Financial Freedom: Thinking Rich

What differentiates the rich from the poor? The answer: financial freedom. Rich people can buy and do whatever they want but most rich people, particularly, successful entrepreneurs and businessmen, don't really spend a lot on things that they don't need. So that begs the question, "Why do we buy things we don't need? Why do we have a tendency to splurge on things that have little value in terms of generating wealth?" Let us try to explore the psychology behind human wants and desires. Then we can understand how that manifests in the way we behave.

Needs vs. Wants

Human beings need a few basic things to live and survive. One cannot live without food, water, shelter, clothing, sleep, and exercise. These things help us in the normal functioning of our bodies. More than these, we also need to develop and foster relationships. Love and acceptance from others fulfill our social needs. Work humanizes us because it gives us the capacity to pursue our desires. The freedom to exercise our individual will makes us feel alive and enables us to reach our full potential.

Wants differ from needs in terms of their function or use in our daily lives. When you take away the things that meet your needs, you wouldn't be able to survive. You may be able to live but only for a certain period. Then your body starts to break down until it completely collapses. Wants or desires go beyond the requirements for one's normal functioning as an individual in society. Perhaps they can only aid in improving one's social status that might change the way other people view them. But this seems fleeting and insubstantial. At the end of the day, our wants do not further our progress toward the attainment of financial freedom. However, they heavily influence the way we manage our money or wealth. So we need to know how to control our desires to buy or do something which may be beyond our financial capacity.

How to Gain Financial Freedom

Obviously, everyone wants to have financial freedom in their lives. We all want to have the capacity to buy or do what we want. But we usually don't have "enough" money to meet our needs. I think that this mindset is a fallacy. It is not that we don't have enough money, it is that our wants may be beyond our current capacity. So somebody who earns $30,000 a year cannot expect to buy a Ferrari without going into crippling debt. But I really want that Ferrari. What should I do? The first thing one needs to do is to shift focus. Instead of being a spender, you must try to be an investor.

Shifting Focus

I am about to graduate college and I don't expect to earn millions right off the bat. But I have certain items on my wish list that I would like to get so I plan to save enough money in order to buy them. However, I feel these things are essentially expenses. When I spend money on them, I wouldn't get my money back, I wouldn't have any return. These things don't contribute to my capacity to earn income or gain wealth. So I'm thinking of putting my first paychecks in the bank or better yet, investing them in financial assets. There are a few places you can put your money and we will explore them later on.

See, financial freedom starts with a change in mindset. When you earn income then immediately spend it, you fall into a cycle. You don't accumulate enough wealth so that you would increase your capacity to earn more. If, instead, you save some money then you would have funds for a rainy day. Furthermore, if you invest the money you earn, then you would open up more opportunities and revenue streams that can augment your current earning capacity.

Spending and Investing Wisely

I think consumerism has taken hold of a lot of people. There is nothing wrong with pampering yourself once in a while as long as you have stored enough money aside to buffer your expenses. In other words, being frugal can help you become financially sustainable and independent. At the same time, of course, you need to keep improving yourself so that you can gain more bases to earn money. Perhaps with the money that you have invested or saved, you can put up a business. Though this does not mean that the business will be successful, that would be an entirely different matter. But It does allow you to have more options to earn money. Thus financial freedom becomes easier to grasp.

A Long Road

I would think that financial freedom takes years to achieve. Even the richest people started out with nothing. It starts with the right attitude, being able to assess when to spend, when to save, and when to invest. I also think one should be an opportunist to become financially independent. I mean, the real value that financial freedom gives to people is options. The ability to choose because you have the capacity to choose differentiates the rich from the poor. You can start from the very bottom but you can work your way up. Hard work coupled with a vision and a sensitivity to the forces at work in markets and society is the recipe for financial freedom.