Financial freedom means having the choice to pursue what you want and being free from worrying about having a source of income.
What is financial freedom? Let’s break it down. Finance means money and in this context personal money. Freedom here means having the choice to pursue what you want and being free from worrying about having a source of income, that depends on you working to cover your expenses. Here are some simplified meanings;
- It means that you have assets such as investments, rental income, stocks, shares, low input businesses that earn an income for you which can cater to your present living expenses and needs in the future.
- It means not having to work for money. When your passive income exceeds your active income (salary), you are financially free.
Financial freedom is not about being rich. More than aiming to be rich, it is important to aim for financial independence. And there is a big difference between the two. Financial Independence is about the freedom to choose what you want to do when you want to do it. You are not compelled by monetary reasons. This may not hold true if you are ‘rich’. Being rich is just a number; it means different things to different people at different times.
Who can be financially free?
Absolutely anyone who wants to be. Some myths to bust – you don’t need a large sum of money to get started. The truth is that it is something you can achieve by yourself if you decide to. When working towards financial freedom, it is important to understand that financial freedom is more about a mindset and less about money. It requires discipline, decisions, and planning.
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How can you achieve financial independence?
Financial freedom requires wealth creation. For you to create wealth, three primary components are needed. They are savings, time, and the right investment avenues. The journey to creating wealth can start as soon as you can save from your income. What is needed, even before a high salary, is a conviction that it is possible. Keep this in mind when you get started;
- Save before you spend – This is essential if you want to be regular with your investments
- Put your money to work – Invest in both short term instruments to protect your present and in inflation-beating instruments that will help accumulate wealth over the long term. The journey to financial freedom is a long term journey one, where patience and persistence are key
Where to start?
What does your lifestyle cost you in the present day? Use online calculators that factor in inflation to understand what it will cost you in 10, 20, 30 or 40 years, depending on when you aim to achieve financial independence. Understanding inflation is a key factor that will help you decide how much you will need exactly. You may not have the means to reach that target number today, but as your present income grows, the target will become more achievable. What matters is that you keep chipping away at it. Live within your means, to ensure you can save, and invest what you save.
Start investing early
Become financially literate and seek help from professionals when you can’t understand something
With a salary increase, increase your investments. Use bonuses and windfalls to add to your investments when you can.
With these principles, absolutely anyone who has a present source of income can work towards financial freedom. Financial freedom is not an idea or meant for the ‘rich’. It is an empowering goal that can give you purpose and clarity.
(By Ashok Kumar E R, co-founder and CEO, Scripbox)