Financial independence is having enough wealth to live without working. Financially independent people live by the principle of generating cash flow equal to their expenses by leveraging assets.
Anyone can achieve financial freedom if the finances are not just earned, but also utilized.
To be financially independent, one needs to set goals and design a plan of action for these goals. Financial freedom is, being prepared for an unexpected car repair charges without being overly stressed about the financial impact. There are many ways through which you can not only retain your savings but also multiply them like FD, Mutual Funds, Saving Bonds etc.
Want to learn how to build a financially independent life for you and your family?
Let’s start by defining what financial independence looks like and how you should go about it:
The first step towards financial freedom is to determine where you stand financially any time including regular evaluation of income sources and debts. Do an honest assessment of your assets and determine your net worth by subtracting your debt from your income. Being updated with the status of your finances should help you get a sense of where you need to go from here to have more financial security.
One of the hurdles in achieving financial freedom is debts (home loans, car loans, student loans, etc.). Though it is easier said than done, debts are often hard and can make your financial budget go for a toss. So make sure you plan on a strategy to pay off your debts as early as possible with the resources you have. Once you are debt-free, be like that. Debt undermines your ability to build wealth and puts your financial plan at risk. If possible, stay clear of debt.
Own every penny you earn, by learning how to budget your finances regardless of what you are earning. Budgeting is crucial no matter how much money you have, as it keeps your financial goals in check. Budgeting is the first step in moving towards financial freedom.
Every bit that you save is important in building a corpus for financial stability. Try to get into the habit of saving at least 10-15% and if possible 20% of your earnings. Set up an automatic transfer from your bank so that you can maintain discipline in saving some part of your earning every month.
Start building your financial reserve by strategically investing in liquid investments like government bonds or money market funds for emergencies. Do your best to create a reserve which can cover you for next 3 to 6 months without a source of income. If you save money but do not invest it, you are restricting your financial freedom by letting go of growth on your savings.
Follow your plans consistently in order to achieve financial freedom. Do not let few failures or hiccups in the plan derail your finances and make sure that you keep planning ahead. Make sure that you plan your investments in such a way that they do not affect your liquidity and multiply your funds.
Contrary to popular belief financial independence is very much achievable and within reach.