Anything that requires regular expenditures is a liability. Think cars, housing, cigarettes, eating and staying alive (for that matter)…
To get on a fast track to financial independency, it is helpful to route expenditures through capital assets. The idea is that you work to pay for assets such as savings, CDs, stocks, and bonds, and then these assets pay your expenditures.
This is obviously different from the consumerist notion of working to pay directly for your expenditures.
What is the practical application of this idea?
It goes like this. Say I would like to go out and eat. First I figure out the cost of going out to eat. Then I figure out how often I intend to do that. Then I calculate the price of doing that (see link).
Then I start saving until I have that amount and only then do I engage in this activity.
This is not a hard and fast rule, but it is a pretty strict guideline. Once you become accustomed to thinking as money as a way of generating income rather than spending it directly, your entire outlook on money will change significantly and you will eventually become wealthy.
To gain financial independence very fast one needs to think really hard about reducing liabilities. If you are not financially independent, the upkeep of your liabilities (annual expenses) exceed your asset based income perhaps even by a large amount.
It is generally easier to reduce liabilities than it is to increase assets, but a combination of both provides even more boost.
What do you think? Is this really living?
Originally posted 2007-12-07 15:57:00.