There is no perfect definition to financial Freedom and it may mean different things to different categories of people. For a teenager, financial freedom means entering the professional world and ending their dependence on parent’s money. Others may define financial freedom as the phase of life where you no longer have to depend on your active income.
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While some others may define financial freedom as the time when you can do the work that you enjoy. Thus financial freedom means you are no longer tied to jobs or services just for the sake of earning money.
People who long to be financially independent must remember that financial independence doesn’t just happen. You need to implement regularity and discipline in your life to make it happen. It starts with planning various aspects of your financial life and then committing to the plan eventually. Here are a few steps that will guide you to financial independence:
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Most people believe the key to creating wealth is high paying jobs. But this isn’t true. People often end up with very little financial independence even after getting highly paid. This is because people often end up amassing assets like an expensive car or a luxurious apartment with more money coming in each month. These are the liabilities that deplete your savings the most.
You can be financially independent even if you have a moderate income. The key to creating wealth is saving money at a consistent pace. To escape the urge of spending money you need to understand that wealth is directly proportional to savings. The more you save the more wealth you can create through investments.
This is one of the most important steps you can take to become financially independent in the next 10 years. This is because committing to the other steps is not possible until you adopt this one. A minimalist lifestyle will help you reach your financial goals easily. The step is important as most of the extra cash you need to fulfil the other steps will come from this step.
Learning to live a minimal life is one of the most important things in learning how to become financially important. Living life frugally will allow you to understand the value of time over money and will control the urge to spend needlessly. Setting goals to master a frugal lifestyle will have the biggest impact on the way you achieve financial independence. This step will also help you to hold on to your resources rather than outliving it when you attain financial independence.
This step talks about the importance of a side income. Instead of only focussing on your active income, explore ways to establish a passive source of income. When you are trading time for money your income is bound to be limited. Thus you are compromising on your income and hobbies.
Instead of continuously trading time for money, try to follow your hobbies and create a passive income using it. Gear up your skills and knowledge and recognise the ideas that can help you create a second income. Add value to your side business by allotting some time to it every day. Take small but steady steps towards establishing it. If you are lucky enough you can eventually reduce your dependence on your active income.
Becoming financially independent is not a single goal. It is a combined effort that needs dedication and patience. It is important to establish goals in several aspects of your life, to achieve your goal of financial independence. These include:
This way you can budget every aspect of your personal finances and move on with your financial journey coherently.
It’s hard to attain financial independence if you have a huge debt or if you owe money. The first step you should take towards financial independence is to reduce your debt and paying it off as soon as possible. However, you cannot eliminate debt overnight.
Thus, you may have different time horizons for getting out of debt. For example, you can commit to repaying your credit card debt in 1 year or your personal loan in 5 years. Getting rid of debt is one of the most efficient ways to free money and use it for achieving financial independence. There is nothing as “good debt”, so if you want to attain financial independence make sure to stay out of debt.
Taxes are a major depletion in your income. This means you will have less money to save, invest and reap returns. Devise strategies to reduce the overall tax outgo on your income. By using strategies you will be able to save a higher amount thus converting it into investments.
One of the best options to save taxes in India is retirement planning options like PPF and NPS. PPF investments help you to attain the yearly savings goals while helping you save tax on interest income and maturity proceeds. NPS, on the other hand, allows you to get additional tax benefits over and above the threshold limit of 1.5 Lakh. Using such plans you can save almost 10-20% tax of your income.
Financial independence requires discipline and a bit of sacrifice as even your smallest moves can generate huge outcomes.
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