8 Tips to Achieve Financial Freedom This Republic Day

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On January 26, India will mark its 73rd Republic Day. Three years after gaining independence from the British Raj in 1947, on January 26, 1950, the Indian Constitution went into force. This might be an opportunity to form your financial goals as the nation prepares to commemorate the 73rd Republic Day and as India, a country bursting with fresh investing trends, does so as well.

Various people may have different definitions of financial independence. Financial freedom may, for some, mean never having to second-guess a purchase or a bill payment following a certain service. Beyond stress-free spending, financial independence has other benefits. Having enough money set aside to live stress-free even in the face of unanticipated situations might serve as a simpler definition of financial independence.

What Is Financial Freedom?

As ironic as it may sound, financial freedom is about control i.e. control over your own finances. So, one of the better ways to define financial freedom is to have enough residual income that allows you to live the life you want, without any worries about how you will pay your bills or manage a sudden expense.

In other words, financial freedom is not always about being rich and having a lot of money. Instead, it is more about having control over your financial present and your financial future. To give you the context, there are 8 different levels of financial freedom. These levels range from someone not having to live paycheck to paycheck to having more money than what a person will need in his lifetime.

8 Tips to Achieve Financial Freedom

1. Put yourself first

“Pay Yourself First” refers to setting aside a set amount of money in your savings or investment account ahead of time before making any other payments, such as rent, bills, or other discretionary costs.

Paying yourself first has made many people closer to financial freedom with just one simple action. The fact that this compels us to look into other options to reduce your spending is the reason it works.

For example, you would be required to take further action if the amount of allowed costs that are still left were insufficient for you. This might entail making minor lifestyle adjustments to cut down on existing costs, or it could entail starting a side business to complement current income.

2. Recognize where you are right now Financially

Knowing where you are right now is the first step toward financial independence. This entails having a clear understanding of your debt load, savings balance, monthly costs, income, etc.

To put it another way, you must be familiar with your personal financial statement and have a reasonable understanding of your income, spending, assets, and obligations. Once you have these figures, you may continue on to step 2 of your road toward financial independence, which is putting down your objectives.

3. Aggressively Save

In addition to starting early, you must save a sizable sum each month to amass a sum large enough to set you free. According to a 2012 Putnam Research Institute research, the amount of saved had a greater influence on the final portfolio than fund selection, asset allocation, and portfolio rebalancing. Those concentrate a bit too much about which funds to pick and how to fine-tune their portfolios. An investor who just increased the amount of his savings each year would have a larger corpus than investors who got into the top performing funds or altered their asset allocation annually. It would be preferable to use that same effort to increase the size of those savings instead.

4. Monitor Your Spending

Spending monitoring is a crucial next step on the path to financial freedom. This may be done in a variety of ways, for as utilising an excel spreadsheet or a notepad. The software records and classifies your costs for things like travel, shopping, eating out, etc. automatically.

This spending tracking strengthens your accountability and is a crucial step on the road to financial independence. Additionally, it displays several unnecessary purchases you make just as a result of an impulsive buy. An impulsive purchase, if anything, symbolises relinquishing control and puts a roadblock on your way of achieving financial independence. You should thus strictly watch your expenditures to maintain control.

5. Asset Diversification

Each asset type responds to diverse situations in its own distinctive way. Due to market conditions, one asset may perform exceptionally well while another may not offer high returns. By maintaining a broad portfolio, investors may travel more comfortably and won’t be startled by an asset’s subpar performance.

6. Regularly review your Investing Plans

Investors make judgments based on specific circumstances and market conditions when they first conceive of a strategy. However, the economic climate might alter over time. Investors must continually assess their strategy and make adjustments as necessary. Having flexible strategies can help investors remain on track and get the most out of their investments.

7. Never ignore Inflation

The underestimation of needs is one of the major barriers to financial independence. This is a common error made by do-it-yourself investors when estimating future demands. Over time, even a modest 6% inflation rate might cause monthly costs to rise to unfathomable heights. In 2051, a household that currently spends Rs. 50,000 a month would require Rs. 2.87 lakh. A piece of bread that costs Rs 35 today will cost Rs 200, while milk that is currently priced at Rs 50 a litre will be close to Rs 300.

Other costs might increase much further. The cost of healthcare is rising quickly (12–14%) and will gradually eat up more of your budget. According to experts, the majority of savings are allocated to healthcare during a person’s final ten years of life. Without adequate financial planning, a person won’t be able to afford high-quality medical care when he or she most needs it.

8. Retirement Plans

A critical part of planning is to provide for retirement. Often, it gets ignored as we go along the flow and comes as a nasty surprise when we hit our golden years. It depends situation to situation but on an average, last 10 years of work life should actively contribute towards retirement corpus.

Sometimes, calculating the actual money required post retirement could be difficult as there are various factors into play like inflation. It is advisable to take professional help of financial advisors to ascertain the desired amount and investment avenues to achieve it.