4 Practical Steps Which Will Help You To Be Financially Free
In this blog, you will learn about 4 Practical Steps which will help you to be Financially Free. This information is taken from the book “From Here to Financial Happiness” written by Jonathan Clements.
He was driving his car with his iPhone and was saying many interesting things like I heard this in news recently on 9th September a lady gave birth to a baby in Philadelphia in the front seat of Tesla and the delivery happened when Tesla was running on autopilot because of which, that baby is also called as World's First Tesla Baby.
Sam was shocked by listening to all these things, he was shocked because bob a 31-year-old preschool teacher, had bought a $53,000 car which is obviously a lot of money. According to Sam, it was their biggest financial mistake which he shouldn't have done and at the same time, there was a hype about Tesla.
After listening to all those things, Sam drove that car one day and says that the experience of driving this was very different, even though he liked the Tesla Model 3 and even he wanted to buy that car but because this car was very costly to him and as he was a financial advisor, he didn't want to do that mistake.
So as a financial advisor what he did was, instead of buying this $53,000 car he started calculating its opportunity cost. Where he saw, that if he invested this much money in his savings, what could be a better opportunity for him than this car.
He decided that instead of buying a Tesla Model 3 for $53,000, will buy the Tesla Stocks worth $53,000. In October 2018 on the per-share value of $298 he bought the Tesla stocks and guess what after some time, these Tesla stocks reached $367 by doing this he had got a profit of $11,500 and he didn't want to sell that.
After 6 months, when there were some problems in the company because of a Tweet from Elon Musk, the stocks came down to $179 then their profit of $11,500 converted to a loss of $20,000
but still, he didn't sell his stocks. Now after 2 years, when the entire world market crashed, Tesla stocks were rising.
Then Sam thought, just like last time, these stocks will fall one day. Therefore he sold his 75% stock at $888 per share value because he didn't want to handle the volatility of this market due to which he got a lot of profit.
But the fact was, after some time Tesla stocks reached $1,126, thinking of which Sam regretted but Sam had booked a good profit and then he was thinking how stupid Bob is
he should have bought the stocks instead of the car.
Do you know the interesting part was Bob whom he was thinking is stupid he was investing a lot of his money in Tesla, for a long time because of which he had generated a lot of profit and with some part of the profit he bought Tesla Model 3.
The thing we should learn from this story is that wealth is not as we think it is. Many times when you think people are less capable than you, you think that they are financially behind you but many times it is not necessary that they are behind you.
Many times many people do well financially but since all their wealth is in their investment which we can't see, so they won't look rich many times and many times even if they look so, they look stupid which is not always the case.
Being financially free doesn't mean that you have a lot of wealth which is visible to people by which you can live a luxurious life. But the meaning of being financially free is you live a comfortable life where you don't worry about money and your money keeps you safe and works for you.
Lesson Number 1: No Saving With Debt
Some people start long-term investing with their debt where they will be paying their debt and also doing some investment. By this, their process of becoming financially free slows down.
So the author says first clear all your small debts like mobile phone, laptop EMI, car loan and such things which you can finish early. Sometimes the big amounts like home loans can't be easy to clear, those are exceptions, keep them aside but clear your small debts.
The author also says to use credit cards wisely because the US Department of Labor had done research on 7,900 citizens of age 20 to 40. By that, we know that for those who were in high credit card debt, their stress was affecting their physical health over time and they faced many problems in daily life, including pain in joints and stiffness and were facing many problems.
Lesson Number 2: Financial Safety Net
Many people if they have any problem, for its solution they use their credit card or depend on the next salary. If something happens they say, they will do it from next month or do the EMI many times.
But the author says, no one thinks about what if their source of income stops. Many people are salary based and their job is their main source of income. There are only a few people who have passive income. If their main source of income dies for any reason they will have a different source of income on which they can depend on.
Basically, the author is telling us that we have to create an emergency fund where we store our money, at a place where we can use it even after losing our main source of income. You cannot spend this money on any random things like a vacation, buying a car or anything.
You should have an emergency fund of at least 6 months.
Lesson Number 3: Invest conservatively and buy stocks with caution to increase your wealth
J Walk when they launched a website Priceline of the discount offers in the early 2000s by this their net worth reached $1.8 Billion in just one year and on the other side, the world's greatest investor Warren Buffet had to wait 55 years to earn their first Billion Dollars.
Look there is how much difference but the thing is J Walk's income was not sustainable everyone knew that this dotcom bubble will burst and when that bubble burst, by end of October 2000 in just a few months, out of billions of dollars of J walk only 33 Million Dollars were left and Warren Buffet were into the top 1% richest club of the world and are still today.
The reason behind this is, that Warren Buffet, is investing for the past 7 decades and he has rarely sold his shares. So the author says, if someone wants to be financially free, then investing your money in the stock market can be a very good place for you where you get not only returns, but the company pays you dividends many times which means they share some per cent of their profit to their shareholders.
The author says when you think long term, to invest in the stock market you don't need to understand any rocket science but the companies which you know about properly or better use their products daily, which you have been using for many years, which you believe in you like those products. It will be good for you to invest in such companies
One of the most successful Mutual Fund managers, Peter Lynns, who has written many good books on investment even says the same thing you should invest in such companies whose products you use or you know better about them whose products you like and you believe in.
Lesson Number 4: Rugality leads to better finances
Financial success is nothing but the result of your good habits if you think logically that if you want to be financially free you have to save money and you have to invest it but you have very less time. So it is very important for you to save and invest money.
The author says 90% of people can't achieve financial freedom because of their bad habits. Their bad habits impact savings a lot because people don't think exponentially they always think linearly.
For example what we think is, I am just eating one pizza, what will happen if I am just eating one burger today, what will happen with these small things. They make it a habit and start eating outside food orders every day, something or the other from Zomato. At least it happens every week and that becomes a habit because of which a particular amount Zomato gets every time goes to different junk food companies. Money is also going plus all these things impact your health.
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