World Truths


Financial Freedom

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Embrace Financial Freedom, Leave The Rat Race


Financial freedom is a destination within the grasp of all of us. We only have to reach out and embrace it. For this, we first need to understand what financial freedom means and then take the right steps that shall take us there.

Many people worry it will take them quite a while to achieve financial freedom, and whether they will be able to make it. Even as they strive to realize this elusive goal, most folks do not have a clear idea what financial freedom actually means. Just to make their daily grind more bearable, they tell themselves, “Some day I’ll be financially independent”.

Financial Freedom is defined in the following way: “For a person to have his or her regular expenses met for the rest of the life without having to work for a single day”.

To become a financially free person, the annual returns from your invested money need to meet, or exceed, all your annual needs. And, the returns keep increasing over the years to keep pace with inflation and the rising cost of living.

How much money should you invest to achieve this financial freedom?

Actually, there are ways to achieve financial freedom with a small investment if you go in for the right investments and tax-reducing moves.

You first have to determine how much money you need annually to meet your needs or desires. Let us assume this is $100,000 every year. How much money should you invested to get this return?

The sum to be invested depends on three factors. Factor 1 is the average annual return that your investments will generate. Factor 2 is the percentage of taxes that are to be paid on the returns. And, Factor 3 is the cost of living, which varies with the country one lives in.

The higher the returns your investments generate, the lower the amount you need to invest to be financially free (Factor 1). Also, the lower the taxes that need to be paid, the less will be the investment required to achieve financial freedom (Factor 2). And finally, the less your annual income needs in dollar terms, the less the capital investment required (Factor 3). (As we shall see, one way to make use of Factor 2 and Factor 3 is to relocate to a new place where one can have the same lifestyle and comforts for less expenditure and less taxes.)

Here are some formulas you can use to calculate the capital you’d need or the annual income to give you Financial Freedom.

N = annual net income (e.g. 0,000)
C = capital invested (e.g. ,200,000)
R = annual rate of return (e.g. 0.1 for 10%)
T = tax percentage (e.g. 0.15 for 15%)

N = C * r * (1-t)
C = N / (r * (1 – t))

We highly recommend that you take ample time to calculate the exact amount of capital you need to achieve financial freedom.

Factor 1: It is our firm belief that an overall annual return of 12% to 15% can be realistically achieved if your investments are diversified and at least 50% of them are made in opportunities recommended by the club (On the other hand, if an investor makes all investments as per our opportunities, an average return of 20% to 80% per year is not unrealistic.)

Factor 2: The required capital amount can be further lowered by engaging in tax-saving strategies and/or relocating to a country that has no income tax.

Factor 3: By physically moving to a country that has a weak currency and low cost of living, annual expenses can be lowered, which further reduces the amount you need to invest to achieve financial freedom.

To give you an example, if a person living in USA relocates to Brazil, the same lifestyle will cost him half the money. Relocating to South Africa will yield the same lifestyle at 65% expense and to Australia at 72%. A tidy saving of 18% is possible even by relocating to Canada. If relocating to another country is an option you're considering, the Country Factor (cf) is one more variable you can add to the Financial Freedom Formula.

C = N / (r * (1-t)) * cf

For Brazil, the Country Factor (cf) is 0.50 for 50% and for Canada it is 0.82 for 82%. There is a detailed table for more countries given below.

Example 1

Let us look for an annual “Financial Freedom” income of $100,000, an annual return of 20% and the need to pay no taxes at all by obtaining residency in a tax-free country and/or dividing time between several different countries in order to pay taxes in none of them, officially staying as a “tourist”. (On the path to Financial Freedom, it is sensible to accept nothing less than 0% tax). Consider spending six months each year in Brazil and Australia, paying taxes in neither country! The average cf of Brazil and Australia is 61. In this case, here is the amount of capital needed to achieve Financial Freedom:

C = 100,000 / ((0.20) * (1-0.00)) * 0.61 = 305,000

With a capital of just $305,000, the actual annual income would be just $61,000. But the choice of countries would give you the same lifestyle you would get in the US with a $100,000 net income.

