Learn how to achieve financial freedom

SOME PEOPLE achieve financial independence before they retire, but it’s not too late for older adults to become financially independent in retirement.

At a recent forum, “Investing for Today and the Future,” local business owners realized that time is of the essence in growing their businesses, and compound interest is time-sensitive. In the same way that earnings from financial investments such as stocks, bonds, and certificates of deposit are reinvested and capitalized, the earnings from their businesses were reinvested through the acquisition of equipment, human resources, and other assets.

The most important ingredient in growing money to create financial freedom and wealth is compound interest, something I have mentioned several times in my articles and will continue to do. Today’s article focuses on the role of compound interest in achieving financial freedom and features a story of a self-made millionaire.

Many businesses have started from small, humble beginnings, and owners who wisely invest their business profits have achieved significant financial milestones and created prosperity for their families.

It is important to emphasize that financial freedom can be achieved by investing small amounts over a long period of time. Time rewards those who are patient and willing to invest in assets that will grow exponentially through compound interest.

What is financial freedom?

It’s having enough money to comfortably pursue your dreams. Financial freedom means having complete control over your finances and decisions. Your savings and investments can adequately cover your expenses, and you don’t have to worry about expenses. It’s about having your money work for you, not you working for your money. However, financial freedom means different things to different people. For some people, financial freedom means being debt-free, while for others, it means being able to go on vacation whenever they want. Regardless of what financial freedom means to you, we can all plan for financial freedom.

I recently read an interesting article about self-made British millionaire Nathan Thorne, CEO of Handy Flowers (a leading UK online retailer). He said that patience was a valuable lesson he learned from his gardening business. He opined that “business and finances need seeds to grow over time.” The best way to invest is to start early and save and invest consistently. When Thorne started his business, he saved regularly and his main goal was to invest for the long term. I have always advocated that successful investors should have a long-term mindset. He invested 10-20 percent of any income from his business into a diversified, low-cost index fund. Thorne allowed his investment to compound. All of his capital gains were reinvested and over time his investments grew exponentially. Thorne said that from the beginning of his career he knew that “time is the most valuable asset when it comes to compound interest.” Just putting a small amount of your paycheck aside each month in a managed stock and bond fund or an equity fund for the long term can yield huge returns through the magic of compound interest. As motivational speaker Les Brown says, “There is no secret to success. There is a system for success.”

Thorne successfully automated his savings and investments. According to him, having an automated system removed the temptation to spend money and allowed him to build wealth over time. Automating his investments ensured that every dollar he earned was reinvested.

Thorne invested the extra profits from his business in tax-advantaged investment accounts. These accounts were tax-free or tax-deferred savings plans. Thorne thus achieved tremendous tax-advantaged growth, as well as compound growth from his investments over the long term. His investments provided another stream of wealth creation and acted as a buffer or cushion during periods of downtime for his gardening business.

In Jamaica, having a retirement plan is a sure-fire way to invest your money tax-free and tax-deferred. It is an opportunity for all employees and employers to save and earn tax-free returns. Contributions are invested tax-free and continue to compound and grow in retirement funds. There are additional savings for contributors who use the payroll deduction method of payment. Because contributions are tax-deductible, the amount of income subject to tax is reduced. Unfortunately, the majority of Jamaica’s workforce does not contribute to a retirement fund.

Income streams are essential to financial freedom. Another tip for financial freedom is to eliminate or reduce debt. Discipline is required for financial freedom. Track your expenses and avoid discretionary spending whenever possible. Continue to invest in income-producing assets. Build an emergency fund. This will go a long way in reducing stress and providing peace of mind in the event of unexpected financial events.

Compound interest is the catalyst that creates financial freedom. As Nathan Thorne said, “Reinvestment is the fertilizer that makes compound interest grow in full.”

Grace G McLean is a financial adviser and pension specialist at BPM Financial Limited. Contact her at gmclean@bpmfinancial or visit her website: www.bpmfinancial.com. She is also the podcaster for Living Above Self. Email her at livingaboveself@
gmail.com