What does freedom actually mean? Well, it may mean different things for different age groups. A child may define freedom as liberty to play for longer hours while retirees may perceive it as the ability to spend quality time with family free of worries.
Similarly, individuals of different age groups need to focus on specific financial goals to accomplish financial freedom at every stage of life. Let’s discuss a few strategies to achieve financial freedom for people of different age groups.
For Individuals Below 18 Years
This group usually doesn’t earn money. They study in schools or prepare for their higher education. But they do get pocket money from parents and other relatives from time to time. While they may not have financial goals of their own at this stage (as most are depended on their parents), it’s still a great idea if parents teach their kids how to manage their pocket money well.
The idea is not to spend everything frivolously but also to save a portion which can be later used on certain big-ticket expenses like a laptop or a smartphone. Most importantly, saving up pocket money would help them inculcate financial discipline – something that’s the foundation of every major financial strategy they’ll need to implement in the later phases of their lives to reach their future financial goals.
For Individuals Between 18 To 35 Years Of Age
The people who fall under this age group usually attend college, get a higher education, start working and possibly even get married and have kids. Here are some useful financial pointers for you to achieve financial freedom during this phase:
- As you start earning, make sure you budget your spends
- Try to set aside at least 20% of your monthly income as your savings
- Build an emergency fund worth at least 6 months of your expenses
- Channelise your savings to clear any debts (like education loan) at the earliest, and stay away from piling up credit card debt
- Get a comprehensive health insurance plan with at least Rs. 5 lakh coverage (and no, your office-provided health plan may not be sufficient). Remember, you’ll get a good coverage amount at a cheaper price if you start young
- Get a term insurance plan to safeguard the financial interests of your dependents if something unfortunate happens to you
- Start investing regularly, not just to minimise your income tax outgo but also to meet your financial goals, say, for example, saving Rs. 10 lakh in 4 years for a house down payment fund. The power of compounding will work in your favour so aim to stay invested for the long term.
- Aim to diversify your investments with varying degrees of risk to keep the total risk factor under control
For Individuals Between 35 Years To 60 Years
If you’ve remained financially disciplined and savvy in the previous phase of your life, you’ll find it much easier to take on bigger financial commitments as you enter this phase. Some of you might actually have bought a car and a house by this time thanks to the growth in your income. Many should also plan towards other major financial goals like arranging funds for their kids’ higher education and wedding, and building an adequate retirement corpus. Here are some useful pointers:
- Remain financially disciplined and avoid wasteful spends as you tread a cautious path to repay major loans like a home loan without compromising on your family’s regular expenses
- Consider increasing the size of your term insurance (the sum assured should be 10-20 times your annual income)
- Get a bigger health insurance plan to include your family members as beneficiaries (also add essential add-ons like critical illness cover if you haven’t already)
- Continue investing to meet short and long term financial goals
- Focus mainly to build an adequate retirement fund by investing regularly (although avoid investing in risky instruments as your near retirement age)
- Maintain a healthy emergency fund
- Try to repay all your debts before retiring
- Consider expanding your income pool to meet your savings and investment targets
For Individuals Who Are 60 Years And Above
You’ll be able to enjoy your desired post-retirement lifestyle if you’ve saved and invested regularly to build an adequate retirement fund. And if you’ve remained financially farsighted, you might have repaid all your debts by now and also met other crucial financial goals like ensuring your kids have got quality higher education (and are no longer dependant on you). Here are some helpful suggestions:
- Invest a portion of your retirement corpus in low-risk instruments that can ensure you a healthy lifestyle
- Repay your remaining debts, if any, at the earliest
- Continue paying the premiums for health and life insurance policies
- Maintain an adequate emergency fund
- Use your retirement fund to lead your life in a way you’ve always dreamt of but couldn’t have managed owing to your financial commitments (like being able to see the world freely, doing things you’re passionate about, etc.)
- Prepare a Will for a smooth transition of your wealth and assets
In conclusion, financial discipline is the key is to achieve financial freedom. More importantly, it should be a consistent process and not something that’s actively implemented towards the end of your career to ensure you meet all the financial goals you set for different phases of your life. And even if you feel you lag at some stage, try to put in extra effort to make up for the deficit.
You’ll be well-advised to always be on the lookout to expand your income pool, either by constantly reinventing and upskilling yourself to land a promotion or a better-paying job or make a side income (weekend gigs, online tutoring, starting a YouTube channel to showcase your expertise, so on and so forth) in order to ensure you stay on track. Equally important is to maintain your health (and get a health insurance plan) so that your precious savings and investment returns are not drained in footing hospital bills. Wish you all the very best!
The author is CEO, BankBazaar.com