How To Achieve Financial Independence?
In this article, we are going to discuss 7 Steps To Achieve Financial Freedom. In today’s changed financial ecosystem, a long-term prudent investment is required to achieve financial independence.
We have already covered what is mean by financial freedom in our earlier blog.
7 Steps To Achieve Financial Freedom
- Financial independence refers to a state where we have enough resources at your disposal to meet your expenses as well as fulfill your future financial goals.
- Your monthly earned fixed salary may be barely sufficient for meeting monthly expenses and paying EMIs for like home, car and also planning for children education and marriage etc. In such case, then how one can actually achieve financial Freedom or independence?
- But, it is definitely possible, with careful financial planning and follow-up actions, one can build a wealth to break the dependency on the monthly salary.
Following 7 Steps To Achieve Financial Freedom which would help you move towards your financial independence.
- The first step we should take on this financial freedom journey is start as early as possible, stop unnecessary delays. The more we delay, the more challenging it will become for us to achieve financial independence.
- A smart approach would be to make sufficient savings and investments in early stages of our career. The regular source of income allows us to build a corpus of funds that is sufficient to take care of all our expenses.
2. Save and Invest for Long-term
- Savings is the most crucial and most important aspect of wealth creation and achieving financial freedom. Start with saving part of your salary by cutting your discretionary expenditures.
- This can be done by committing to invest at least a minimum of 20-25% of your salary. The more you save now, the more your money compounds. The power of compounding should not be underestimated.
- The appreciation you will receive on 20-25% of your salary if you save consistently and invest intelligently, is far beyond the expectation.
3. Have a Healthy Portion of Equity Investment in Your Financial Portfolio
- Equity investments have rewarded investors by multiplying investments in a relatively short span compared with other investment avenues.
- If one starts early, plans properly and invests meticulously, one can endeavor to create sufficient wealth, helping to achieve financial freedom at a quite early age.
- In current volatile markets also, one can find opportunity to build a wealth through equity by staying for a long period in the market. For more details, you can refer our blog : 4 things to note for the investors in volatile markets.
4.Adopt SIP ROUTE; Avoid LUMP-SUM investments
- If one is unable to commit lump-sum investments, systematic investments in equities would enable an investor to create wealth that can take care of his/her early retirement.
- SIP route helps you average your purchase price and helps you with better returns with relatively lower risks. So by SIP route, one can get the advantage of stock purchases at the discount.
- SIP option has made it possible for investors to bring the much-needed discipline in their approach towards investment while making the magic of compounding work in their favor.
5. Plan Your Financial Goals
- Have different investment strategy for your financial goals like home, marriage, health, education etc, Quantify them and set the time horizon for the same.
- You should do research and give enough time to make informed decisions, don’t follow a herd approach and invest time and effort to know about the fundamentals.
- Prepare your action financial plan for changing scenario and stick to it during the investment horizon. This will prevent you from making an impulse decision.
6. Manage Risk
- You should have liquid funds to meet any emergency situation. Define you contingency fund requirements and work towards accumulating the same.
- The idea is your financial plans should not get hit by any contingency which anyone can face at any time of life, be it health issues, job loss, repair and renovation to your physical assets.
- Try to build a reserve which will sustain you for 6 months should you not receive any inflows in this duration. Refer major Personal Finance Risks.
7. Keep track of Your Investment & Review
- Once you have created an investment plan, keep it on track. Review your portfolio from the standpoint of the rationale that formed the basis of your investment. Though short-term volatility is bound to happen, you should focus on the fundamentals of invested stocks.
- Don’t be too inflexible just because you have put in time and effort for your previous research. So be ready to keep that flexibility to amend your portfolio with changes in fundamentals. Remember overconfidence may be hazardous to your wealth.
Our Indian Independence has entailed dedicated and passionate pursuit of freedom by our freedom fighters. In the same way, a whole-hearted commitment to financial planning will ensure you achieve financial freedom or independence as well.