Find Financial Freedom

I’ve been reading a very interesting book recently, called The Millionaire Next Door, and it’s all a digestion of various studies and surveys taken by a couple of guys on American millionaires, to try and understand how they made their millions.

I thought it would be an interesting read, full of inspirational stories about how ordinary people like you and I overcame great adversity to start a business and then build it up from scratch to be worth millions. However, it is sadly not like this at all. It is in fact almost the opposite of inspirational, though it is still very insightful and has really made me understand a few issues that I never understood from my childhood.

You see, I had a best friend from school who’s dad was (and still is) a self made man. He built up his nursing home business and eventually sold it about ten years ago for over £1million. I always thought his ways were a bit strange, he was always frugal and never seemed to get carried away with his success. I always thought that this was simply his way of dealing with it, but it seems from reading this book, that his behaviour is not uncommon amongst the self made millionaires.

You see, most people in life strive to have a large income, but never really understand the benefits of having a large income, almost assuming that your outgoings must automatically increase in line with your income otherwise you’re not playing the game fair.

It doesn’t have to be this way, and the book’s findings share this view. The lesson I’ve picked up from reading the book is that the vast majority of millionaires live frugal lives, consuming only what is necessary to live and perform their everyday tasks, and using whatever is left to invest.

So to achieve financial freedom, live like a millionaire and follow these easy steps:

• Control your (and your spouse’s) consumption, don’t spend up to or beyond your income level
• Buy a modest house, with a modest mortgage (no more than two times yearly income) and work to pay it down as quickly as possible
• Don’t get into debt, if you are already in debt, get out of debt as quick as possible, here are some useful articles (how to get out of debt quick and how to repay credit card debt examined)
• Buy a 2nd hand car, with cash - don’t get sucked into buying an expensive luxury car (BMW/Audi/Merc/Porsche etc) on credit or worse still, hire purchase, it’s just not smart
• Don’t buy expensive “label” clothing, it’s the same as cheap clothing, all made in sweatshops in the far east, so why pay more?
• Buy a cheap watch for £10 ($20) and replace every few years, don’t waste four/five figures on an expensive Breitling/Omega/Rolex or any other expensive make, all they do is tell you what time it is
• Don’t go on expensive holidays, yet…do it when you’ve achieved financial freedom, in fact, when you’ve achieved financial freedom, the rest of your life is a holiday!
• Have a budget for your everyday life, work out how much you need each month for groceries, utilities, insurances etc and stick to this budget. You should even budget for little luxuries every now and then, which is ok, as long as it’s been budgetted for!
• Don’t waste money eating out every other night, you can easily spend a week’s shopping budget for two on a meal in a restaurant for two, so it’s just not financially smart to waste so much money on eating out, keep it as a treat, once a week at the most.
• Don’t waste money on expensive club memberships, like golf club or country club memberships. If you need a gym membership (which I do), then make sure you get value for money, in fact here’s a great idea about how to Reduce Your Monthly Outgoings By Going Down The Gym
• Don’t waste money on keeping up with the Jones’s, this is the key thing to remember, most other people who seem to be wealthy are usually only a few months from bankruptcy because all their income (and more) is used to keep up this pretence of wealth, when in fact they are slaves to their debts and high consumption livestyle.

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