Indians worldwide have come a long way, excelling in various areas of life, whether sports, showcasing their skills in the corporate world, or being inspiring leaders.
While they are increasingly being placed in positions of responsibility and authority, financial independence remains elusive for most of them, particularly in a developing country like India.
Discussions about Financial Independence are misinterpreted with retirement before the age of 40. But Financial Independence and Retirement are two different concepts. Financial independence is based on the idea that money should work for you rather than you working for money. It is said that financial freedom is achieved when your passive income exceeds your active income.
You do not have to rely on a 9-to-5 job. Other sources of income should be available to you.
Recognizing the significance of financial independence, here are a few steps that can be beneficial;
Identifying Financial Milestones
To achieve financial independence, you must first determine why you want to save money. What are your objectives? For someone like me, financial freedom means having more time and resources to explore my skills and abilities, personality, passions and dreams and decide how to best incorporate that into my work; I have more chances to get it right. However, objectives will differ from person to person. It could be early retirement for some or purchasing a house for others.
So, to begin, make a list of all your financial goals and divide them into three categories:
- Short-term goals, such as purchasing a laptop or planning a vacation
- Medium-term goals, such as funding your wedding or your child’s education
- Long-term goals, such as ensuring a peaceful retirement
Create a separate strategy for each of them and begin budgeting accordingly. Finally, examine your budget and cash inflows and outflows to get a bird’s-eye view of your financial situation.
Improve your Finance Skills and Awareness
Financial insecurity is frequently caused by a lack of knowledge about personal finance. However, this can be overcome by learning the fundamentals of saving, budgeting, investing, growing one’s capital and making informed decisions. It may be a problematic and bumpy ride at first, but you will eventually learn and excel.
To begin, read a few books on personal finance or enrol in a course and develop the habit of reading newspapers.
The Importance of an Emergency Fund
An emergency fund is a necessary corpus that you must set aside to deal with emergencies. It is a fund to which you can turn in times of crisis or for unexpected and unplanned scenarios, not for meeting your regular expenses. You should have at least six months of your annual salary as an emergency fund. The money should then be placed in a liquid fund.
This is because you should be able to withdraw the money whenever you need it and without delay. At the same time, you must avoid being penalised in the form of an exit load or a pre-withdrawal penalty.
The value of the investment should not fall and should provide excellent returns. Aside from that, if you have an outstanding loan or debt, you must pay it off to begin your new financial independence journey in peace.
Securing Family’s Future
While investing, don’t forget to set aside money for your family’s future. Nothing is more important than family. Also, ensure a term insurance policy, so your loved ones do not suffer financially if you die.
Term insurance is the most basic and straightforward type of life insurance. It offers your family financial security at the most affordable rates. Term insurance allows you to obtain a large amount of life insurance (i.e. the sum assured) at a low premium rate.
Another essential product is health insurance for yourself and your dependents to ensure that medical expenses do not deplete your finances. Both types of insurance provide the added benefit of allowing you to claim tax deductions under applicable tax laws.
Start With Investing and creating new revenue streams.
The next step in achieving your predetermined goals is to save a specific amount of money and invest it for it to grow. Savings will not grow if they are kept at home. Depositing them into a savings account will result in low-interest rates and will not allow you to beat inflation.
As a result, the only way to expand or grow your capital is to diversify it across asset classes. To begin, you must select a product that fits your risk and return profile. Some available products are real estate, gold, mutual funds, bonds, and equities. This will diversify your portfolio, reduce risks, and improve your long-term wealth-building prospects.
When creating new revenue streams, one can start with online blogging or paid partnerships through social media, freelancing, etc., to earn more.
Finally, I want to emphasise the importance of focusing on and caring for your health. Because no matter how much wealth you accumulate, you will not be able to enjoy your independence if you are not good on the inside. As a result, you must also take care of your sleep patterns, eating habits, exercise, and so on. Financial independence is defined as having enough savings, investments, and cash on hand to afford the lifestyle you desire for yourself and your family.
It also means you can retire early or pursue any career you want without feeling compelled to earn a certain amount each year.
Trouble happens to almost everyone, but these habits can help you get on the right track to financial independence.
by Vivek Bajaj, Cofounder of StockEdge and Elearnmarkets