12-15-2023. From an only financial point of view, wealth might be defined as financial freedom which confers the liberty to choose how to allocate one’s time and resources, according to one’s personal values, and not from necessity. The path to this liberty is formed by many years of living in a way that builds that wealth.  That is to say, time spent building assets.  This is logical because wealth cannot be built by prioritizing expenses which result in transient pleasures (for example, expensive restaurant meals). Rather, wealth is built by accumulating assets which produce income greater than the value invested, that is, they have a good return on investment.

But there is a further underlying truth of a fundamental nature.   Your personal values and habits determine whether you live as an investor, or as a consumer, with the corresponding habits and rewards.  Do you expect to spend on things which are satisfying but have minimal future value (return on investment)? Or do you conserve your financial resources, directing them in a focused manner towards projects which will give a good return on investment? If you are accustomed to living as a consumer, you will find it difficult to engage in successfully investing activity on specific isolated occasions.  

Becoming someone who saves money to fund your investments, be they business, real estate or common stocks, requires a rearrangement of your spending priorities, from consumption to investment.  And this changes your life in many ways, affecting your use of spare moments, choice of reading material, what you eat, choice of car, friends you choose, leisure time, clothes, etc. 

Therefore, the path of learning to invest so as to gain financial freedom, is very much the path of Personal Growth, the path of investment in yourself.  The hard thing about personal growth, is that it requires change. And the prospect of change brings fear, in that it implies abandoning the familiar emotional landscape.

I feel that this is at the root of the difficulty that Robert Kiyosaki describes in his seminal book “Rich Dad Poor Dad”. This book was probably the very first I read, in my personal transformation from consumer to investor. I believe in 2001. It sparked a life changing transformation over a number of years.

Kiyosaki initially paints a picture of the conventional Rat Race.  According to conventions of socioeconomic status, a successful person lands a “good job” providing significant earned income. They spend this earned income to fund a desirable lifestyle, financing it with debt via  in mortgages, credit cards.  Frequently, both spouses in a marriage work. As careers prosper and incomes rise, so do taxes. Moreover, The couple must spend to enjoy themselves, on vacation, luxuries, the fruits which allow them to feel justified in spending their hours in labor.  When children arrive, the dream house must be purchased. Home equity loans are obtained, meant to reduce high interest debt, which nevertheless seems to reproduce itself.  As the children begin their education in the best school available, the spending increases dramatically.  The conventionally successful citizens pursue the elusive goals of the ideal socioeconomically advantaged individuals.  However, they never attain true financial freedom because of the poor margin of their income, primarily from labor earnings, over their expenses. They never built income earning assets. From a business point of view, the function of their Rat Race lifestyle run is to provide revenue for interest earning financial institutions which are financing their lifestyle. 

In the Rat Race, all forces militate against the growth of assets, wealth and the attendant liberty.  The alternative to the Rat Race, is to grow assets. The income these produce, with much less of your time commitment, will give you the liberty to choose how to spend your time, studying or working on something you value.  You thus gain control over your life.

Anyone can achieve the prosperity conferred by owndership of assets, if they acquire financial education. That is, the understanding of assets and liabilities. 

But what prevents individuals from embarking on their own personal growth of financial education?  Emotions that are not fully recognized, such as fear and greed.  Out of Fear it is that  you take the suitable job which promises a solid pension, and not because you have a love and talent to fulfil your greatest potential as a bureaucrat.  Out of fear you spend to impress your spouse or friends, or buy that house, which really means, acquiring the mortgage which ties you to that job, and address.

The path to personal growth might go something like this.  First, recognize the emotion. Then, realize you do not need to act on it. Third, while you contemplate that emotion, see if you can understand what is actually, and with some reason, causing it.  For example, fear of not having enough money in your old age. Fourth, think about a way that meets that reasonable need, more effectively.  Regarding financial education, that would be, identifying an investment you could make that will provide a better return on investment.  And this final step, is a long and fascinating adventure of education that will entail multiple episodes of uncertainty, but if you have the courage to continue the quest, will also entail times of euphoric discovery, followed by incredulity that few others have discovered these paths to wealth.

Truly, the personal growth of financial education is open to anyone. To begin, you need openness to the possibility of growth, and courage to leave your familiar fears.  And both of those cost no money.