Let's delve into the realm of financial education, not as a complex academic pursuit, but as a fundamental knowledge that empowers us to manage our money effectively. This knowledge is significant in our society and personal lives, yet it often receives scant attention in the education system, particularly in the former Soviet Union countries. I, for one, studied many different subjects in school, but money was never a topic of discussion. I personally had never had any kind of discussions about finance unless it was in the context of despicable capitalists - the enemies of the Soviet Union and the Soviet people.
For many years, people were raised by the perspective that you work for a predetermined salary set by the government, which assigns a value to your labor; that's what you earn, and you can't influence it in any way. In other words, the government evaluates your work at a certain rate, and that's what you get. Entrepreneurship and commercial endeavors were far from encouraged. The problem with this attitude and how it completely compromises the quality of work and products may be a topic for a separate discussion. All I can say for now is that we are fortunate not to live in a socialist society, but rather in a free world with a free market where prices are predominantly determined by the laws of supply and demand, alongside product quality. This stark contrast between the Soviet Union's economic system and the current free market underscores the need for financial education to adapt to this new reality.
Without adequate financial education in schools, children often learn money management from their parents, inadvertently perpetuating a cycle of financial irresponsibility. The habit of spending beyond one's means becomes ingrained and passed down through generations. Social media exacerbates this by perpetuating images of opulence and luxury, enticing us to desire the latest gadgets and designer goods, even if we can't afford them. Many find themselves in spacious homes filled with unnecessary clutter.
Despite living in a capitalist society, we often adhere to outdated norms of success—working harder to attain material possessions like big houses and luxury cars. This cycle leads us deeper into debt, fueling a relentless pursuit of higher earnings to finance our spending habits. However, what if, instead of aspiring to spend more, we aimed to save and invest more, ultimately achieving financial independence and escaping the cycle of consumerism? Imagine the freedom and peace of mind that comes with not being tied to a paycheck, but instead, having your money work for you.
Don't get me wrong, I won't provide a miraculous recipe for generating passive income while lounging in front of the TV. Achieving financial freedom requires effort and discipline. But it's not an unattainable dream. Paradoxically, working for oneself to attain this freedom is often more challenging than working for an employer, which is why many opt to remain in traditional employment until retirement. However, with the right knowledge and strategies, financial independence is within reach for anyone.
Let's say you are like me and hooked up by the idea of financial independence, quitting a tedious job, and you aspire to be financially independent and break free from the monotony of the nine-to-five grind. First, we must quantify our goal of financial freedom in terms of numbers tailored to individual circumstances such as lifestyle expectations, family size, and geographical location. For instance, let's assume we need 1,000 euros per family member each month, totaling 4000 euros in my specific case. This amounts to 48,000 euros annually.
Let's assume some investment or combination can yield a conservative 5% annual return. Now, let's calculate the required investment we need to make to generate the necessary profit for our family. Divide 48,000 euros by 5 to get 1% of the necessary investment, equivalent to 9,600 euros, which, when multiplied by 100, equals 960,000 euros.
So, this is our target—960,000 euros invested at a 5% annual return to yield 4000 euros per month. However, your goal may differ; suppose you determine that you need 10,000 euros monthly, that is 120,000 annually. In that case, using the same investment model, 120,000 per year, with the same investment at 5%, you will need to use the same equation. 120,000 divided by 5 equals 24,000, and this multiplied by 100 equals 2,400,000 euros. That means you'd need 2,400,000 euros to generate that income.
But imagine if you could secure investments with a 6% or 7% annual return.
Here is an example table with calculations of the required investment depending on the desired amount of monthly profit (blue column) on the annual percentage return (green row):