How to get financial independence: 4 steps to freedom you must take now

By: | Published: January 29, 2018 4:37 AM

Financial freedom is meaningless if you are unable to take key life decisions without being overly stressed about the financial impact. You can achieve the same by means of having complete control over your state of finances.

financial independence, earning tips for students, students earning tips, how earn money in short timeHere is the four-point formula that anyone can use to accumulate wealth and attain financial freedom in the years ahead.

Financial freedom is meaningless if you are unable to take key life decisions without being overly stressed about the financial impact. You can achieve the same by means of having complete control over your state of finances. Here is the four-point formula that anyone can use to accumulate wealth and attain financial freedom in the years ahead.

Learn to manage money

You should think positively about money because thinking negatively about money is a kind of emotional obstacle that you should avoid to achieve financial freedom. Avoid negative thinking that money can’t buy happiness, etc. You won’t move ahead in your life if you don’t have a plan for your money. Budgeting is an essential part to manage money. Give every rupee a name before the month begins, and track your spending throughout the month. If you steadily overspend or underspend in certain areas, you can always adjust the amount in each category.

Clean up any financial mess

Once you start learning how to manage money, you may realise that you have made some mistakes in the past with your finances. It is alright, but you should clean up the mess before you start building wealth. You should start thinking seriously about debts such as credit card outstanding, car loan, etc. Paying off your debt helps you lay a foundation to build wealth that will last for a longer duration. If you want to reach your goal, you need your full income at your disposal, not parts and pieces that are left over after paying credit card bills and car loan re-payments. Paying off debt is hard work, but there’s nothing like the feeling of actually keeping the entire pay-cheque to yourself every month.

Build an emergency fund

As your goal is financial freedom, you need a buffer for the unexpected life events that happen to all of us, like car repairs, broken appliances and unexpected medical expenses. It is always advisable to build an emergency fund which will cover three to six months of expenses once when you are out of debt. Having adequate amount of cash in hand/bank to cover an unexpected life event gives you peace of mind and is a critical part of your overall financial plan. Since you’re not taking on debt, you will also need a savings plan for big purchases that are not emergencies. For instance, if you want to go for a summer vacation, just create a line item in your monthly budget and divide the total amount by the months you have to save. As you are not living in debt anymore, you can enjoy your vacation instead of having a credit card bill follow you home after the vacation.

Know your investment options

Since you have a plan for short-term savings, now you are ready to move on to long-term investment options. Sooner you start investing, the more time your money has to grow. Long-term investments would include your retirement savings, higher education, real estate investments, investment for tax savings, etc. Making the right investment decisions is the first step, but staying in tune with your investment /fund performance is crucial to getting the most out of your investments. Setting your investments on autopilot mode is not at all an ideal investment strategy.

To conclude, you will not get financial independence by accident. It requires a well-thought out plan, which is doable if you follow the above steps.

The writer is professor, School of Commerce and Business Management, Central University of Tamilnadu, Thiruvarur

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