Personal Finance Awareness

8 Simple Steps To Gain Personal Financial Freedom

financial freedom

Most individuals strive for financial freedom. A global survey reveals that 76% of Indian adults do not understand basic, key financial concepts. (Data Ref- Livemint.com Jan 2021)

In this blog, we will be discussing financial freedom and steps to achieve it faster.

What Is Financial Freedom?

Financial freedom is all about having control over your finances. In simple words, it is about having enough residual income to live the life you want, without any worries to manage a sudden expense.

To give you the idea, there are 8 different levels of financial freedom.

Level 1: Not Living Paycheck to Paycheck

The first level refers to building up an emergency fund.

Level 2: Sufficient Money to Quit our job (for a bit)

Quitting your job forever is a huge undertaking. You do not need to quit your job, but it sure is a good feeling to know you can.

Level 3: Having enough to be Financially Happy and still Save

You are earning enough to save, doing the things you enjoy, and still having extra money and time at the end of the month.

Level 4: Freedom of Time

Freedom of time and financial freedom both are inter-connected.

Level 5: Enough for a Basic Retirement

Considering your bare minimum, and knowing you have enough money saved to cover some standard of living in your early retirement.

Level 6: Enough to Retire Well

Knowing you are on track to Accumulate finance to support the lifestyle is a big win.

Level 7: Enough for Dream Retirement

You can enjoy traveling around the world, spending time with friends, etc.

Level 8: Save More Money Than You Could Ever Spend

This is the most important level of financial freedom. Hopefully, your personal financial freedom plan will allow you to outlive your money.

How can you achieve Personal Financial Freedom?

1. Outline the current financial position

The first step towards financial freedom starts with knowing your current financial status. It includes having a clear idea of income, expenses, assets, and liabilities.

2. Write down your financial goals

Write down your top 5 goals to achieve over the next 1, 5, 10, and 20 years.

For example, you plan to accumulate Rs. 15 lakhs by 2023 to fund your house loan is an example of SMART goals, because it is specific, measurable, achievable, realistic, and time bound.

3. List your expenses

It is the third step. You can write down your monthly expenses in a notebook or excel spreadsheet. It makes you more responsible and reveals many needlessly.

4. Pay Yourself First

It means putting a specific amount of money in your savings or investment account before paying for anything.

It forces us to explore alternatives to limit expenses.

5. Spend less than your earning

Spending less does not mean compromising on your current lifestyle or living a boring life. It is more about spending in many creative ways.

One of the most common techniques includes learning to cook at home to avoid restaurant bills.

6. Pay Off Your Debt

Paying off big debt supports financial freedom in more ways than one. You can list down your debts and make a budget of 20% of your income to pay off your debts without avoiding your daily financial requirements.

7. Create Multiple Sources of Income

Besides salary, you should look for alternatives for extra income. Financial experts recommend people to have as many as five streams of income. So, apart from your 9-5 job, you must identify four more!

You can get started with side jobs like freelance writing, driving an Uber, designing logos on Fiverr.com, selling digital content, affiliate marketing, investing in stocks, etc.

So, figure out what works best for you and take those small steps towards starting a second income.

8. Start Making Investment

It is the most crucial step to attain financial freedom. Invest to the full potential and as early as possible.

It allows the power of compounding to help you. Keep a 60-40 allocation ratio between equity and non-equity assets. Change that ratio in the future depending on your risk tolerance.

Review your portfolio once a year and rebalance your portfolio.

Conclusion

Setting your personal finance goals into smaller chunks can help keep you on the right track alongside making the process a bit more manageable and, less stressful. These 8 steps mentioned in this blog have different degrees of complexity. 

Some might see some tasks come very naturally to you, but others might require a lot more work. The faster you can achieve these steps, the quicker shall be your journey.

Decide a plan that works best for you.

“Planning for financial freedom is a marathon and not a sprint”

For more information, you can visit FinTech Blog.

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Till then, happy investing!