How to achieve financial freedom with gold?
Every one of us would indeed want to be retired (in the future) in a condition where we no longer need to work, but at the same time, we have a monthly income that covers our expenses. The income can be derived from pension funds (for public sector officers) or via our assets. Wouldn’t that be nice?
This situation is also termed popularly as ‘financial freedom’, from a financial perspective.
We have to own assets that can generate annual or monthly income to achieve this. Unfortunately, gold does not fall into this category. Gold is an asset that does not generate revenue.
Nevertheless, this does not mean that gold is useless. In this case, gold works by strengthening our existing wealth while in our journey to financial freedom.
Five financial checkpoints
There are four stages that we need to cross to reach the end game (financial freedom), which are as follow:
- Positive cashflow
- Sufficient emergency fund
- Free from negative debt
- Financial security
- Financial freedom
Before diving into the checkpoints, let us briefly discuss what it means to be financially free. This state is achieved basically when we have sufficient income to cover our living costs even if we are not working for a salary.
For example, if we own ten properties that we rent out with a net income of RM500 each house, our total net income is RM 5,000 per month.
Passive income vs living cost
Following this, if our living cost is about RM 4,500 per month, we are technically financially free. Even without working, we could continue our life as usual because the income is generated by our assets, not through working elsewhere.
Such income is known as passive income.
Passive income is generated in various ways, not just from the property. This includes dividends from bank savings or stocks we own, royalties from book publishing or intellectual proprietaries, government pension funds, systemized business (referring to businesses that can run without the need of its owner) and many more. But the usual ones we see among us are the passive income from property rentals or dividends from savings (such as unit trusts/mutual funds).
The amount of wealth we need to own
Based on a simple calculation, to generate a passive income of RM 5,000 per month from the investment portfolio, we ought to own a net asset worth RM 1,200,000 with the assumption that the investment portfolio can yield a five per cent return per year. This yield is the average return after considering the investment costs (including tithe contribution).
RM 1,200,000 x 5% = RM 60,000 per year
RM 60,000 / 12 = RM 5,000 per month
The assets can be properties, unit trusts or even mutual funds. Nevertheless, properties are preferred over bank savings/unit trusts because properties are physical assets. Such assets appreciate over time compared to paper assets, even during economic uncertainties. And, of course, such assets/investments are free from financial ‘leakage’.
Set your financial target
Based on the calculation mentioned above, if we were to generate a passive income of RM 10,000 per month, we ought to own assets worth RM 2,400,000. It may seem challenging to achieve at first but with laser-focused attention to build our wealth; this is indeed possible. Set the target first and slowly learn how to achieve it.
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Your Gold Buddy,
Naresh G