What is Financial Freedom?
Financial Freedom can be defined by the radical focus, which is discipline and self control of one’s financial status or the financial status of an entity.
- discipline – action or inaction that is regulated to be in accordance (or to achieve accord) with a particular system of governance. Discipline is commonly applied to regulating human and animal behavior to its society or environment it belongs. In the academic and professional words a discipline is a specific branch of knowledge, learning, or practice. Discipline can be a set of expectations that are required by any governing entity including the self, groups, classes, fields, industries, or societies.
- and self control – an aspect of inhibitory control, is the ability to regulate one’s emotions, thoughts, and behavior in the face of temptations and impulses. As an executive function, it is a cognitive process that is necessary for regulating one’s behavior in order to achieve specific goals. A related concept in psychology is emotional self-regulation. Self-control is thought to be like a muscle. According to studies, self-regulation, whether emotional or behavioral, was proven to be a limited resource which functions like energy. In the short term, overuse of self-control will lead to depletion. However, in the long term, the use of self-control can strengthen and improve over time.
This can be broken down or determined by The responsible handling of:
- Discretionary income
- Net worth
The consumption and saving opportunity gained by an individual or entity within a specified timeframe, which is generally expressed in monetary terms.
Income is difficult to define conceptually and the definition may be different across fields.
For example, a person’s income in an economic sense may be different from their income as defined by law.
For households and individuals in the United States, income is defined by tax law as a sum that includes any wage, salary, profit, interest payment, rent, or other form of earnings received in a calendar year.
Often defined as gross income minus taxes and other deductions (e.g., mandatory pension contributions), and is widely used as a basis to compare the welfare of taxpayers.
In the field of public economics, the concept may comprise the accumulation of both monetary and non-monetary consumption ability, with the former (monetary) being used as a proxy for total income.
For a firm, gross income can be defined as sum of all revenue minus the cost of goods sold. Net income nets out expenses: net income equals revenue minus cost of goods sold, expenses, depreciation, interest, and taxes.
The abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions.
This includes the core meaning as held in the originating Old English word weal, which is from an Indo-European word stem.
The modern concept of wealth is of significance in all areas of economics, and clearly so for growth economics and development economics, yet the meaning of wealth is context-dependent.
An individual possessing a substantial net worth is known as wealthy.
At the most general level, economists may define wealth as “anything of value” that captures both the subjective nature of the idea and the idea that it is not a fixed or static concept.
Various definitions and concepts of wealth have been asserted by various individuals and in different contexts.
Defining wealth can be a normative process with various ethical implications, since often wealth maximization is seen as a goal or is thought to be a normative principle of its own.
A community, region or country that possesses an abundance of such possessions or resources to the benefit of the common good is known as wealthy.
Defined as the current value of one’s assets less liabilities or debt (excluding the principal in trust accounts).
What is Debt?
An action that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase.
The debt may be owed by sovereign state or country, local government, company, or an individual. Commercial debt is generally subject to contractual terms regarding the amount and timing of repayments of principal and interest. Loans, bonds, notes, and mortgages are all types of debt. In financial accounting, debt is a type of financial transaction, as distinct from equity.
A financial transaction is an agreement, or communication, between a buyer and seller to exchange goods, services, or assets for payment.
Items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not transferable.
A good is an “economic good” if it is useful to people but scarce in relation to its demand so that human effort is required to obtain it. In contrast, free goods, such as air, are naturally in abundant supply and need no conscious effort to obtain them. Private goods are things owned by people, such as televisions, living room furniture, wallets, cellular telephones, almost anything owned or used on a daily basis that is not food-related.
A consumer good or “final good” is any item that is ultimately consumed, rather than used in the production of another good. For example, a microwave oven or a bicycle that is sold to a consumer is a final good or consumer good, but the components that are sold to be used in those goods are intermediate goods. For example, textiles or transistors can be used to make some further goods.
Commercial goods are construed as tangible products that are manufactured and then made available for supply to be used in an industry of commerce. Commercial goods could be tractors, commercial vehicles, mobile structures, airplanes, and even roofing materials. Commercial and personal goods as categories are very broad and cover almost everything a person sees from the time they wake up in their home, on their commute to work to their arrival at the workplace.
An “(intangible) act or use for which a consumer, firm, or government is willing to pay.” Examples include work done by barbers, doctors, lawyers, mechanics, banks, insurance companies, and so on. Public services are those that society (nation state, fiscal union or region) as a whole pays for. Using resources, skill, ingenuity, and experience, service providers benefit service consumers. Service is intangible in nature. Services may be defined as acts or performances whereby the service provider provides value to the customer.
In a narrower sense, service refers to quality of customer service: the measured appropriateness of assistance and support provided to a customer. This particular usage occurs frequently in retailing.
Any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can be converted into cash (although cash itself is also considered an asset). The balance sheet of a firm records the monetary value of the assets owned by that firm. It covers money and other valuables belonging to an individual or to a business.
Assets can be grouped into two major classes: tangible assets and intangible assets. Tangible assets contain various subclasses, including current assets and fixed assets. Current assets include cash, inventory, accounts receivable, while fixed assets include land, buildings and equipment. Intangible assets are non-physical resources and rights that have a value to the firm because they give the firm an advantage in the marketplace. Intangible assets include goodwill, copyrights, trademarks, patents, computer programs, and financial assets, including financial investments, bonds, and stocks.
Any transaction involves a change in the status of the finances of two or more businesses or individuals. A financial transaction always involves one or more financial asset, most commonly money or another valuable item such as gold or silver.
There are many types of financial transactions. The most common type, purchases, occur when a good, service, or other commodity is sold to a consumer in exchange for money. Most purchases are made with cash payments, including
- physical currency,
- debit cards,
- or checks.
The other main form of payment is credit, which gives immediate access to funds in exchange for repayment at a later date.
In closing, financial freedom or financial independence is the status of having enough income or wealth sufficient to pay one’s living expenses for the rest of one’s life without having to be employed or dependent on others. Income earned without having to work a job is commonly referred to as passive income.
There are many strategies to achieve financial independence, each with their own benefits and drawbacks. Someone who wishes to achieve financial independence can find it helpful to have a financial plan and budget, so that they have a clear view of their current incomes and expenses, and can identify and choose appropriate strategies to move towards their financial goals. A financial plan addresses every aspect of a person’s finances.
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