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					Financial Freedom


Aaron A. Franklin

   Mrs. Turner

    ENG 10

  18 APR 2006
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       In America people are spending money they do not have, applying for more credit, and

going into debt with no outlook for the future. Khan reports that the average household credit

card debt is upwards at around eight thousand dollars. (1) She also states that for every dollar an

American makes, one dollar and twenty-two cents is spent. (1) Debt is increasing in America

causing most people to become slave to bills and stress. Escaping the confining debt problem,

Americans must strive for financial freedom. Financial freedom begins with a strong base which

is accomplished by clearing credit expenses, living at or below means, creating an emergency

fund, and making smart investments.

       Before entering into financial freedom and saving money for the future, credit cards must

be cleared. “Paying off debt is a form of saving” (Quinn 180). The difference of interest

collected from savings accounts, compared to the interest payments of the average credit card, is

at least a ten percent difference. (Khan 1) Someone having ten thousand dollars in their savings

account and ten thousand dollars on their credit card is actually losing around one thousand

dollars annually. In the same scenario, he or she would not be losing money, but gaining it if the

ten thousand dollars in savings was used to pay off the credit card bill.

       Credit is not the enemy or the fighting force against financial freedom; in fact, having it

can be very useful. Having good credit allows people to buy houses, cars, and other necessities

in life. Most people cannot buy a car or house with cash, so many receive a loan. Paying off a

loan in a consistent, timely manner frees up finances and builds good credit; which is hard to

achieve, but easy to lose (Pond 150-151).

       Maintaining good credit, using it wisely, and eventually clearing it can be achieved by

budgeting. Budgeting involves critical analysis of outgoing expenses compared to incoming

expenses; also known as “net worth” (Pond 156). Keeping a positive net worth each month, by
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living within means, is the key to budgeting. The best way to budget money is to create a

spending plan; which guides personal spending in needed areas while squelching spending in

other areas (Quinn 160-63). Quinn insists that if a spending plan is successfully planned, “it will

always work” (160).

        A successful spending plan, according to Quinn, is organized by keeping track of every

dollar that is spent throughout one month (163). As soon as the initial spending plan is laid out,

one must analyze each area the money is being spent and rearrange spending to savings,

investments, and necessity verses entertainment, wants, and splurges (Quinn163-65). This

analysis of personal spending operates as the base in achieving financial freedom by making the

most out of personal income.

        With a good foundation in place, one can create a new area in spending; the emergency

fund. This fund is used only for emergencies or unexpected expenses. There are many kinds of

emergency funds, which one can create, also known as short-term investments; including a

savings account, an alternate checking account, certificates of deposit, a money market fund,

treasury bills, and municipal notes (Pond 27-31). Positive interest can be made by each one of

these accounts with little or no risk involved. Investing in such accounts will make money work

for you, instead of against you like credit cards do.

        The following briefly explains how each of these short-term investments, listed above,


        A savings account usually has a lower interest rate than the others, but the benefit of a

savings account is it being insured by the FDIC up to $100,000 (Pond 31). There are some

savings and checking accounts that will give a higher interest rate by requiring a minimum

balance at all times (Pond 31).
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       A money market fund works like a savings account. This is one kind of savings account

that has limitations on it. Usually the investor must keep a minimum balance of five hundred

dollars and can only make six transactions a month (Quinn 187). The benefit of having this type

of account is the interest rate is much higher than a regular savings account.

       When investing in a CD (certificate of deposit), the investor is free to invest a minimum

of five hundred dollars, for as little as three months, at a fairly low interest rate (Pond 29). The

more money invested, at a longer amount of time, results in a higher interest rate (Quinn 191).

Money that is invested in a CD is similar to a savings account, in which the money can be

insured up to $100,000 and is done through federal institutions (Pond 29).

       A treasury bill is regulated by the Federal Reserve (Pond 30). The investor is allowing

the government to borrow money until the set time, set by the investor, expires (Quinn191-92).

In comparison, the investor is like a credit card company and the government is the user of the

credit card. When money is invested in a T-bill it is sold for a discount price and once it

matures, in as little as twelve months, the investor receives more money than he or she put into it

because of the interest earned (Pond 30). There is no risk involved in this type of investment

(Pond 30).

       A municipal note is tax-exempt with high interest rates (Pond 31). They work about the

same as a T-bill and the maturity ranges from one month, to a year (Pond 31).

       The previous investments are good short-term investments, but there are other types of

investments for long-term. These investments work for an investor’s future; usually for

retirement. Compared to short-term investments, long-term investments have a higher risk.

