We all want to be financially independent, to lounge at home, and still retain the ability to pay bills and meet wants and needs as they come. Financial independence is the state of having enough income to cater to one’s living expenses, without having to work actively for this income. Succinctly put, financial independence is living below your means.
There exist a host of ways to achieve this independence. For one, you could inherit a considerable sum from an aunt you never knew you had, or you could win the Powerball lottery, which is worth over $700 million. With such an amount, one should be set for life.
While it is true that these are possible, they aren’t plausible. The probability that you will win the lottery is 1 in 13.9 million, very unfavorable odds. A more practical and achievable route to financial independence is to make investments.
The term investment can be explained in different contexts, with each explanation yielding varying degrees of divergence. An investment as it relates to financial independence is the application of money to earn money. It is the acquirement of assets with the understanding that it will generate income or appreciate over time. That being said, many investments fit this definition. Examples are stocks, bonds, or real estate, among others.
Like everything in life, investments too are a risk, meaning a chance exists that you may lose money. The level of risk that accompanies an investment determines the potential earnings. Thus a high-risk investment will yield high returns, and a low-risk investment will yield low returns. Low-risk investments include treasury bills and bonds. High-risk investments include Initial Public Offerings (IPOs), Options, and Venture Capital, among others.
Very unlikely will a low-risk investment produce high returns, and more than likely will a high-risk investment produce no returns. This statement does not invalidate the authenticity of a high-risk investment, though, it only indicates what is at stake, high-risk investments have often paid off for those with the stomach for risks.
With technological and global advancements, more investment tools aside the traditional ones are now available. While they do not enjoy the respect and trust of the conventional and well-known investment tools (bonds and stocks, for example), some of these investments are indeed credible and may indeed yield returns. Others are not investments in truth; rather, they are fraudulent schemes dressed up to look like investments. A shared trait of these supposed investments is the promise of high returns on relatively low monies within short periods. Unlike a high-risk investment, where there is a chance, however slim, of returns, these cosmeticized schemes will without fail end in a loss. It becomes the duty of the would-be investor to look before leaping. An excellent way to do this is to check trading platform reviews to find out what experiences other investors have had.
In conclusion, investments are the ladders to reach financial independence. Some ladders are strong, old, and sturdy, with rungs that have been worn smooth by the feet of the many who have climbed before you. Others are new and shiny but still strong. Then there are those that may appear strong, but their insides have been made hollow by termites. It is in your best interest to look, to observe, to check before you climb, lest you fall, never to rise again.