What are the Keys to Financial Success?

As you probably already know, money alone does not buy happiness. There are plenty of very rich people who despite having a lot of money are quite miserable. Nonetheless, money can certainly help you live your life more comfortably and allow you access to more opportunities and experiences. For sure, you would likely be happier if you had enough money to not have to be worried about being one paycheck away from homelessness. So, what are the keys to financial success? I would argue that the keys to financial success are to realize the value of money, to manage money responsibly, and keep money in perspective.

That sounds too simple, you might say. However, most things in life truly are that simple. We humans seem to have a habit of making simple things complicated. However, we could accomplish many things if we stick to the basics.

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Manage Money Responsibly – Realize the Value of Money

We learn the power of money from a very young age. At the same time, we might subconsciously learn to associate money with negative things. Oftentimes, this association might come from the various stories we consumed during our childhood.

For example, we might have learned to associate the mean-spirited nature of the very rich Ebenezer Scrooge from The Christmas Carol with wealthy individuals. Or we might have interpreted from religious parables that it is more “virtuous” to be poor than to be rich.  

However, the act of having money alone is not at all a bad thing. It is not. It is what you do with your money that can give you more opportunities to do good.

With money, you can afford more time to invest in your own health. You can invest in more nutritious food, in exercise equipment, in investing in your education. By doing this you will increase your ability to be of service to society.

After your own basic needs have been met, you can further use money to affect positive change in the world. Perhaps you can use it to donate to specific causes. Alternately, you can use it to implement projects that you believe will have a positive impact on society. For example, simply staring a website sharing your knowledge on a specific subject might a positive way to impact society.

It is important to realize that money can open up opportunities.  Thus, money is not something that should be wasted thoughtlessly. Instead, you should use it in a manner that will make a lasting positive impact.

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Be Self Reliant – Be Financially Independent

One of the best things about having money is that once you accumulate a certain amount of money, you can stop relying on employment as a means to survival. This means you no longer have to work in order to pay your bills. However, this is true only if you have your money invested in a manner that it compounds regularly. Investing money in this way allows you to earn money just because you have money. You sort of create a basic income for yourself just by having your money work for you rather than you having to work for it.

The point at which your expenses are fully covered by the money your money earns is called as financial independence. The wonderful thing is that this point is more within reach than you may think. A rule of thumb is that you are financially independent when you have twenty-five times your annual expenses.

The more frugally you live, the more quickly you will be able to obtain financial independence. Thus, if you can survive on $15,000 a year, you can achieve financial independence with just $375,000 invested. This is certainly a big sum of money. However, it is a lot more attainable than the millions that a lot of people think are required to achieve financial independence.

The Virtue of Being Frugal

In a sense, then, the lessons the parables of our youth taught us had some truth to them. That it, you can say that is “virtuous” to live as though you are poor. However, the reason it is “virtuous” is not because you lack money. Instead, it is “virtuous” because you intentionally chose to be wasteful. Indeed, consumerism is not healthy at all for the planet and even your own health. Learning to consume just enough food and products as necessary can be a great achievement.

Furthermore, financial independence is important because at that point you are free of limitations that typical employment demands. No longer will you need to put up with a boss with whose values you clash with, for example. Instead, you now have the option of quitting your job if you need to and dedicate your time and efforts solely to things that align with your personal goals and values.

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Earn More Income – Save More Money

You can certainly live comfortably on a frugal budget. So long as you have your basic needs are met on a regular basis, you may very well be as happy as the richest person in the world. However, there is only so much you can lower your expenses.

If you start depriving yourself of necessities, it will not be good for your health in the long run. After all, you want to make you are living in a safe, clean, and comfortable environment and that you are eating nutritious food. These are all necessary in order to live a healthy and fulfilling life.

That is why how quickly you reach financial independence is also dependent on how much income you make. The greater the gap between how much you make and what your expenses are, the more you can save. Therefore, you can attain financial independence the more you increase your earnings and decrease your spending. It is sometimes more convenient to increase your earning than trying to cut expenses further.

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Study Your Situation – What Works for Others Might Not Work for You

It is easy to compare our situation with that of others and be swayed to think that how they did things will work for you. For example, there are many people who swear that real estate is the number one way to reach financial independence. However, while real estate can potentially bring a lot of financial success, it also has a lot of risks.

Perhaps you are not willing or note able to take on that amount of risk. Or perhaps you are not able to invest the time commitment required for that type of investment. Therefore, taking the plunge into real estate investing might not be the best choice for you personally.

Also, you might also be tempted to invest all of your saving in retirement to maximize tax deferral accounts, as some people urge. However, if you do this, it will be more difficult to access your funds before retirement. You would also have to pay a penalty for accessing the money early and be limited by the investment options of your employer.

Even though for some people it might make sense to tie up all their savings in a retirement account, it might not personally be the best option for you. You might prefer to have the freedom to have access to your money at all times. In that case, a taxable brokerage account might be the best option for you.

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Keep Money in Perspective: Enjoy the Journey

Finally, financial success involves adopting a positive outlook and flexible way of being. It might be tempting to do everything you can to reach financial independence in the earliest amount of time a possible. However, this might lead to burn out or to the taking on of risk that might set you back rather than putting you on a stronger foundation.

It might also be that you do everything right and still not be able be able to reach the financial goals that you initially set out to achieve. This might be because the markets undergo long periods of economic decline that were not expected. Or perhaps you are unable to work for an extended period of time and need to draw from your savings. Regardless of what happens, you will probably be better off having been mindful of your money throughout the years than if you had not.

Given the fact that burnout and hard times are inevitable, the best plans are long term plans that are sustainable over the long run and account for unexpected events. It is also important to remain grateful and flexible at all times. After all, a positive and flexible mindset will help give you the stamina and motivation to weather the storms of life.

Fortunately, knowing your financial number will give you something to strive for. It makes the process more achievable, even if things don’t work out exactly as planned. Just keep in mind not to get overly obsessed with your future plans as prevent you from enjoying the journey, which is equally if not more important than reaching a financial number.

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There are a lot of people who get a lot of money mismanage it. They use it in ways that don’t truly improve the quality of their lives. And sometimes they end up losing of their money.

Unless money is valued and managed properly, even large sums of it will eventually run out. Furthermore, if you don’t keep a healthy perspective on what truly mattes in life, you will not be successful whether or not you have money. Thus, in my opinion, the keys to financial success are to realize the value of money, to manage money wisely, and learn how to keep the important things in life in perspective.

Valuing money means using money in a thoughtful and non-wasteful to make a positive impact on your life and perhaps the lives of others. Managing money wisely entails preserving, growing, and using it ways that help you be self-reliant and empowers you better pursue your goals and values. Finally, keeping money in perspective means avoiding becoming a slave to money by not letting it define you. By accomplishing these things, you can consider yourself financially successful because you have a healthy, sustainable relationship to money.