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Financial Freedom - what do you need to do

In the spirit of Independence Day, why not also talk about financial freedom. Have you ever thought about what financial independence means and what it takes to achieve it? Here we will tell you about how you can gain financial independence and good habits to get into.

What is financial independence?
How to achieve financial independence?

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What is financial independence?

Lets look at 2 aspects to this, monetary and emotional.

1. Monetary: What does it mean to be financially independent in monetary terms? We propose the following three scenarios to help you think about financial freedom:
   1. Positive net worth: You will likely have some assets like a home, car, investments, jewellery; and will also have some liabilities like loans and recurring obligations. Net worth is the difference between your assets and liabilities. One idea of financial independence is to have a positive net worth, i.e., not be indebted more than your assets.
   2. Expenses to be lower than your investment income: All of us have expenses like household costs, transport, utility bills etc. In an ideal situation, all these expenses ought to be met by the income that you generate from sources other than your salary. For instance, these sources can be rental income, dividend income and interest income. In this scenario, you continuously use your salary income to build assets (like a house, investment portfolio etc.) and the income you generate from these assets is what you use towards your living costs. It sounds tough, but over a medium-term period it is achievable.
   3. Flexibility: Financial freedom should mean that you have the full flexibility to do what you want, and how you want, without being constrained by your financial situation or obligations. Whether that is being opportunistic to make a certain investment or being able to use some of your capital to deal with an emergency, you shouldn't have to think about it.

   For each of the above, you don't necessarily have to be rich. Even salaried individuals, who aren't going to inherit a family fortune, can achieve financial independence.

2. Emotional: Financial freedom also has an emotional aspect to it. You should always feel free to think about money matters and should not be pre-occupied with thinking about money in a manner that it overwhelms you and makes you depressed.

How to achieve financial independence?

To start with, just like our freedom fighters made some sacrifices to achieve the goal of freedom from British colonial rule, you too might need to make some sacrifices and must have a goal that you are working towards.

Some of you might think that achieving financial freedom is very hard and challenging. Sure, but so was gaining freedom from the British rule. It took close to 100 years before our freedom fighters were able to achieve the goal of freedom. Similarly, don't fool yourself into believing that you can gain financial freedom overnight. Its going to take some effort and discipline on your part, and above all a lot of focus. But, as we all know our country's independence has been worth it, and so too will be your financial freedom.

Here are some suggestions to get you started:

1. Have some goals in mind and by when do you want to achieve them
2. Prioritize which goals you want to achieve first
3. Start early to create assets like a home, investment portfolio that you can reasonably expect to go up in value over time and generate income from
4. Be disciplined about not taking on too much debt to fund a lifestyle that might be unsustainable
5. If you have loans, pay your EMI on time and don't stretch your finances - don't borrow money if you are not confident of paying it back

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