.
The same goes for individuals.
No matter how much capital you have accumulated (equivalent to a large amount of net income on the income statement for a company), a lot of expenses and personal debt are taking money out of your pocket (equivalent to a lot of liabilities on the balance sheet for a company), then you are not financially free.
Let’s take real estate investment for example. Suppose you take out an excessive loan when you buy a house because you think the price of a house will rise, but you spend about half of your monthly salary to pay off interest and principal on your loan.
Paying interest and principal to the bank for the next 20-30 years and paying property taxes to the government makes you poor because there is negative, cash outflow from this investment.
Some people say housing is still a great investment as it goes up in value in the long run; however, I think taking too much of mortgage and interest payment makes you poor in cashflow, which takes a heavy toll on your finance and future.
I personally think having financial freedom is not about how much money you have, but how much money comes into your pocket regularly. Hence, the key to achieving financial freedom is to accumulate assets that will enrich your pocket, and lessen liabilities that take money out of your pocket.
Financial freedom is achieved when one’s expenses are all covered by cash flow from assets that one owns, even if one does not work.
You can find Korean version of article here.
