11 Things You Should Do to Ensure Your Financial Freedom

I responded that financial independence paves the way for financial freedom, which represents the ability to earn or generate a livelihood that enables you to live a comfortable lifestyle and not worry about money

She quizzed me," What's your definition of financial independence?"

I began explaining to her what I perceive... Financial independence is the capability to be self-reliant, debt-free, and enables you with the power to fulfil the envisioned financial goals ---owning a house and dream car, to travel, provide good education to your children, save for their wedding expenses, and even your own blissful retirement.

More importantly, the definition of financial freedom differs with age. You see, financial freedom gives one the ability to enjoy the lifestyle one desires

Now a point to note is, while financial freedom is psychological and unquantifiable, financial independence is quantifiable and can be planned.

And it is extremely important for every individual (man and woman -- teenagers, married, single, separated, widowed, divorced) to be financially independent irrespective of their economic life cycle.

" So, how can I attain financial independence?" my friend asked.

I explained to her that the road to achieve your financial independence is through effective financial planning.

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"Financial security and independence are like a three-legged stool resting on saving, insurance, and investments" - Brian Tracy

"How should I go about financial planning?" she inquired.

Here's how to go about it...

1. Set financial goals and quantify them

Goal setting is the most crucial step of planning because without a goal is like being a lost man at sea without a compass. Set financial goals that are Specific, Measurable, Adjustable, Realistic, and Time-bound (SMART). Add a time frame for each (3 years, 5 years or 10 years) and determine the amount you would require to achieve them.

This will help you to begin your journey of financial independence.

2. Clear all debt

Ensure that you have reduced or paid all of your pending debts as soon as possible because it can derail your financial journey. Also avoid buying on credit for instant gratification.

3. Save first then spend

Follow what Oracle of Omaha (Warren Buffet) says, "Do not save what is left after spending, but spend what is left after saving"

As soon as you get your pay check, pay yourself first and then spend. Saving now (and investing wisely) can help fulfil your envisioned financial goals.

Engage in prudent budgeting exercise so that you spend only on necessities and are able to save a sizeable portion.

4. Let savings work for you by choosing worthy options

The best way to make your savings work for you is to invest in worthy avenues that can help you compound wealth over the years and deal with inflation.

Out of a plethora of avenues, choose the best investment option that suits your requirements -your investment objectives, financial profile, risk profile, goals, and time horizon before the goals befall.

5. Create a diversified robust strategic portfolio

Ensure that whatever investment avenue you choose should help to mitigate investment risk and provide decent returns. Mutual funds are potent avenues as they are highly diversified that reduces risk of any single asset class, professionally managed, and cost effective.

Besides mutual funds allow you to invest in various categories of schemes depending your investment preferences and create a customised robust strategic portfolio.

6. Start small and systematically

Wealth building is a gradual process, so don't be taken in by the fancy of structured products. So start small and invest diligently via SIP (Systematic Investment Plan)  and avoid tiptoeing.

With SIP, you can invest on a daily, monthly, or on a quarterly basis in a mutual fund scheme of your choice. This investment amount can be as low as Rs 500 per month.

It's lighter on the wallet, you don't need to time the market to generate wealth, you inculcate the habit of investing regularly, and it is an effective medium to accomplish vital financial goals.

As it's said, little drops of water make a mighty ocean; SIP just does that. If you follow the right discipline and do not miss or stop SIP instalment, it can help you achieve the envisioned financial goals.

7. Periodically review and rebalance your portfolio

A regular check-up is needed to assess the health of your mutual fund portfolio, i.e. you need to review and track the performance of your portfolio. If the schemes in the portfolio are consistently underperforming over different market phases as compared to the benchmark and its peers, then you may need to make changes in your portfolio.

If there are some new schemes that are performing far better than the ones you have in your portfolio or any scheme's risk profile changes, you can replace schemes to align with your objectives in an endeavour to achieve your goals.

To stay on top of your financial goals , review your portfolio and rebalance your assets to incorporate personal changes or economic fluctuations once every year.

8. Don't forget to indemnify risk to life and health

Having an adequate insurance cover of life helps to safeguard your family incase of your untimely demise. Similarly, having an optimum health cover will save you from high medical/ hospital bills.

9. Build Contingency fund

Having a contingency fund or a rainy-day fund has become the most crucial thing to do now when we have been engulfed in the COVID crisis. It has taught us that to survive this glum economy, you need to have a cash reserve to cover 12-24 months living expenses.

10. Do consult an unbiased advisor

Reach out to a certified financial guardian who is a mark of trust and respect, who exemplifies high fiduciary standards at all times.

A professional who handles your hard-earned money with an unbiased and an independent approach, where the recommendations are backed by rationale and scientific study, as much as they would manage his/her own personal finances.

Hence, with able guidance, you can take the right steps leading towards attaining your financial independence.

11. Educate yourself on Financial and Investment matters

Our education system teaches us to work for money, but keeps us ignorant of how to make, maintain, and manage money. We should learn how to create wealth, that is learning about advocacy for financial independence.

Even if you seek guidance from a professional, do read books, blogs and articles, and watch videos that explain financial jargons, key concepts about investments. It will help you in doing your own research. It helps you to make informed investment decisions and keep you updated with latest happenings of the industry.

My friend thanked me for sharing such insightful information and has decided to begin her journey of attaining financial freedom and financial independence. To achieve financial independence, there's no need to fight or struggle for it. All it requires is to have the right knowledge and patience.

Mark today as your financial Independence Day and pledge to start your journey towards financial freedom.Wishing all our readers a Happy Independence Day!

Warm Regards,
Aditi Murkute
Senior Writer

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