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Ensure Your Financial Freedom With These 7 Steps

Adhil Shetty

As India celebrates its Independence Day, ask yourself: what about your financial independence?

Being financially independent implies living a life without compromising on what’s truly important to you because of lack of funds. It is not financial freedom if you have to mortgage your assets or borrow to pay for important things like children fees etc. or sacrifice your life’s dreams.

A few smart moves can ensure financial freedom. Take a look at those steps:

Work On Ways To Increase Your Income

You may feel your income is sufficient as per your current needs, but with rising inflation, this may not remain same in the long term.  So there should be a consistent effort on your part to explore ways to increase your income so that you can beat the inflation in the long run. Suppose your current salary is Rs. 5 lakh per annum and it is just adequate for your regular expenses. Your income increases by 5% PA, but during the same period the inflation increases by 6%. It means your income shrunk by 1% that year, and if this shrinkage persists, you may find it difficult to meet regular expenses. In such a scenario, you need additional income, or investments growing faster than the rate of inflation.

Control Your Expenses

The way you spend your money influences your financial independence. We have few needs and unlimited wants. It’s important to balance your spends on the two. Find a way to control your unlimited wants. Identifying what’s truly essential and controlling impulse and luxury spends can lead you quicker to financial freedom.

Invest For Your Future

If you invest for your future, you can avoid a situation where you are forced to borrow money for basic needs. You must identify your financial objectives and start investing towards them as early as possible. Time is as much a factor to growth of money as is the rate of return. By starting investment early, you receive the benefits of compounded growth where even small, monthly contributes such as Rs. 2000 a month can create a multi-crore corpus for your retirement in the long run. Whatever be your goal, you can invest for it. Let’s say you want to buy a house after 10 years, it would be wise to start investing immediately for that objective and build an adequate corpus so that you can reduce your need for a home loan by using your own funds for the purchase.

Bad For Health = Bad For Finances

Habits like smoking, alcoholism, eating tobacco etc. are bad for your physical as well as financial health. If you use the money spent on these items for long-term investments, you can easily accomplish many of your financial objectives. Suppose a smoker spends Rs. 100 every day on cigarettes. Instead of spending Rs. 3,000 on cigarettes every month, if he invests the same amount in an equity mutual fund SIP, it may help him to build a corpus of around Rs. 45.5 lakh (assuming ROI at 15% PA) in 20 years.

Avoid Unnecessary Debt

There’s easy availability of credit in the markets today. Ensure you’re borrowing for the right reasons and not financing your consumption through credit. If you borrow more to create appreciating assets (home, career, business) and reduce consumption (lifestyle, travel, electronics) through borrowed money, your wealth creation accelerates. Also, only borrow when you’re sure of paying it off as per the repayment terms.

Take Insurance To Mitigate Various Risks

You never know what calamity may hit you in the future and throw your life out of gear. So, the best thing you can do to mitigate such risks is to take appropriate insurance covers. For example, a health cover can ensure quality treatment as well as helping you deal with the rising healthcare costs. Similarly, life insurance can protect your family from financial hardship in your death. Insurance provides your family freedom from risks and you a tension-free life.

Maintain Adequate Contingency Fund

A contingency fund ensures that you can live a normal life in an adverse financial situations such as a sudden job loss or an income loss. Ideally, contingency fund should be enough to help you meet regular expenses such as EMIs, home expenses and so on, for 6 to 8 month period. This fund gives you financial freedom till your life is back to normal again.

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