Financial Freedom or financial independence means the ability to afford a lifestyle we want for ourselves and our families (Early retirement) without depending on anything like credit cards, personal loans, friends and relatives. having adequate savings, investments, and cash on hand serve that purpose Financial independence and Early retirement).
How to achieve financial freedom?
- Set life goals, both big and small, financial and lifestyle; create an outline for accomplishing those goals.
- Make a budget to cover all your financial requirements and adhere to it; pay off credit cards as a whole, so you carry as small debt as tolerable, and keep a sight on your credit.
- Get a financial advisor and start investing; up-to-date on income tax laws; create automatic savings, and by setting up a contingency fund.
- Make a limit and try to live below your income; be economical when possible and don’t be afraid to bargain for deals.
- Take care of your stuff, as maintenance is cheaper than replacement; but also, take care of yourself and stay healthy and happy.
Seems like common information, No, let’s see how to achieve financial freedom step by step.
Take adequate insurance for you and your family and your belongings, don’t confuse yourself with investment and insurance, insurance is for protection and investment is to create wealth which you can generate through your savings in future.
What kind of insurance you should have?
These insurance plans are particularly created to secure your family’s needs in case of your death. The insured amount will be paid to your family members so it will replace your earnings during your absence.
kind of insurance that provides coverage for medical expenses to the policyholder. Depending on the health insurance plan chosen the policyholder can get coverage for critical illness expenses, surgical expenses, hospital expenses, etc.
Have adequate Health insurance for you and your family and don’t depend on your employer’s health insurance scheme.
This is what you have after deducting all the expenses like rent, grocery bill, EMI’s and your insurance premiums then left you to have is called savings. Save 10% of your monthly earnings regularly. In fact, your first expense is your savings, always deduct your fixed savings amount from your earnings than do other expenses with your earnings.
Why do you need to save earnings?
To create an emergency fund and runway fund which is going to help you in your difficult situations.
An emergency fund is a pond of money set aside to meet the financial shocks life throws your door. These unforeseen emergencies can be stressful and expensive. Here are a few of the top shocks people face: Job loss. Medical emergency even a sudden job loss of your spouse.
You should have an emergency fund of 3 to 5 months of your household (including your spouse) income
Once you achieve emergency fund goal next step is you have to build Runway fund, this fund would be useful during your job loss and career transformation situations.
Runway fund 6:
You should have cash for at least 6 months of your earnings in your bank account, so if you suddenly lose your job, you no need to anxious about your future, you can look for a better job because you have runway funds to cover your needs.
Runway fund 12:
Once you achieve the Runway 6 goal, create a runway 12 fund, it should be your 12-month earnings. This fund will help you during your career transformation or business startup days.
Note these runway funds should be used only for your monthly expenses, don’t consider it for investment for new business and don’t confuse with an emergency fund.
It seems not possible to creat those funds with 10% of savings, but it could be done through your extra incomes like tax rebates, bouns, incentives, salary hikes, etc.
Your consumer durable loans (used for buying a TV, Refrigerator etc), credit card loans, vehicle loans, educational loans, housing loans, personal loans (used for leisure trips, marriage, paying other debts) are called household debts probably bad debts. Which is not at all going to improve your wealth.these are influential barriers to accomplish Financial Freedom.
Try to close all loans for that, first, you need to say no! to further loans, then try to close high-interest loans like credit card loans and personal loans, then go for close low-interest loans like housing loans and education loans.
Strictly say no to credit cards, don’t fall on with fancy complimentary offers. It influences you to buy unnecessary things, and also don’t close any loans by getting personal loans.
There are two types of investments.
Short term investments,
Recurring deposits, Fixed deposits, debt funds, gold bonds, these are the funds which easily liquefiable in nature to meet your short term goals, these funds are good for short term goals and it generates income as interest for your invested capital. Like you lending money for interest.
Long term investments
Stocks, Equity Mutual funds, Real estate, Gold and Corporate Bonds to meet your long terms financial goals like Retirement, children’s education and marriage expenses, start your business, dream home, etc.
These long-term investments usually require huge expertise and hands-on knowledge, you can look for help from professionals like financial advisors, but be careful with suggestions always do your own research.
If you follow the above steps, they will help you develop helpful habits, that set you in the success route to reach financial freedom, and you too live your life happily without afraid of the future.