Editor’s note: This article was first published in March 2012. The example of earning an extra 0.25% to 0.50% by placing money in one- to three-month fixed-term deposits reflects interest rates at that time.
You’ll find hundreds of websites talking about ways to achieve financial freedom. The methods are as varied as they come, from the law of attraction applied to money to taking a mental relaxation course to get yourself ready to receive money by the ton.
I’m not going to be the one to shatter the illusions of those who believe in these systems, but in my view, unless you happen to hold a winning lottery ticket, the only ways to reach that goal are these:
- With a business.
- By investing.
- By combining both.
Let’s look at each of these points in more depth.
As we said in our article “The only secrets to getting rich” and later in our recent article “The secret of millionaires, told by millionaires“, the saying “don’t work for money, make money work for you” sounds lovely, but if you don’t have any money, it’s hard for it to work for you.
Investing
To start investing you need two essential things. The first is money, and the second, and more important, is knowing how to invest, because a lack of knowledge could lead you to lose your money or fail to get the most out of it. There’s a third thing, which is not taking on debt, although for some people it’s already too late for that and they’re in debt, so we recommend reading:
The first thing you should know is that money is like water: if it stands still, it loses quality (purchasing power), so you have to keep it moving. Investing is as easy as it is difficult. Easy in the sense that you don’t have to go to university to learn how to invest. Difficult in the sense that even people who went to university to become fund managers end up losing money.
As I mentioned, we’re going to focus again on financial education and basic finance. This article is meant to bring newer readers up to speed, so we won’t need to repeat things we’ve already said and won’t sound repetitive. Here are some of our articles you can start with to get your bearings:
- Stock market investing for beginners. In this article we answer the most basic questions about investing in the stock market. In other words, it’s for people who know nothing at all about the stock market.
- Common investing mistakes and the most serious mistakes investors make. Two articles to help you learn the most frequent mistakes you should avoid.
- Advice you shouldn’t listen to when investing. We may have stirred up some controversy with this article, but I still maintain that some people give guidelines that usually make very little sense.
Our financial education articles will help you understand how money works, the dangers of debt, the ways people lose their savings and so on. You can start there. Likewise, in our articles on investing and the stock market we give advice and guidelines on this complicated/simple way of investing. Without a doubt, over time you’ll discover that the stock market, despite its risks, is the most profitable investment.
Business
Without a doubt, the fastest way to get money coming in. Many people have found themselves unemployed, and others are trapped in jobs that only just cover their monthly expenses and, with a bit of luck, get them to the end of the month without having to borrow.
A business is another form of investment, with the difference that when you invest in a business you’re investing in yourself, in your abilities and in your worth as an entrepreneur. There will be no shortage of articles on how to succeed in business, because that’s one area where we’re right up to date. We know starting a business isn’t easy. We also know that one of the moments when a business is most at risk is at the beginning, or when it moves from being a small business to a medium-sized or large one, because that usually requires new investment (taking on debt).
More than 70% of businesses run into problems when making that leap from small to large. So we’ll try to give the right guidelines for making that change with as little risk as possible, let’s say… by following a gradual growth strategy and reducing the risk factor. You’ll find plenty of sales strategies, growth strategies and advice for entrepreneurs here, as well as business ideas for those who want to start a business and don’t know what kind. On one side there are the business ideas, and on the other, stories and advice for entrepreneurs. I hope they serve as a guide to help you reach your goal.
Business and investing
To be a good business owner you have to understand investing, and to be a good investor you have to understand how businesses work. The two go hand in hand, however much people try to separate them. Some business owners delay payments to suppliers just to keep the capital sitting idle. Other business owners delay payments to suppliers to generate working capital. They simply delay payment by a month or two so they can put that money into one-, two- or three-month fixed-term deposits. That way, they can earn an extra 0.25% or 0.50%. It’s not much, but it’s something, and depending on the amounts your company handles, it could be a far from negligible sum.
On the other hand, being an entrepreneur or a partner in another business doesn’t mean you have to open a business yourself. By buying shares or stakes in a company, you can take part in the profits of that other business. Of course, in many cases, when you use this approach you share in the business’s profits but also in its losses, and that’s where you need to analyze the business with the mindset of a business owner and the knowledge of an investor.
As I said at the beginning, financial freedom can only be achieved in these ways. There are no others.
Featured image: William Creswell, Public domain, via Flickr.
