Financial Freedom – A Game Changer

Aug 13, 2020 Khushboo Dhanuka 4 Min Read
  • Financial Planning

Everyone is talking about financial freedom today. But the interesting part is, all of them have their version. Some say it’s about being debt-free, being able to support yourself, or simply getting rich. Most of the answers are either vague or half baked.

Financial freedom simply means having sufficient income to cover your expenses. You can enjoy your time doing what you like spending time with your family or exploring new things in life rather than putting effort to earn in life.

One of the common misconceptions is that early retirement is financial freedom. You can achieve financial freedom even when you are young. All you need is the right planning and positive attitude toward money and your goals.

Planning for retirement is like running a marathon and not sprint, as the saying goes. In reality, most of us won’t even bother to do things required to retire early during our 30’s or 40 ‘s to attain financial independence. Most likely, people don’t have enough savings to maintain their current standard of living for their sunset years.

So, the million-dollar question is what we should be doing to achieve financial freedom?. Here are some game-changer points to help you attain financial freedom for your dream retirement.

Game Changer points to achieve financial freedom 

1. Know your starting point - You can’t achieve financial freedom without knowing your starting point. Calculate your debt and savings and see how much more money you need to meet your goals. This is a valuable step in the right direction. Keep these numbers in mind as we work through the steps to achieve financial freedom. 

2. Pay yourself first - The power of habit can transform your life. The habit of disciplined savings is really powerful. One easy way to start saving that I recommend to my clients is to have two accounts. One income and other saving/investment account. You can transfer your money to your saving/investment account based on your average monthly expenses. You can also start with a comfortable percentage and slowly increase the saving until you can save at least 20-25% of your monthly income. This way you will soon adjust your lifestyle comfortably on a lesser amount. In no time at all, living at this level becomes a habit and you stop thinking about it. 

3. Review your lifestyle for surplus - Track your expenses and try to reduce your spending. Two things work in favor if you spend less. Firstly, tracking your expenses will help you create more passive income to hit your financial milestones. Secondly, you will realize you need a lot less than you think you need to survive.

4. Become Debt-free – Debt can ruin all your plans to achieve financial freedom. There are two kinds of loans good and bad loans. Let’s say you own a credit card and you have to buy a laptop for your daughter. Instead of opting for a personal loan, you can buy the laptop from your credit card. After all, you are getting free money for 45 days. Remember to use the credit card only, if you can pay back them on time. if you just paying the minimum amount it could be lethal as you might end up paying compounding interest like 20-40% on the outstanding amount.

All loans are not bad like home loans, educational loans as you get tax benefits but being debt-free is an even better option. Whenever you get any bonus or lumpsum money, instead of going for an exotic vacation clear your debt instead. You will save more money which in turn you will add to your wealth creation.

5. Prepare for uncertainties - Most of us will have some unexpected spending throughout the year such as a house or car repairs, medical bills, and time out with friends. Having an emergency fund will come in handy during those types of situations. You cannot create emergency fund during the time of emergency 

A good way to save for financial hardship is to start an emergency fund. A rough rule of thumb says keep aside 6 months of living cost and you can increase or decrease the amount depends on your situation. However, keeping all your money to use for an emergency and avoid investing in the long term is not a prudent financial decision.

6. Buy adequate insurance - You should minimize your first risk, creating an emergency fund, and buying medical and life insurance helps protect your family's future and reduce financial damage. If you don't have personal health and life cover for you and your family, you should buy one right away and ensure you have adequate coverage before you start investing.

7. Goal-based approach – This approach helps you understand why you need the money and how much money should go towards each investment goal. Do you need money for your education, to buy a house, for an exotic vacation, and many more. Your goals should be SMART i.e. specific, measurable, achievable, realistic, and time-bound. 

8. Start investing early - The most important thing to do is to start as early as possible rather than wait to save a good corpus before you enter the market. Most fortunes are built slowly and are based on the principle of compounding. The day you will understand the magic of discipline investing and compounding like me, you won't resist investing ever. Usually, people don't have large corpus but they try to save something every month. You should aim to save around 25-30% of your monthly income.

9. Don’t spend money you can’t afford - Life is made of zillions of moments. The best ones come from quality time spent with your loved ones. While spending money some time can help bring you closer to your family but most of them don’t add much value. 

Say you have a dream to travel to Greece and you have been saving for your dream vacation. Once you have accumulated the money by saving systematically, go on that vacation feeling guilt-free. You didn’t go into debt for it, you’ve earned it. 

10. Investing in your future – The last game-changer point and probably the most important one is to prepare yourself for your retirement and rainy days. 

Most young people think it’s too early to think about retirement. But remember the golden rule, start investing early and let the magic of compounding work. The emergency fund is only for unplanned emergencies like repairs, medical bills, and time out with friends. But preparing yourself for your rainy and retirement is important to protect your family. 

Stay tuned for more updates. Until then …. Adios from Marketgoogly:)

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