The concept of financial freedom has always existed, but it has gained a great deal of attraction much later. The credit for this goes to the rising financial literacy and a growing trend among a section of the workforce to leave their jobs early and pursue their hobbies. However, achieving financial freedom is largely related to how you spend money and more importantly, how you invest.
Financial freedom clearly means being the master of your money and sleeping in peace knowing that you will easily achieve your goals. Let us dig deeper into the ways through which you can seek and declare your independence.
Get started soon for financial freedom
The first step towards achieving financial freedom is to start saving and investing early. Ideally, you should do this (saving and investing) right from the day you start earning. This gives your money more time to grow and has a compounding effect in the long run, which multiplies wealth creation.
For example, if you want to deposit Rs 1 crore and start investing at the age of 30, you will need a monthly SIP of a little over Rs 4400, assuming an annual return of 10%. Now, if you delay it by 10 years, the same amount increases to over Rs 13,000. An early start gives you the much-needed benefits to achieve your goals.
Also, it is important to start early for long-term goals like retirement, as it requires a huge amount of money. Create a budget and make sure you are saving aggressively. The higher the savings, the better your financial position will be in the long run.
Invest in assets that beat inflation
You will need to overcome inflation, one of the biggest obstacles to financial freedom. This reduces the value of money over time and as a result your target amount remains low. This needs to be considered. If your monthly expenditure is Rs 25,000 now, it will be Rs 1.44 lakh after 30 years even with nominal inflation of 6%. Hence, it becomes extremely important to invest in such places, which can help you overcome this.
This is what makes equities important, as they have the potential to deliver inflation-beating returns in the long run. You can invest in this asset class through stocks or mutual funds. If you have a good understanding of the market and can anticipate its movements, you can opt for direct investing in stocks. On the other hand, if you are not able to do so, then it is advisable that you opt for the mutual fund method, where the decision is taken by a professional fund manager.
While investing in equity mutual funds, go for the SIP method, to stay invested in the market cycles and inculcate a disciplined savings habit. Also, keep increasing your SIP with the increase in income to accumulate a larger amount.
Don’t ignore insurance for getting benefits of financial freedom
Insurance is the cornerstone of a sound financial plan. It protects you and your dependents from unexpected expenses. Considering the uncertain times we are living in, insurance is an essential requirement. Any untoward incident can derail your financial plan in no time. Term insurance is a perfect fit for adequate life cover, as it provides adequate coverage at an affordable premium.
Similarly, buy a health insurance plan at the earliest to avoid any unforeseen medical conditions affecting your financial position. Family floater plan provides coverage to all the members of your family at an affordable cost.
Rising medical expenses make it imperative to have adequate health cover, so that you do not have to spend from your savings and compromise on important life goals. Compare different plans and choose the best one as per your needs.
Getting the basics right and following all the things mentioned above can help you get financial freedom easily. At the same time, it also ensures that you are prepared to handle any emergency that comes your way. Equip yourself with right knowledge and right measures to achieve this most important mission without any hassle, and start the journey in this direction today.