The 7 Habits of Financial Intelligence: An easy guide with the money mindset you need to achieve your financial freedom by Negredo Alexandre

Author:Negredo, Alexandre
Language: eng
Format: epub, pdf
Publisher: Mentory Academy
Published: 2021-10-24T16:00:00+00:00

The Time Value Of Money

One thing you have to understand is that money now is better than money later—the reason why is because of interest (especially compound interest). You want your money to grow over time rather than never at all.

There will come a time when money later cannot be worth as much as money now. And that can be explained in one word: inflation. As inflation rises, money will face regression in terms of its value.

Again, you need to invest in assets that will provide you with passive income. Open your mind and start making your money work for you instead of working hard for money. The more money works for you, the more your investments can grow. If you do not make your money work for you, you will never be able to stop working because you will always need a working income to pay your bills. Look at the chart below to understand how your money will grow over time if your money works for you.

Figure 1 – Passive income growth over time

Figure 1 represents your Income vs. Time. It means that you should keep your expenses low and constant as you grow your working and passive income. In the beginning, your passive income is low because you don’t have many assets. That is why you need to keep your job in the beginning to provide the working income necessary to pay for your bills and buy your assets. The more assets you get, the more your passive income grows.

Notice in Figure 1 that your passive income growth is not linear. That is the effect of the compound interest, knowledge and experience which makes your money grow more when deployed in a good investment rather than when you keep it under your mattress. In other words, the higher the interest rate you get and your monthly contributions, the faster the growth of your investments.

The goal is to make your money (especially somebody else’s money) work for you to increase your passive income until you never need your working income again. That is why the ‘working income line’ stops at some point. Once you reach this point, it means your passive income is enough to pay for your expenses, and you can finally quit your job, stop receiving that working income that steals your time in life, and you can start enjoying the freedom with your passive income only.

At this point, some of your assets will demand little work sometimes, such as renewing the rent contract for your tenants every year, checking your investment returns once in a while or following up on that business performance that doesn’t require your presence anymore. But that is alright; it will be much more pleasant to do this little work for yourself instead of working for someone else again. This achievement will come with a lot of knowledge of business skills, investments, leverage and compound interest.

You probably will be so good at one of these fields that you are going to keep working on it for fun.

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