INTERNATIONAL JOURNAL OF POLITICAL EDUCATION BATES

These examples of investment, quite deliberately, use amounts of money that are affordable by most, and if spent on investment, rather than consumption, would probably not be missed.

In terms of investing, time is on your side. Of course, you may not be 21 any more and you may wish to accumulate wealth at a faster rate. This is possible by increasing the amount invested, and the annual rate of return. It is not possible to systematically accumulate significant wealth (millions) without looking at a timeframe of several years (say 5 to 10). If you are trying to make more money in less time, then your objectives may not be realistic. Perhaps a lottery ticket, crossed fingers and large amount of luck could produce your desired result, but don’t hold your breath waiting.

The power of compounding In the above examples there is an additional factor at work. The entire return was reinvested and participated in earning the same rate of return as the original investment. None of the investment return was withdrawn and spent on consumption items.

Financial freedom eludes so many people these days who by all logical conclusions and observations should have obtained it. It’s commonly cited as one of the most important and sought after goals in life and yet is rarely attained. This article does not attempt to give you a magic formula for success but I do share with you the choices that made a difference to me and can, if you choose put you well on the path to freedom.

Consumption

• You can choose to spend some or all of your money on “consumption” items. These include food, entertainment, holidays, housing, motor cars, hobbies, and so on. These are things we need to live on a day-to-day basis. They also consist of items that service the things we want and so improve lifestyle.

• Investment
• You can choose to spend some or all of your money on investment items such as revenue producing real estate, shares, interest bearing deposits, businesses that produce revenue, etc.
• Consumption or investment

Two important factors need to be understood about the simple concepts of consumption and investment.

• The first factor is that spending on “consumption” items results in reducing the total value of your assets (net worth). Spending on investment items aims to increase your net worth. The second factor is that you have choice. You can choose between spending on consumption or investment items.
• Of course, the best spending patterns are those that aim to attain a balance between spending on consumption and investment items.