photo from google
Everybody has a goal for financial freedom. And understanding our finances plays a major role to its success. Let me share some helpful ideas:
Basically, there are 2 types of income: Active & Passive. Active income is the income that we generate by giving our services actively. The best example for this is our salary. We give our time and effort to receive the active income. Passive income, on the other hand, is the income that we receive "while we are sleeping". Examples are rental income, royalties income, interest income, etc. Having an active income is just a short term goal, but accumulating passive income generating assets is our long term goal. Our attitude towards this long term goal determines how fast we can be financially free.
In Accounting point of view, we have to accumulate Income-Producing assets and not liabilities. Let me discuss further. We always love to buy things ie gadgets. In buying, we should consider our necessity and its benefits. Should we buy a high-end phone for necessity or just for a status symbol? Buying a car is one example of accumulating a liability. When we buy car, we are buying more expenses also like gas, toll fees, repairs/maintenance, etc. Unless, you buy car to rent it out. Another example from personal experience, I love reading books but quality books are quite expensive. What I did to sustain my hobby is I let friends to rent/borrow it for Php50/week. I am earning at the same time helping them to learn more in life. Cool, isn't it?
So the next time you buy for something, ask yourself - Is it your necessity or just a luxury? Of course, this is not applicable to people who are financially free already. And if you are, you should not be reading this blog of mine, too. ;) Happy planning... :)