Although they have a higher risk of losing money, they carry with them greater benefits if they

are invested in wisely. Savings bonds, mutual funds, stocks, and retirement funds can all be
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beneficial long-term investments. All long-term investments offer a “buying into” attitude for

investing. The investor buys into a company, organization, institution, or the government

directly in hopes that the money invested is used wisely and is cashed later with a great return.

This is why it is high risk; if the institution invested in fails to make money, then so does the


       Savings bonds have been seen as the most secure, low-risk, long-term investments. They

are similar to the T-bill and the CD but constructed in the long-term instead of the short-term.

An investor can buy up to fifteen thousand dollars a year in bonds, or as low as fifty dollars a

year. The time each bond takes to mature differs but is usually around eighteen years (Quinn

195-96). When a bond matures, it doubles; so if someone invests fifty dollars, in eighteen years

it will be one-hundred dollars. This figure seems minimal, but if one invests ten-thousand

dollars and has twenty-thousand dollars in eighteen years then the benefit is much greater. The

money invested in bonds are tax exempt until cashed, but a way of getting around that is to use

the money to pay for tuition for college (Quinn 195). Quinn insists the savings bond is best used

to save money and spend the earned money on a higher education for one’s self (195).

       Investing in stock can be very beneficial with extensive research, smart buying and

selling of stocks, and a little luck. Stocks give the investor full control over his or her money.

When one buys into stock, he or she is actually buying a small portion of that business. The

basic strategy in making money is to buy stock when it is low and sell it when it is high (Pond

37-46). If someone bought a stock for ten dollars and the next week it is worth twelve dollars

then he or she just made two dollars, each stock, in one week by playing the market. Stocks are

at a high risk because the market fluctuates so much. A good way to counter the high risk, in
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order to make a smart long-term investment, is with diversity. In other words, “don’t put all your

eggs in one basket”.

        Investing in a mutual fund is a safer way to play the stock market. Many institutions

provide guidance and prearranged mutual funds to invest in with great results. The most

common way to use a mutual fund is to contribute a certain amount a month and let the

institution, having professional investors, invest your money. The investors will analyze market

trends, find upswings in promising industries, and invest the money you contributed into a wide

range of different stocks (Pond 37-42). They will then keep an eye on your money and buy and

sell as needed to make a profit. The investors base their decisions on a high risk or low risk

chart, depending on the plan (high risk or low risk) that was initially chosen when you set up the

mutual fund.

        A retirement fund is usually set up by companies for their workers, but can also be

individually set up through an investment agency. It is basically a tax free investment, into a

prearranged package, chosen by the worker to invest monthly into stock; similar to a mutual


        Stocker sums up investing best by saying, “investment strategy is… based on economic

freedom.” (583). There is no investing if money invested is taking away from paying off debt,

savings, or the budget. Building a base for finances is the most important part in creating a stress

free atmosphere where financial freedom reigns. Steps to exceed financial freedom and move

into making money work for you instead of against you can be accomplished by paying attention

to your money and where it is being spent and saved.
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                                            Works Cited

Stocker, Marshall L. “Equity Returns and Economic Freedom”. CATO Journal. 25.3

       (2005): 583-94.

       This is an article that explains the relationship of economic freedom and equity markets.

It also includes ways for investors to look at this relationship and be able to construct strategies

for investing.

Pond, Jonathan D. Guide to Investment & Financial Planning. New York: NYIF, 1991.

       This book is a guide to financial planning. It includes detailed steps in organizing income

and investments by explaining the importance of personal financial planning. Pond has been

recognized as “America’s Financial Planner” and has been awarded with the “Malcolm Forbes

Public Awareness Award for Excellence in Advancing Financial Understanding”, a gold medal

at the “Worldfest International Film Festival” for a program on how people can benefit from new

tax rules, a silver medal at the “Huston International Film Festival” for his program on achieving

financial security, and an “Emmy” award for his contributions to a television series on financial

planning in the 21st century.

Quinn, Jane Bryant. Making the Most of Your Money. New York: Berrybrook, 1997.

       This book is a detailed analysis on how to develop “safety nets” for finances.

Throughout the book the author stresses the importance of building a good financial base to build

on. Quinn is known for her writings on finance and how to raise a financially free household.

She has worked as a columnist for “Newsweek”, “Good Housekeeping”, “The Washington

Post”, and “Woman’s Day”. She is also affiliated with the “Phi Beta Kappa Society”.
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Khan, Kim. How Does Your Debt Compare?. 4 Jan. 2006. 20 Apr. 2006 content/SavingandDebt/P70581.asp

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