Step by Step Guide – To Achieve Financial Freedom

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.

Insurance.

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?

Term insurance:

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.

Health insurance:

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.

Savings:

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.

Emergency fund:

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

Runway funds:

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.

Debts:

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.

Investments:

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.

 

CRACKING FINANCIAL FREEDOM


FINANCIAL FREEDOM.

Financial freedom is an goal for many, it means having enough money to afford our rest of life with our loved ones.

It is very tough to achieve but if you follow the below rules it is easy to achieve.  

  • SPEND LESS THAN WHAT YOU EARN.

What you save is what you earn, always spend what you earn, this is especially for the people below 30 if your salary is 35k always try to minimize your expenses and keep it less than 35k, this could be achieved by budgeting, always note down what is your expenses beforehand. 

Expenses are three types. 

  1. Compulsory expenses (rent, medical, school fees, transportation, insurance premiums)
  2. Avoidable expenses ( petrol, car EMI, subscriptions) 
  3. Unnecessary expenses (premium mobiles, premium motorcycles, cars, movies) 

  • SAVE 10% OF WHAT YOU EARN. 

Whatever your salary is, always save 10% on your earnings, this not include your life and health insurance premiums, savings for paying annual expenses like school fees, vacation trips, etc.

Savings mean money which are not required for the near future say for 5 to 10 years.

NOTE: This 10% rule is applied to your monthly take-home salary (WHICH IS CREDITED TO YOUR BANK ACCOUNT) without deducting any other expenses.

  • INVEST WHAT YOU SAVE

It is useless to keep your savings idle because inflation or rising cost will eat your ideal money, invest your savings on the right investment instruments which will in return gives you cash flows, expect reasonable and practical earnings. 

Try to avoid general mistakes while investing, choosing the right investment vehicle is key to your financial freedom, once you choose the right instrument stick to hit.  

  • ALWAYS INVEST ON WHAT YOU KNOW.

Invest what you know, we humans always look for higher or unrealistic income on investments and often made unknown investments and end with a loss, when it comes to investment remember what Warren Buffett said 

“Rule no 1. Don’t lose your money” 

“Rule no 2. Don’t forget rule no one” 

So, wrong investment = No investment 

Try to have basic investment knowledge.

Read investment books  

Always remember “Ignorance is not an excuse” 

  • AVOID IMPULSIVE BUYING

When we something in-store due to peer pressure and momentary thrill (shopping addiction) we try to buy it, which we don’t even need, this is called impulsive buying, impulsive buying is hard on your pocket and put a dent on your savings and prevents you from good financial habits. 

But developing a good habit like delaying buying for some time say 2 or 3 days will help you to prevent from shopping addiction. 

  • LET THE MONEY WORK FOR YOU 

When you choose the right investment asset class with a good portfolio you let the money work for you.

For example, you pick a value stock for the right price and stay invested, the whole company is working for you even you sleeping, in the end, your money is working for you. 

  • ALWAYS LEARN NEW THINGS 

Try to learn new things, which will help you to generate more income streams, this called affiliate income the more you learn more you earn,

Use your free time to read investment articles learn in-demand new skills, improve your public speaking skills, these skills will not only help you earn more, it helps you keep motivated.  

  • INVEST ON YOUR HEALTH

As an old proverb saying “health is wealth” be fit and develop the habit of having healthy foods because the growing medical costs are keeping you away from achieving financial freedom.

Take adequate health insurance for your entire family, don’t stick to employer insurance policy alone.