Opinion – Grain in Grain: To achieve financial independence two factors are more important than your income

Through my activity over the last two decades, I have had the opportunity to deal with a few hundred investors. In this research, I found that there are two factors that explain why most people do not achieve their financial independence.

Every week, I participate in meetings with investors and potential clients who seek guidance on their applications. I have been doing this for many years and I can say that I have experience.

Some individuals have a very low income and their income is almost entirely consumed with basic consumption. We live in a country with a large population with low income. Only these can argue that income is the main factor that distances them from financial independence.

But that’s not what I’m talking about in this article. I refer to those who have every possibility of achieving financial independence, but have not done so or are still moving away from this goal because of two factors.

In my interviews I realize that even those who have a high income also say that their income is consumed by the basics. They argue that there is no surplus and whenever they save something, the savings are consumed in an emergency.

For these, it doesn’t matter that their income goes up. They will never be able to save if they don’t change a habit.

What would you say to the CFO of a company who says they can never make a profit and never have money left over no matter how much their revenues go up every year?

The main factor that separates those who achieve independence from those who cannot is knowing how to create a difference between the amount they earn and the amount they spend and having a financial plan.

Dealing with money doesn’t come naturally to most people. Having the discipline to spend less and save more is even worse.

Likewise, going to the gym seems boring to most people. But if you ask those who go often, you will get a different answer. I like to go to the gym. I go every day of the week and some weekends.

Habit makes action pleasurable.

The same goes for the habit of spending less and saving more. Whoever acquires it, continues happy and doing more and more.

But it’s not enough to start saving. You need to have an investment plan.

The big problem for investors who start saving is that, because they don’t have a plan, they don’t know how they should be at any given moment.

In the mathematics of interest on interest, at first, it seems that the portfolio appreciates very little. Thus, most are discouraged and spend all their savings on some personal “reward”.

If you have a plan, you understand where you are on the road to independence. Also, you know that if you keep in the habit of spending less and saving more, you will achieve financial independence.

Therefore, if you want to achieve independence, create a plan that shows what you will have in investments at each moment of your life and seek to increase the difference between what you earn and what you spend.

Michael Viriato is an investment advisor and founding partner of Investor’s House

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