The elements of The Financial Fence® - Part 3

In the last two days we have covered the first two elements of The Financial Fence® which were the financial posts and the top rail of the fence called the consumption rail. Today we're going to cover the bottom rail which for many people is the key to finding there way to financial freedom. It is called the ACCUMULATION rail. The reason why this rail is so important is that to be financially free you need to be in a position where money is working for you rather than you working for money. This is achieved by accumulating the right sort of capital. This is capital which can produce income. Basically there are two types of capital that we can accumulate in our lives. Personal Capital which some people call lifestyle capital. This generally produces more expenses for people. Then there is Investment Capital which generally produces income for people. So on the bottom rail of The Financial Fence® we start with any net income left over from the consumption rail ad deduct from that the cost of any capital that has been accumulated for the period. Think about it for a minute. Could the amount you have left over each week or month add up to buying a property for cash? Likely not and therefore to accumulate capital more quickly you can utilise the leverage capacity of debt. This is why at the end of the accumulation rail we add the activity up and this will show the increase or decrease in a person's debt. Remember, if you do not accumulate Investment Capital, you will never be able to produce investment income. If you don't produce investment income you will need to continue to sell your time for money to produce personal income. While you may require the use of debt to accumulate more investment capital, provided it is giving you a better rate of return than the cost of the debt, you will in time be working toward your financial freedom. Getting a bigger propoertion of your income as investment income rather than personal income is another measure of how far you are along the journey.

http://www.financialperception.com