3 Steps to Financial Independence
Have you arrived at a financial state where you do not have to rely on employment to cover daily expenses? If no, then you are yet to achieve financial independence.
For a lucky few it comes as a gift in the form of inherited wealth. Unfortunately, most of us have to work hard to attain this state. Even the lucky few have to be financially savvy and show prudence, failing which even the wealthiest could find themselves in a tough situation.
Each individual looks at financial independence through their own unique lenses. To some, it would translate to early retirement. For others, the ability to live a wealthy life devoid of financial woes would mean freedom.
What does financial freedom mean to you?
In more practical terms, financial freedom refers to the status of having enough of passive income that covers one’s reasonable living expenses for life, allowing them to retire early and live life on their own terms. A person, who is not dependent on his job to take care of his essential expenses, will always have the benefit of choosing a career or an employer of his choice. This is a benefit that most people do not enjoy. Other perks include the ability to follow your passion, be ambitious, travel, achieve goals, be a philanthropist, and more. But remember,
“The goal isn’t more money. The goal is living life on your terms.” – Chris Brogan
In a study by YouGov & Mint, approximately 57% of pre-millennials, 40% of millennials and 17% of post-millennials claimed to save prudently. The top reasons they are saving for are retirement, contingencies, asset purchases (home or car) and children’s future educational needs. While the reasons for saving may be right the amount of savings is not enough to fill the gap to assist them to reach financial independence.
How do you attain financial freedom?
A book released in 1992 called ‘Your Money or Your Life’ speaks of how money is not the end goal but a tool to achieve your life goals. Here is where the idea of the F.I.R.E movement originated, which is the acronym for Financial Independence, Retire Early. While financial freedom can be extremely attractive there are quite a few tweaks one will need to make in life, specifically in terms of their relationship with money. To begin the first question that needs to be answered is:
Why do you want to attain Financial Freedom? You must have goals in mind that you truly want to achieve to make this journey towards independency worthwhile. Your future plans or goals over the next 5 to 20 years must be thought of, with milestones chalked out to keep you on track. Sometimes planning can be tough because we fail to ask ourselves the right questions, take the assistance of a financial advisor who is skilled at future planning. Once your plan is in place you can now find ways to make your income and savings work towards helping you achieve those goals.
Curb. Curb. Curb.
When you have sorted out your plans for the future it is now time to get down to the real work. Start tracking your expenses, down to the last penny if possible. Distinguish your expenditure between essentials and lifestyle expenses. You will be shocked at the amount of money you can possibly save with a little prudence and a lifestyle change. If you are an avid shopper, delay any big purchasing decision; revisit the decision after 24 hours. You will most likely find resourceful ways or solutions that help you save that big expense.
Your steps towards taking stock of your expenses and spending mindfully will lead to small savings. The next step is to find ways to live a minimalistic life. Reduce your essential expenses and increase your savings. This certainly does not mean you live under a rock to save money; it merely refers to being aware of where you are spending your hard-earned money and questioning yourself if that expenditure is worth the amount of time you spent earning it? As your savings begin to multiply start investing prudently in the right investment instruments that are aligned with your future goals.
Soon the effects of compounding will begin to kick in. Your tiny sum saved at the end of the first month will snowball into a corpus that can possibly see you through the rest of your life giving you the much desired independence you wanted. Achieving your goal of financial freedom will depend on 3 fundamental factors, namely time in hand, income generated and expenditure habits. With a little willingness, commitment, patience and the guidance of the right financial advisor, even the most unattainable goals can be achieved.
What does financial freedom mean to you?
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What does financial independence mean and is it even possible to achieve? With a little willingness, commitment and patience even the most unattainable money goals can be achieved. Here are a few first steps to get you started on your way to financial freedom.