Some think of financial freedom as a distant dream. In fact, financial freedom is a life goal for many. The good news, however, is that financial freedom is not as elusive as many make it out to be.
It can be achieved with rigorous financial discipline, a value-oriented approach, and goal-based investments. Let’s understand how you can achieve financial freedom in India with the help of 5 simple tips. But first… let’s define what we want to achieve.
What Is Financial Freedom?
Financial Freedom means the liberty to live the life you want without worrying about finances. You can achieve financial freedom by having sufficient savings, investments and liquid cash to deal with almost any situation life may throw at you.
It also implies that you are debt-free: An often overlooked aspect of financial education.
5 Tips To Achieve Financial Freedom
#1. Set Goals Today
Every person’s needs and goals vary and that’s an important distinction. Regardless of where you are currently in terms of finances, create 3 life goals and 3 general goals that you need money for. This could look something as follows:
Saving 6x annual salary
Investing in alternative assets
You will notice that your personal goals are intertwined with saving and investing. So if you haven’t started already, don't worry. It’s never too late to start investing for the future.
#2. Live On A Budget
Achieving financial freedom starts with setting goals. The best way to achieve your goals is by living on a practical budget. This is a goal in itself since most people find it difficult to stick to a fixed budget due to emergencies, desires, or a lack of discipline.
Depending on how much you earn each month, draw up a budget. Split this budget into 3 buckets: essentials, savings, and wants. Allocate funds from your salary based on what works for you. Most people use the 50/30/20 rule. We talk about it here.
Watch this video to find out about 20 top money saving tips
#3. Develop A Healthy Investment Habit
Saving money from your salary only ensures that you conserve your wealth. But to be financially free, you must invest a portion of your savings in options that can create long term wealth.
Assume Mr Apple and Mr Orange save ₹1,00,000 by the age of 30. Mr Apple thinks that investments are not for him. Instead, he will let his money remain idle in his savings bank a/c.
Mr Orange, on the other hand, decides to invest that ₹1,00,000 in equity funds as a lump sum. Let’s see how their returns compare by age:
Savings Bank A/c (@3.5%)
Equity Funds (@12%)
Generally, investors prefer equity-based instruments for long term wealth creation. But you can't compare apples to oranges. It is important to invest according to your goals and needs.
#4. Automate Your Finances
Automating your investment has its perks. You don't need to worry about transferring the money to your savings or investments. Plus, it ensures that you stay disciplined.
Your salary may be credited on the 29th or the 3rd, but several SIP investments are deducted on the 1st. So you’ll naturally reserve a portion of the money from the previous money to be deducted automatically on the 1st.
But it may happen that you run out of money due to an emergency. In that case, Cube allows you to change or even skip a SIP payment with the SuperSIP option.
#5. Get A Wealth Coach
The world of finance can be difficult and time-consuming. But it is important to understand the various intricacies of investing if you’re planning to achieve financial freedom.
There are trained financial professionals who use their invaluable expertise to recommend investment options based on your investment goals, age, timeframe, risk appetite, and more. This can help you save time and grow your wealth.
5 Rules That People Have Used For Years To Live On A Budget
Rule #1. The 24-hour rule
Take 24 hours to think about whether you actually want that iPhone, TV, and other such luxury items. Wishlist things before you to “add to cart”.
Rule #2. Use cash
Start using cash for small payments that usually take a lot out of your budget over time. This will help you physically see the money that you are about to spend instead of just a number being subtracted from your bank account.
Rule #3. Spend on appreciating assets
Without a healthy net worth, you won’t be able to achieve financial freedom. Invest, instead of buying a second car that doesn’t add to your net worth. Buy stocks, mutual funds, alternative assets and explore other investment opportunities.
Rule #4. Fix what’s broken… yourself
You'll save a heap of money and pick up essential life skills if you learn to fix household machines yourself. You can even convert this time into a fun family activity.
Rule #5. Invest in your health
Your productivity and ability to earn more money regardless of age rests on being healthy both mentally and physically. Instead of buying a new phone that you may not need, get a gym membership or an online yoga subscription and don't forget to get health insurance.
Financial freedom is a long term goal. The best way to achieve it is to start investing in long term options based on reliable financial advice and a disciplined investment strategy.
FAQs Around Financial Freedom
Q. What Is Financial Freedom?
It is the liberty to live the life you want without worrying about your finances.
Q. How to get financial freedom?
Achieving financial freedom is tough but not impossible. You need to be diligent with your investment planning and execution but more importantly, you must be consistent.
Overall, there are some basic thumb rules to achieve financial freedom:
1. Set goals & achieve them
2. Live on a budget
3. Invest wisely & consistently
4. Automate your finances
5. Get quality advice from experts
Q. How Do You Set Your Budget?
To decide your budget, the first step is to calculate your monthly income. Choose a budgeting method and track your expenses. Then use the 50/30/20 rule. 50% of your budget is allocated to the essentials, 20% to savings, and the remaining 10% for your wants.
Q. How Long Does It Take To Achieve Financial Freedom?
Financial freedom could be achieved in 3 years, 5 years, or 10 years. It always varies person to person as their wants and goals are different. To achieve financial freedom at the earliest, one should make a financial plan, live on a budget, invest regularly and get advice from the experts.
Q. What Are The 5 Rules For Living On A Budget?
The five rules mentioned above to live on a budget are
Take 24 hours to decide before buying a luxury product.
Use cash for small daily expenses.
Spend on appreciating assets.
Avoid spending on small household activities that can be done on your own.
Stay healthy mentally and physically.
Curious about personal finance and all things money. Can either find me reading a book or dancing to a tune.
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