The meaning of freedom differs from one person to another. For a child, freedom may mean playing for long hours, for a teenager, it may mean living on one’s own condition. However, there is one freedom which individuals of different age groups wants. This is called financial freedom.
Generally, financial freedom refers to a state where an individual has enough resources at their disposal to meet expenses and is as well as able to accomplish financial goals without being dependent on others.
The concept of financial freedom may, nevertheless, vary from an individual to another.
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While one may have a fixed salary, it may not be sufficient to meet his/her expenses. In this scenario, how financial independence can actually be achieved?
Experts say this is possible with proper financial planning.
To mark the occasion of 74th Independence Day, here is some advice on how to achieve financial freedom.
Living within means
While credit cards and loans allow people to live a certain quality of life instantly, they can impact their financial stability in the near and long-term. Hence, the first step towards financial independence is to learn to live within means.
“Individuals should follow the 50-30-20 rules of budgeting so that they are comfortably able to allocate the post-tax income to all three buckets,” opines Harsh Jain Co-founder and COO, Groww.
Here Jain means that 50 percent of the income should go to needs, 30 percent to wants and 20 percent to savings and investing.
Prioritizing saving and investing
Usually, youngsters tend to spend first and invest whatever amount is left at the end of the month. Jain stresses on reversing this process.
Based on the average expenses, one should determine a fixed amount that he/she would want to save and/or invest every month.
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“Invest first and spend whatever is left. This can also be achieved by instilling the habit of budgeting in life. Also, start small but start early and invest in options that can offer inflation beating returns,” Jain suggests.
Starting early in accelerated wealth generating avenues like mutual funds and stocks can help investors benefit from the power of compounding as well as in spreading out risks. One can increase the contribution towards the goal in proportion to the increase in savings/increments received so that he/she can reach the desired corpus faster.
Creating an emergency fund
Life is unpredictable. Hence, financial preparation can help one in avoiding any sudden jolts to finances.
"Based on average monthly expenses (living costs), everybody should have an emergency fund that can allow them to survive without income for at least six months. This will protect the investments and keep them away from unwanted debt," explains Jain.
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One should invest in liquid funds for this purpose so that the emergency corpus is easily accessible.
One should ensure that tax planning is aligned with the long term financial goals. According to experts, one should look for avenues that serve the dual purpose of wealth creation and tax saving,
Buying sufficient insurance cover
One should always have insurance with sufficient cover, experts say.
"With time, premiums get more expensive. So, it is important to buy it as early as possible," opines Jain.
Reviewing financial situation regularly
According to experts, one should cultivate a habit of reviewing finances once every six months.
"This includes tracking the performance of mutual funds and portfolio as a whole. This will keep investors in control and allow them to make changes like increasing the investment amount , redeeming certain investments, portfolio rebalancing etc with ease," Jain explains.
Reviewing financial situation will also help in keeping debt levels in check.
Being financially educated
Financial education is the key to financial freedom, say experts. As one learns more about the nuances of investing, they will be able to explore more wealth creation avenues and will take smarter decisions regarding their portfolio.
"Read books on investing or get inspired from industry leaders who started small, yet achieved financial independence with discipline," adds Jain.
Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.