Discuss and take important actions such as paying debt, gaining control over spending, saving for children education, retirement, tax planning, early retirement, and the like.
Financial freedom means different things to different people. It is all about having the freedom to make choices, not based on what your bank balance dictates but based on what your heart desires. Financial freedom is something that will not happen overnight; rather it is a journey. Each day, through the choices you make, either you move closer or farther from your financial freedom. Here are five steps which you can start implementing now, so that you can achieve financial freedom in the near future.
Talk to your better half
Most couples never discuss their financial goals. If you are married or in a relationship, talk to your spouse about what you want to accomplish. Have a brief conversation about your financial goals and what kind of lifestyle you want, etc. Discuss and take important actions such as paying debt, gaining control over spending, saving for children education, retirement, tax planning, early retirement, and the like.
Make a budget and adhere
Budgeting is a basic tool but often overlooked by many. If you keep on spending more than what you earn, definitely you are not moving towards financial freedom. A budget lays out all your expenses and outlines how much you can afford to allocate for each expense. If you are spending more than what you have or earn, a budget will spot this so that you will know where you should cut back.
Pay back your debts
Paying off debt should be one of your priorities. Having debt just weighs you down and prevents you from achieving financial freedom. There are multiple techniques to pay off your debt ranging from snowball method to avalanche method. Choose the best which works for your current financial situation. Also look for ways and means to decrease your expenses and redirect those savings towards paying back your debt. Expediting your debt re-payment is another way to increase your income.
Create an emergency fund
Emergencies such as illness, job loss, expensive home or car repairs can happen anytime and when that time comes, you want to make sure you have enough liquid cash to navigate through it. If you do not have an emergency fund, chances are high that you will turn to credit. This could spiral into financial difficulties down the road.
Adequate insurance coverage
Having an adequate insurance coverage is very important as the future is always unpredictable. Accidents happen, work injuries occur, and natural disaster can easily cause thousands of rupees of damage to your home. To prevent any of these circumstances, ensure that you have enough insurance for your home and the lifestyle you lead.
To conclude, whether you like it or not, money is what makes the world go around. Financial freedom does not necessarily mean retirement. It is being able to work at your pace, doing things that you enjoy and living where you and your family are happiest. One can achieve the same by following the above steps.
The writer is a professor of finance & accounting, IIM Tiruchirappalli