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When people hear ‘financial independence’, most think about making a lot of money or having a high net worth. However, these two notions aren’t exactly accurate.

For instance, picture an entrepreneur that makes $5 Million a year. Most people will think that that entrepreneur is wealthy. But what if he needs to spend 5 Million-and-one dollars to make that 5 Million? Will you still think he’s wealthy?

The same can be said for a person who owns a multi-million dollar property. Suppose that person is already a retiree and living on a pension. Chances are, most of his pension is going to the insurance and taxes of that mansion of his. If so, how much cash will be left for himself? On paper, that multi-million dollar property owner is ‘wealthy’ even if he is struggling to sustain that property despite not owing anything on it.

Understanding Financial Independence

Creating wealth is more than just the money and the net worth. Real economic wealth is having financial independence – the freedom to do the things you want, when you want.

It is important for you to understand this whenever you chart out your goals and financial plans. Unless your plan will give you more time for yourself and your family, then what’s the point of following that plan?

This is the problem many people face when they buy properties. They don’t have a clear idea on what they want to do with the property. Their focus is too much on just securing it and then hope everything works out from there.

Unfortunately, without a specific plan, properties will most likely take money from you rather than make money for you. Just ask those that have been forced to work extra jobs the more they expanded their property portfolio.

On paper, having two, three and four properties under your name may look impressive. But if you end up working 16 hours a day just to sustain those properties, then it defeats the purpose of why you invested in the first place.

So before entering the property market, it’s important that you sort out how your property will earn you money. If you are having the property rented out, do you know where to find tenants? Do you have any basis of screening to avoid problem tenants (delinquent in paying rent or those who don’t take care of the place)?

Another point to consider is how you will structure your finances. The common practice is negative gearing where the investor chooses to lose money each week to qualify for tax breaks. But are you really willing to lose an average of $50-$100 each week for tax breaks? Or would it be better for you to gear your property positively so that you earn a weekly profit instead?

These are all very important factors to consider if you wish to benefit from your investment. If you are interested in learning about how to achieve financial independence through property investment, register for our ‘Prepare Your Wealthy Future’ seminar at www.pwf.com.au/prepare-your-wealthy-future-seminars.