A 5-point Plan For Financial Freedom

As we near India’s 71st Independence Day, it’s an opportune time to ask yourself – what does Financial Freedom mean to you? Are you Financially Free? If not, are you at least on the path to it? While some have defined Financial Freedom as a utopian state where you don’t need to work anymore and can afford to live a comfortable life off your low-risk savings, that’s really a luxury that very few people can afford at any point in their lives! Rather, Financial Freedom is best defined as a ‘state of mind’, in which you don’t have money worries or financial stress, and your investments are in the right places, working hard for you. Here’s a simple, yet powerful 5-point plan through which anybody can attain this state, irrespective of their income level or present life state.

Get the Basics Right
You can’t get ahead if your current situation is in shambles. Start by getting the basics right – set up a written budget, get a financial plan in place and work out your key personal finance ratios. If you’re married, commit to discussing money matters with your spouse and discuss your joint hopes and dreams, and sign off on a plan towards their achievement. Make sure you’re spending at least 20% less than your net take-home each month.

Clean up your Finances
Once you start getting the basics right, you may discover that you’ve made any mistakes in the past. That’s okay! If you aspire to be financially free, you’ve got to start with a reality check and subsequently clean up any messes you may have made previously. Commit to an action plan to pay off your loans (especially high interest ones such as personal loans), even if it means cutting back on your lifestyle spends for a time.

Commit to Self-Learning
You don’t need to be a financial wizard, but you do need to be aware of what’s going on around you. A basic awareness of the pros on cons of various financial products, a cursory understanding of local and global financial market dynamics, and a knowledge of basic principles of investment management and asset allocation are key. Start reading a financial blog or a daily every day. This knowledge will empower you to the extent that you’ll make a lot less regrettable decisions with your money!

Break out of your comfort zone
Stuck in traditional investment avenues only? Never looked beyond Fixed Deposits, PPF and Life Insurance? You’re probably never going to be financial free in the true sense of the word – what with inflation eating into a chunk of your capital growth each year! This Independence Day, resolve to take baby steps into more non-traditional asset classes such as Mutual Funds, NPS or even blue-chip shares direct equities. In the long run, this will make s massive difference to the quantum of wealth you’ll create from your hard-won savings.

Ready, Set, Goal!
Last but not the least, set up a checklist of your short term, medium term and long term financial goals. Define them as clearly as you can, by giving them a target date, an inflation adjusted target amount, and a priority. Anchoring your recurring savings to your goals can have a profound impact not just on your investing experience, but on your state of mind too. With the background awareness that you’ve got a plan in place to achieve your important life-goals, you’ll be able to indulge in some guilt-free spending from time to time and have the peace of mind that is so characteristic of – you guessed it – Financial Freedom!