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?
To give you the idea, there are 8 different levels of financial freedom.
Level 1: Not Living Paycheck to Paycheck
Level 2: Sufficient Money to Quit our job (for a bit)
Level 3: Having enough to be Financially Happy and still Save
Level 4: Freedom of Time
Level 5: Enough for a Basic Retirement
Level 6: Enough to Retire Well
Level 7: Enough for Dream Retirement
Level 8: Save More Money Than You Could Ever Spend
How can you achieve Personal Financial Freedom?
1. Outline the current financial position
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
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
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.
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.
Till then, happy investing!