WHAT IS FINANCIAL FREEDOM AND WHAT ARE THE KEY STEPS IN ACHIEVING IT?

Let us start at the root question of life what does is it actually mean to be financially free and are there ways to achieve the freedom. Financial freedom from a very simple point of view is to have all our expenses covered without stress. But life is not that simple.

We will try and dig a little deep to understand what Financial Freedom is and what are the key steps?

Having “financial freedom” means different things to different people. But, generally, it is understood as being able to live the lifestyle of your choosing while responsibly managing your finances.

Financial freedom has to be personal. Dream big and get specific about your goal.

Financial freedom in layman’s terms is when all are our expenses are covered and this includes our monthly needs to all the way to paying our debts and then we have some money left for investing and a small part if saved as an emergency fund for any unforeseen expenses. In short, financial freedom is having enough residual income to cover your living expenses. This can be achieved only when you are prepared for it. All you need is a little financial planning.

Attaining financial freedom is an objective for most individuals. Financial freedom usually means having enough savings, financial investments, and cash on hand to afford the kind of life we desire for ourselves and our families. It means growing savings that enable us to retire or pursue the career we want without being driven by earning a set salary each year. Financial freedom means our money is working for us rather than the other way around.

Most of our income should actually cover all our daily expenses and also our monthly payments, our daily needs including groceries, travelling, clothes to our monthly payments such as rent / EMI/ Car loan and other debt repayments.

How to achieve financial freedom?

Once you have decided that attaining financial freedom is your goal, below are the steps you need to follow:

1)      Define what financial freedom means to you

Once you’ve defined what financial freedom means to you, you can start taking steps toward your goals.

2)      Set your goals

Every person’s needs and goals vary and that’s an important distinction. Regardless of where you are currently in terms of finances, create life goals and general goals that you need money for. It could be for Retirement, Marriage, Vacation, Children’s education et al.

3)      Live on a budget

Achieving financial freedom starts with setting goals. The best way to achieve your goals is by living on a practical budget. Depending on how much you earn each month, draw up a budget. Split this budget into 3 buckets: essentials, savings, and wants. Allocate funds from your salary based on what works for you. Most people use the 50/30/20 rule.

4)      Develop a habit to invest

Saving money from your salary only ensures that you conserve your wealth. But to be financially free, you must invest a portion of your savings in options that can create long term wealth.

5)      Automate your finances

Automating your investment has its perks. You don't need to worry about transferring the money to your savings or investments. Plus, it ensures that you stay disciplined. Your salary may be credited on the 29th or the 3rd, but several SIP investments are deducted on the 1st. So you’ll naturally reserve a portion of the money from the previous money to be deducted automatically on the 1st. 

6)      Use the help of a professional

Managing your money isn’t always an easy task. It is wise to enlist the help of a financial advisor or financial planner who understands your goals as well as the market.

7)      Conduct regular financial Check-ups

You may need to adjust your financial plan or re-evaluate your goals as life changes. One way to check in with yourself is to monitor your credit score. You can also monitor your investment accounts and have regular check-ins with your financial advisor. They will be able to help you pivot as needed and help you adjust your investments based on your goals and how far you are from reaching them. You can also regularly evaluate your budget to ensure that your daily, weekly and monthly activities are helping you move toward your goals.