The underlying assumption in living within your means, saving and investing, growing your means and protecting it is that you have a source of income.

Your source of income

How do you get your source of income? Some of us work for it as salary-man and women. Putting in 40-60 hour workweeks at a desk, in the factory, around your clients’ sites. Waking up, commuting to work. Bus, mrt, walk, car, taxi. Some of us enjoy our work. Some of us tolerate it. Some of us may even thrive on it.

Some of us may be entrepreneurs, businessman or women who put together ideas, capital, labour and land into something value-adding, something more than the sum of parts and you earn your returns from it.

Earned income is the pillar towards financial freedom

No matter what stage towards financial freedom you are, many of us started out with earned income as our primary means of generating savings. These savings are the source of investment funds into passive income assets such as fixed deposits, treasury bills, stocks and shares, investment property, unit trusts/mutual funds, internet businesses or other ventures that earns us passive income.

Your earned income is the foundation upon which you build your financial freedom. When you just start out fresh from the polytechnic, university or ITE, you have book knowledge but untested work experience. Working at a job or career allows you to build up useful skills and more importantly, relevant knowledge that is applicable to helping your organisation or business further its objectives while you are paid a wage for doing so.

My experience has been that my first 10 years of working has been solely focussed on my career in that I didn’t start on my blog monetisation efforts and my investments were mainly limited to fixed deposits and a sprinkling of unit trusts. It took the encounter of seeing colleagues being asked to resign when the company’s profits were declining that made me realise how fickle a strategy that relies only on earned income is and that living within your means could potentially mean the difference between staying afloat during a job crisis or sinking under.

That experience made me cherish my job for the steady income it brings and taught me the real reason why we should save consistently and live within our means.

Use your base to expand into new investment territory

Your job or earned income is the most important means of generating income to take care of you and your family’s needs while allowing you to save to build up your investment assets that generate passive income. It tends to be the place where your initial skills and experience of how the world works comes in.

The path towards financially freedom is to realise that this base is your foundation to expand into building up more sources of passive income. Steadily put aside 10%, 20% or even more for savings and to invest.

Saving 10% and putting it in fixed deposits at 1.2% to 1.8% is better than spending 100% of your income, saving 0% and living from salary to salary each month. Building up your passive income means that you steadily decrease the reliance on your earned income from your job or business, and that gives you more options in life.

Learning about the new territory

Learning something new should excite you! Too often, we sleepwalk through life, going through the motions without having a purpose or a plan. I have a plan towards financial freedom. No-one can guarantee whether I will achieve my plan, I am guaranteed never to be financially free if I do not have a plan and work towards it.

Reading is an important part of learning about the new terrority. Don’t know anything about investments, go read THE RICHEST MAN IN BABYLON or BOGLEHEADS’ GUIDE TO INVESTMENTS. Too lazy to read? No problem, get some audio books of the same titles from the public library! Rip them into your iPod and listen to it in the bus, mrt while you’re driving to/from work.

Hate listening? Talk to someone who is savvy with investments and whom you trust. Unfortunately, personal financial advisors may not always be the best people as they have a vested interest to sell you investment products/services and to earn a commission. Find a neutral party who does not profit from selling you stuff like Lehman Minibonds or DBS High Notes or Pinnacle Notes.

Earning your way towards financial freedom is the realistic way to go for many of us.

How would you like to achieve financial freedom?

Share with Panzer in the comments section.

Be well and prosper.

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