Example 2

Let us look at another scenario. What if one is not that luxuriously inclined and would be happy with an annual net income of $36,000? One can choose Argentina (cf = 0.49) and Brazil (cf = 0.50) which are neighbouring countries yielding savings on the bi-annual airfare. The investment required would be:

C = 36,000 / ((0.20) * (1-0.00)) * 0.495 = 89,100

In this case, a capital of $89,100 would yield a tax-free annual income of $17,820, which due to the choice of Argentina and Brazil would give you the same lifestyle as a $36,000 net income in the US.

As you can see, Financial Freedom could be well within your grasp, with a less than $90,000 investment if you make the right choices. It means never having to work for a single day for the rest of your life, and to do what you want to do. Of course, not everyone can relocate. These examples do, however, provide the roadmap to Financial Freedom.

Yes, it is possible to be Financially Free in a reasonable span of time.

Table of Countries











EU (Average)








New Zealand






South Africa






Designing an Investment Plan

Everyone who wishes to have a financially happy future must pursue an investment plan designed to take care of his needs as they arise over the months, years and decades of life, generating returns from the resources at his or her command while minimizing the risks of investment.

Whether one likes doing it or not, one is a player in the financial game being played around us, the ups and downs having a bearing on our personal financial health. The reward of playing the game successfully and to a well-designed plan is a financially happy life.

A good investment plan identifies the needs of the individual over life. How much money does the person need in the next six months, in the next three years, in the next ten years, over the next twenty years, and so on. This sets the targets for the investment plan to achieve as also indicates the financial resources left at various points of time for investment.

The second step for devising an investment plan is to take stock of all one’s financial assets. Where is all the money lying? Is it languishing or earning a decent return? Is more money lying in cash, or in liquid form, than you would require over the next 36 months? Have you put in a disproportionate amount of money in one particular asset? Or, is the bulk of your money lying in one particular type of asset? Is your investment so absolutely risk-free as to earn a very low rate of return, or is it so risky as to be in danger of the principal being under threat? What is the total amount of financial resources at your command?

Having gone through all your papers and listed the present state of all your financial assets, the next step is to go in for corrective action. If too much is in cash or in liquid form earning no or very little return immediate action is required to make this part of your portfolio more productive.

Keep the amount that you would require over the next 36 months (over and above the income that you would receive) in cash or in liquid form. The amount in excess of this requirement should be invested in bonds, stocks, real estate etc. supplementing the sector that is less represented in your portfolio. It has been found that investing in the house that you live in is a very good investment that can be repeated again and again.

If, however the funds that you would need over the next 36 months from your investments are not in liquid or in cash, sell your investments in the sector where you have disproportionately high proportion of your portfolio locked up. You thus supplement your cash/liquidity to meet the 36 months-need level
. This move makes you financially safe over a three-year period and you no longer run the risk of having to sell your assets at low prices in case you suddenly need liquidity.

Another plus point with having this much money in liquidity is that it gives you the flexibility to swoop down and cash in on a target of opportunity. If you have the liquidity, you can pick up shares, or bonds or real estate when prices fall and thus strengthen your portfolio.

Spreading your investments over various sectors and companies, as also types of investments covers your risks. Someone who invested to much of his portfolio in a blue-chip like Enron, or someone who put in the bulk of his portfolio in tech-stocks or funds would be quite poorer today and would take quite some time to recover. So, not more than five percent of your investment should be in one company, and your investment should be spread over sectors.

Investment should be spread over low-risk and high-risk opportunities. If you have put money in high-risk areas that can yield good returns, it must be balanced with absolutely safe investments that protect your portfolio
. Do not fill your portfolio with junk.

The money that you require over the next five years should be in low risk investments, so that your investment plan will not be hit by a downswing in your risky investments
. You would have sufficient time for an upswing by the time the returns are needed from your risky investments.

Periodic, say quarterly, review of the current status of your portfolio is essential to take corrective action. If the appreciation or fall in prices has led to one sector being over or under represented in your portfolio, sell and buy to restore balance. You have to keep cashing in on opportunities of selling when prices are high and buying when prices dip, not only to milk the targeted returns from your portfolio, but also to continue to have the spread of investment and to balance between risky and safe investments.

It is wise not to have too many items of investments in your portfolio, as that would make the job cumbersome and taxing. A reasonable spread can be achieved for an average-sized portfolio with a dozen items of investment, suitably balanced.

