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How to Attain True Financial Freedom

Feb 3, 2022 8:26 AM 6 min read

Rich people don’t work for money, they have money working for them.

Financial Freedom can be defined as having an option to not work for money as you already have an ample amount to live a luxurious life. It does not mean that we should not work but instead we get a complete freedom to be picky about how we wish to spend our time. You can do what you like and the best part is that you can say “NO” to things which you do not like. Not concerning with money anymore is the most ultimate thing about financial independence which one could achieve in their life.


What is Financial Freedom?

It all depends upon your perspective on how you define financial freedom. Various people define it differently. For some, it is not having to work. For some, it is being super rich. For some, it is to be debt free while others interpret it as a path to early retirement. Everyone’s viewpoint is completely different about financial freedom. Best way to define it is to not have tons of money and being super rich but instead having control over your financial present and future. We can define financial freedom as having a surplus amount of money to live your life to the fullest without any compromises or being worried about your finances.

 

Gateway to Achieve Financial Freedom

Know where you stand

The road to monetary freedom begins with knowing where you stand currently. This consists of having a definite idea of your financial obligations, your accumulated cost savings, month-to-month costs, your income etc. Put another way, you must know if your individual statement has reasonable financial familiarity with your income, costs, assets and liabilities. Keeping a track of your expenses and knowing about your expenditures will help in determining what amount of money is sufficient. You can do this in many ways like employing a notebook or maybe using a spreadsheet software like Excel. You can track your costs and categorise them in terms of travel, shopping, eating at restaurants etc. This tracking of expenses can be a crucial action towards achieving monetary freedom and it also reveals numerous expenditures which are needless but simply exist due to impulsive purchases. An impulsive purchase works like a barrier in the right road to financial freedom. Hence, it is very important to frequently check on your spendings.

 

Pen Down Your Aims

Why do you need money? It may be to pay off a loan, to attempt to start a business, to travel, to plan weddings for your children, for your retirement and so on. Money is merely a method to reach your economic goals. Without writing down your goals, your money will be purposeless. Hence it is very important to know the reason for accumulating money. Ensure that your objectives are certain, quantifiable, attainable, practical and time-bound.

 

Prioritise Your Fund

“Prioritise your fund” means putting a specific amount in your savings or investment account before spending money on expenditure like bills, discretionary costs, rent etc. This one act of having to pay themselves first has assisted numerous people come closer to financial freedom. Reducing your costs by altering your lifestyle or by picking up a side hustle to be able to augment your earnings are some ways to do that. In either case, you are securing your future to attain financial independence.

 

Save More

Don’t forget that a cent saved is a cent earned. Nonetheless, it may not be equal to the equation that is $1 conserved is $1 earned. Because when you invest that $1, you end up making a whole lot more. Reducing expenditures doesn't just entail adjusting your lifestyle. Financial independence is more about intelligent spending which can be done in a lot of imaginative ways. We can save ample money on travel, regular payments etc. Do the math and you may realise the amount of money you could save. 

 

Paying Off Debt

Avoid carrying on your debts. Having debts on our shoulders affects our mental health. Formulate a plan to strike off your debts as early as possible. Having no loans is pleasing. Paying off your liabilities is a big part of the financial freedom which one could achieve. After all, once you pay off debts, you've got more cash in your hand to utilise in the near future. Your credit history is strong and most importantly, closing financial debts lifts a massive load from your shoulders. There are two main ways to pay off debt. The first one is the snowball method where the smallest debt should be repaid first. So essentially, get one tick mark in your checklist and then move on towards your larger debts. The second approach could be the avalanche approach where you first pay the debt with the greatest interest rate and then move to the lower interest rate debts. Both these methods work effectively and you need to decide what works best for you personally when you have a stack of financial obligations.

 

Additional Sources of Income Generation

A nine-to-five task may possibly not be sufficient in your path to achieve financial freedom. This basically means you will need to check beyond a working task for building income. In fact, data suggests that a millionaire has seven streams of income. So then, congratulations – you have one stream of income if you have a nine-to-five job.

Now, you have to recognise six more! Extra income may come in two ways. The first approach is to earn active income, or in other words, you trade your time for money. The other approach  is to get it done passively where you do the task once and money keeps arriving in an automatic manner. The typical activities that generate cash for you should include offering digital content like e-books and courses, becoming an affiliate marketer, purchasing stocks, etc. in the passive income front. So, try to figure out what works perfect for you and take those little steps towards starting your other alternative income streams.

 

Becoming Investor

The most primary and future-looking move toward attaining financial independence is to invest. Your first step should be to start your investing journey as quickly as you can which will eventually allow the power of compounding to assist you in your wealth creation journey. As our incomes increase, we should also increase our investments. The first step we must take following an increase in our salary is to try to buy good quality business stocks and  increase our systematic investment plans in mutual funds. We should try to buy various fruit-bearing financial assets. Another key thing to do is to achieve an asset allocation of 70-75% in equities as quickly as possible. As a thumb rule, it is a good idea to keep a 75:25 allocation between equity and non-equity assets. You have full liberty to create your portfolio and you also have the freedom to change this ratio depending upon your risk appetite. Figure out what works for you, learn how to master Investing, start small but make sure you aren’t losing your money just by keeping it in a savings bank account. Invest in fixed deposits, bonds, gold, mutual funds, stocks etc. Formulate a proper plan and evaluate yourself what works out best for you.

 

Do keep in ming that ‘poor people spend a lot, middle-income people save a lot and rich people invest a lot’. So, try to invest in businesses which will be fruitful in the future and will eventually help you in accumulating wealth and attaining financial freedom.

 

Conclusion

With an increase in income, you must try to avoid blunders which will prevent you from achieving financial freedom. Don’t buy materialistic things like expensive cars just to impress society. Avoid purchasing depreciating assets as they are just a burden to your pocket. You should try to avoid falling into debt traps by buying only those things which you can really afford. Don’t skip buying your health insurance. If you don’t like paying 5k-10k premium for your insurance then you will definitely not like paying bills worth ₹5-10L for medical treatment. A term insurance worth 5x your salary is a must-buy. Avoid withdrawing stocks from your account frequently. Give your investments time to grow and witness the magic of compounding take place. Read about the finances regularly and try to master the art of investing. You need to master the art of making money on your own. You can learn it from by reading up on the internet, following successful people, reading books, listening to podcasts etc. Before choosing a company for investments,  research the company's management, cash flows, promoters holdings and try to visualise the potential of the company's business in the near future. Most importantly, one should have a vision and focus on thinking in the long term for achieving financial freedom.

FIN.
 

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