Opinion – From Grain to Grain: On the journey to your financial independence, do not overlook the importance of this factor

In the journey to financial independence, investors usually give greater importance to three factors: the starting point, the objective and the return on investments. I have addressed these factors in previous articles. However, there are two other extremely relevant elements that are usually overlooked. Today I address one of these two elements.

For those of you reading this column for the first time, I would like to point out that today’s article is part of a series of articles on the journey to achieving financial independence. At the end of this text, I include links to the other articles in the series. With this disclaimer, let’s get back to today’s subject.

To explain the relevance of this element to the journey to financial independence, I will use an analogy.

Imagine that your financial independence is equivalent to a dense and mature forest.

To reach a dense and mature forest, you can start with a small grove or a cleared area. This means that you can start your journey to financial independence with some accumulated resources or start from scratch.

Many focus only on increasing the return on assets. With this search, they end up falling into traps or false promises.

Imagine that the rate of return on the assets in your investment portfolio is equivalent to the speed of the trees you plan to plant in your field.

If you have a small grove or just plant a seed, although the speed at which these trees grow is important for them to reach maturity faster, that alone will not be enough.

For your forest to reach the desired density, as important as the speed of tree growth is the number of seeds you sow.

Likewise, in order for your financial independence to be achieved more quickly, as important as the rate of return on the assets you invest is your ability to make new contributions.

Contributions are a fundamental piece for you to reach your goal sooner or more conservatively.

The greater your savings effort, the more you can be conservative in applications to reach your goal.

The reduction of their capacity for periodic savings results in a longer period to reach their financial independence or in a greater need for exposure to risk as a way to obtain a greater return on the investment portfolio.

In a future article, I will address the relationship between these three elements: saving capacity, time to reach financial independence and necessary return on assets.

At this moment, I imagine that you are thinking: “Saying that you should save is easy. The difficult thing is to do it.”

No doubt.

So, the big question that arises is how to increase your savings capacity?

There are some efforts that can be put into practice so that you can gradually increase your investment capacity. I will comment on these practices in the next article.

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

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Book: The Journey to Financial Independence

summary

Introduction
Understand how you will achieve your financial independence
Living on an income is the last step on the journey to financial independence
These are the biggest questions about the journey to independence

Chapter 1 Construction of the plan
The first step in building the blueprint for financial independence
How to define the rate of return in your plan for independence?
Find out what assets you need to achieve your financial independence
On your journey to independence, don’t overlook the importance of this factor.