When it comes to reaching financial independence and riches via self employment, I don't think I can emphasize enough the importance of proper money management. The biggest problem with many self employed professionals, especially those who make higher than average incomes, is that they often spend much of the money they earn on a frivolous lifestyle that gives them the “appearance” of being rich, while not actually having true wealth.
A good example of people who typically fall under this category are self employed lawyers and doctors who make exorbitantly high incomes but are often asset poor. In many cases, these individuals are often also saddled with enormous amounts of debt. Many of these professionals have what I will refer to as being “high consumption” lifestyles, where much of their money is spent on clothes, jewelry, vacations, fine dining, and other luxuries that are little more than liabilities, while simultaneously only spending a small amount of money on the acquisition of “assets,” things that put money into your pocket.
For the self employed individual, this lifestyle is extremely dangerous, because unlike the investor or big business owner, who earns much of their money through cash flow, passive income, or the labor of their employees, the self employed freelancer is totally dependent on themselves to generate income. As I said before, if you become unable to generate income, this means your income stops, and if you are not earning any passive income or cash flow which is able to cover your living expenses, you could end up in poverty.
While doctors are commonly seen as being rich and prestigious, the truth of the matter is that not only are doctors most likely to suffer from mental burn out more readily than others, but statistics show that doctors often have a shorter lifespan than other members of the population, and this has a lot to do with the amount of stress that they must deal with in their careers, along with the enormous financial burden they often have, saddled with debts that they accumulated during their years of study in graduate school.
To avoid this fate, regardless of which field you choose to become a freelancer in, you must become a master of money management, and while we will be talking more about this subject in later chapters, this means less liabilities and more assets. To truly master this and achieve riches within a ten year period, not only do we recommend understanding the difference between assets and liabilities, but we also recommend a high level of frugality during this ten year period, and the reason for this is because if you're frugal, and make sacrifices during this time, once you're ready to use the UIF formula to transition from being self employed to becoming an investor, you will have the capital to do so.