Why Financial Freedom matters?
There are a lot of reasons why people need to have Financial Freedom. One of the main reasons is you do not have to worry about doing things that don’t matter to you, eg. the job you don’t like, in simple words it allows you to follow your Passion. Another big reason is that it takes away the stress of big financial expenses so that goals such as marriage, higher education, bigger house, etc is no more a dream with the help of Financial freedom . Healthy financial habits such as refraining from overspending and saving as much as possible will be one of the initial steps towards Financial Freedom.
India always has had a culture of saving and keeping the money in bank. Sadly, one big reason for a lot of people to keep their money in the bank was that it will be secure there. Even though savings is a good habit, savings without investment is meaningless. As our economy is growing, so does inflation and to tackle this, our money also needs to grow at the same rate if not at a higher rate.
Here is a step-wise guide to achieve Financial Freedom from scratch-
- Assessing current value of everything (Finding your Net Worth)
Knowing where you currently stand helps you make a clear road map of where you are, how far you have to go and also help set achievable goals. One of the first and most crucial steps in financialliteracy is knowing your current net worth. This means knowing your savings account balance, investments, and calculating the value of the assets you currently own, calculate your credit card balance, student loans, mortgage or any other loans (if any). You must be aware of all that you own and owe. The difference between the two is what is called your net worth.
Calculating your net worth is just a step to assess your current financial strength, the path towards Financial Freedom just begins here and everyone should know their net worth, it is not something that only big businessmen or celebrities should do. Your worth may not be in millions but that does not mean you should not know your value financially. Check out the Financial Strength Analysis tool to be able to calculate it for you.
- Stop spending unnecessarily
This is the era of consumerism. People want to consume various kinds of products more than ever. We are the generation which literally buys products and services within a minute or so if we like it. What we do not ask ourselves is that if we actually need the product while buying it. You might find a bunch of things around you which you do not use or might not have used once but bought because you liked it.
This needs to stop. You have to see what is actually important for you and what is not and refrain from spending on such unnecessary products. This will bring a drastic change in the condition of your financial health. If you do not know how to implement it, then please make a budget and be strict to it.
- Check if budget is being followed
Merely making a budget will not help. You need to keep checking if the budget is actually being followed or not. One needs to understand there is no meaning of a plan like a budget if it is not being implemented on time. Figures should not go over a permissible range.
- Repayment of Loans
Repayment of Loans should always be prioritized. It should be considered as the first expense of the month and be paid off with priority. Although paying a long term loan before its maturity is also not a very smart move due to the factors of tax benefits but neglecting any loan or not considering it as a priority payment can turn out to be grave mistakes. Not paying important loans such as Credit card, personal, house, cars loans can reduce your CIBIL significantly.
One can avoid taking out a loan their whole life but that does not mean they have to have a low credit score. Loans are taken in the times of emergency and one must be prepared for it. In fact one should exercise taking short term credit on credit cards to consistently improve credit score and pay it within the 50 day period to make it a good money management system for themselves. This ensures there is no interest cost and money management skills are also honed.
- Earn Passive Income
This is a BIG one. One must try to have sources of Passive Income in order to earn more and reduce their financial dependency on their single source of income from job/profession/business. Learning a whole new skill or creating a set-up may take a lot of time and efforts and this may kill your motivation to earn more. One of the simplest ways to earn Passive Income is to invest and create a portfolio according to your risk tolerance and goals. This creates a huge difference in your life and is a large step towards financial freedom.
One can do some research on the kinds of assets available in the market, the ones suitable for him and if needed take professional help too but nothing can be simpler than earning passive income from your own wealth which was probably de-growing. Introduction Financial Nirvana is a 90 minute FREE webinar that can help you get started on the Passive income from wealth journey.
- Goal-oriented Financial Planning
We all have few major goals in our lives. It could be our wedding, kid’s education, buying our own house or anything else requiring a good chunk of money. Our money allocation in assets should be based on various factors such as time-period at hand for the realisation of goal, level of liquidity of that asset, risk involved in the asset etc. One must not put a large chunk of money in risk assets for the short term keeping an important goal in mind. Goal-oriented investments should be done in moderately-risky assets only.
- Retirement Planning
Retirement period is considered to be the golden time of one’s life and thus to live peacefully one needs to have a good corpus so that they are free of money worries in that period. The question a lot of people ask is when should one start and the answer is as early as possible. Let’s assume I need one crore rupees to live my life peacefully after retirement, if I start planning for that money after 40 years of age, then there will be more burden on us whereas if I start planning from 25 or as soon as I get a job, I will have a minimal burden on me in the name of retirement.
One thing that most people get confused with is that point 5 – Earn PAssive Income is separate from Point 7- REtirement planning. The idea is that one should be able to earn enough PAssive income now so that they don’t have to wait for retirement to eliminate dependence on money from job, business or profession. One can retire from working FOR MONEY and still work FOR PASSION. In that sense, that’s the best way to plan the work and financial life.
ConclusionThis generation finds it way more difficult to achieve financial freedom than the previous generation because of various factors such as high competition, larger debts, need of luxury in the lifestyle, change in the way of living etc. They find it so difficult sometimes that they altogether give up the idea of achieving financial freedom at all. Many take a lot of pressure and cut their spending so much that they stop spending on necessities too. One does not need to stop spending, all one needs to do is spend wisely on needs and not wants, save and invest, plan and invest, reap the returns and enjoy life without having to think about money problems.