Stocks do outperform other assets over the long term. But, the worst thing is to get caught in the downswing in stocks without having the staying power. The older you are, the less proportion of your investments you should have in high-risk areas. Stocks do give you higher returns, but you should have the protection of having five years of needs tied up in cash/liquidity and bonds, or other safe investments. Only that money which is not needed in the next five years should be in stocks, and that too spread over companies and sectors.

Spreading some of the investment over bonds and stocks is recommended since very often bonds rise when stocks fall and vice-versa, providing an opportunity to profit from.

Similarly international stocks, of Asian and Latin American and other emerging markets, have risen when markets in the US have fallen. So, a portion of a large portfolio may be invested in international stock by way of hedging the risk.

Any investment plan needs constant monitoring for strengthening it, risk reduction and for cashing in on opportunities to achieve the targets of the investment plan. A good investment plan is always a long-term plan that does not take unnecessary risk. Keep reducing risk as your plan achieves its targets.

The sooner that one designs and implements one’s own investment plan, the less would be the risks involved in achieving the targets.


Patience Pays - The Power of Compound Interest

Tiffany, Economy and Patience were three good friends. They shared the dream of having a great lifestyle, holidaying in Europe, buying their own house – all the perks that go with financial freedom.

Every week they would regularly buy a lottery ticket in the hope of winning some money. One day they got lucky. They won $36,000. The three were thrilled. They split the money three ways – each of them got $12,000.

Although Tiffany, Economy, and Patience had been close friends for years and had done everything together, when it came to spending the money, they trod three very different paths.

Tiffany treated herself and took her fiancée to a fancy restaurant for dinner. She then went shopping too. Thrilled with her good fortune, Tiffany went through all the money that she won and charged a couple of things to her charge card also. Thus she blew her good fortune in a matter of hours and put herself in debt as well.

Economy was conservative with her money. She invested her money with an international finance company at the monthly rate of 1.75%. Within a month, she had added $210 to her original investment. She withdrew her interest and bought herself nice dresses. She did this every month, thinking happily that she was going to enjoy the fruits of her good fortune over and over again.

Patience, on the other hand, followed a very different path. She also invested her money in an international finance company at the monthly rate of 1.75%. However, unlike Economy, she did not withdraw the interest - but reinvested in! In the first month, she earned $210... and in the second month, $213.68.

As the months flew by, Patience’s capital continued to grow, while Economy’s capital remained stuck at one place. All she had to show for her investment was a closet full of dresses. She seriously began to question her financial acumen.

At the end of the first year, Patience’s capital stood at $14,777.27 and at the end of five years, it had grown to $33,981.80. Patience had managed to more than double her money, with no effort at all. Her capital rose to $96,230.20 after 10 years and to $2,185,277.61 after 25 years.

Eventually, Patience became a millionaire. She travelled widely and set up her own fashion business. She even figured in Time as one of the youngest successful millionaires.

What about Tiffany? She had fallen so far behind on her credit card payments that she was paying interest on interest and could only scrape together the minimum each month. The interest on her debt was compounding, so she had to pay interest on the interest. And interest on the interest's interest. And so on.

Every month, as Patience got wealthier, Tiffany got poorer. She was eventually forced to take on a new loan to pay off her existing loan.

She finally realized that she was caught in a vicious circle of debt from which there was no way out. The financial "hangover" that started on her 18th birthday harangued her for the rest of her life! She lived her life from one loan to the other and eventually had to work two jobs and still was unable to meet both ends.

Economy was stuck in the rat race and couldn't find a way to get out. She kept spending the interest she received on her investments, yet she was never able to pay the interest on her debts on time! As a result, she never really was able to enjoy her money.

With the constant tension of the Damocles sword of debt over her head, she developed severe asthma and spent more than half of her life in a sanatorium, where she eventually died in debt and loneliness.

Three friends. Three kinds of investment. Three kinds of returns. But here's the catch: Patience’s success was powered by exactly the same force that sent Economy into death and Tiffany into life-long poverty!

What is this force? It's compound interest, and you can harness it to your advantage or ignore it at your peril. It can be your best friend or your worst enemy.

Would you like to be like Patience living life in style – or would you rather wallow in drudgery like Economy and Tiffany? The choice is entirely yours. It all starts with a decision-- a decision you can make immediately.

If you decide wisely you will be able to give yourself the financial freedom that you have always dreamt of but never really had any hopes of achieving. Your money will come back to you many times over, again and again.