My six years old returned from school one day and asked: “Mommy, what is the cost of money?” I looked her in the eyes, and I could see she was serious. Wondering how she came about such question I considered advanced for her age, I told her we would talk about it after she had her food, and done with her homework.

Her question got me thinking, and I realized how many out there are searching for answers. The failure to resolve this challenge by many adults is the reason they lack financial independence. Unless you understand that money has a cost and be willing to pay it, becoming financially free may be wishful thinking!

What is money?
It is a means of getting what we need, that’s why it’s called a medium of exchange. It helps to acquire wealth and pay debts. Anything that does these things is called money; there are four types including Commodity money, Fiat money, Receipt money and Fractional money. However, discussing types of money is not the scope of this discussion.

To have money, one must generate it. While work is important to have money to enjoy all it could provide, working isn’t the cost of money; it is only a process of acquisition. You may still have money without working. So, at this juncture, you want to repeat my daughter’s question:

What is the cost of money?
The real cost of money is any action taken to retain or lose money. It is when your bank account ledger shows a positive balance that you have money available to meet all the functions of money. If your actions only fritter your money and leave your ledger balance in negative, you don’t have money.

1. The money mistakes that leave many broke

I said in the last paragraph that the action you took to retain or lose money is the real cost of money, this means you can either be making mistakes about money or getting it right. The following are answers to the question regarding the cost of money and financial independence:

2. The mistake of working for money

From the definition of money, it is something we use to get what we want. But if you treat money as anything other than that, you will be making a huge mistake. Working for money suggests trading your time, energy and intellect to generate money. But will such method give you a positive bank ledger enough to meet all the functions of money and be financially independent?

Instead of working for money, the best way to financial independence is to have money work for you. While the majority will start by working for money, only those who understand the implication of doing that continuously can to break the circle and make money work for them instead.

3. The mistake of not having long-term financial goals

Another mistake robbing many of financial independence is lack of long-term financial goals. This is how much you plan to have saved to meet your future expenses. When you work for money as a salary earner, you will earn income, weekly or monthly, for work done. Unless you put away some of your income for such target savings, your financial independence is at stake!

4. The mistake of having no spending plan
Your spending plan is as important as your income generating plan. It is important to know that there is nothing you ever bought that will seem a waste of money, meaning you can justify every expense. But no matter how reasonable is the expense; you need to do it only if it’s in your spending plan. If it’s not, let it wait until you add it up. Never spend a dime outside your budget unless it is a life-threatening emergency!

5. The mistake of not planning for retirement
No matter your source of income, saving for your retirement is non-negotiable! Many in active life today forget the days when they won’t have the same energy to generate money. If you want financial independence tomorrow, don’t make this money mistake today.

The list of money mistakes is endless, but the ones discussed here are crucial to your financial independence.

My answer to my daughter’s question is that the real cost of money is the resistance to spend unwisely and the urge to take action at the expense of our limited time. The time mommy would go to work and won’t play with her, the time daddy would apologize for not buying another toy because it’s out of our plan and the time she spends doing her assignment and going to school to learn towards becoming a responsible adult.

Those are the cost of money. Anyone who fails in these is making money mistake and sacrificing financial independence!