TL;DR
- Financial freedom is a point where you have enough savings, financial investments, and cash in hand to afford the kind of life you desire for yourselves and your families.
- It can be achieved by setting financial goals to be achieved within certain timelines. Once that’s done, budget your income and stick to it.
- The next step to achieving financial freedom is paying off all your debts and also not incurring new ones- avoid using credit cards recklessly.
- Automating your investments can be of huge help. Tools like SIPs help here. As for investments, choose ones that compound your principal amount.
- Investing in your health is just as important to achieve financial freedom. Medical bills can be a huge burden, and health insurance policies can help offset part of this burden.
- Invest in assets, not liabilities. For reference, anything that generates a positive cash flow is an asset. Build an emergency fund to avoid having to take out loans in any situation, and work on building passive income streams.
Introduction
There is a difference between buying something and actually being able to afford to buy something. For example, let us consider two aspects of purchasing the new iPhone 14–either on EMIs or a credit card. While you can show off your iPhone, the question is, do you really own it and are able to afford it? There is a saying that you can claim you can afford something if you can buy it twice without a flinch. So, you do have the latest device, but it owns you as you will have to pay for the EMIs/credit card debt and interest, too.
To avoid such a situation, you need to start saving money and understand the concept of financial freedom and how to do it.
What Is Financial Freedom?
Broadly, financial freedom means you do not have to stress about your finances. You have your savings, investments, expenses, retirement, and almost every aspect of finance sorted.
In technical terms, the meaning of financial freedom is “Having enough savings, financial investments, and cash in hand to afford the kind of life we desire for ourselves and our families.”
In short, you are financially sorted and have the freedom to do anything with your money. Being financially independent helps you gain a clear understanding and control over your finances.
It might be difficult to achieve that stage, given everything is becoming pricey nowadays with soaring inflation. But a constant effort in this direction can lead you a long way. If you don’t control your finances, it will control you. So, you better bring your A-game to the ground.
Things to Know to Get Financial Stability?
As Jim Rohn says, “To become financially independent, you must turn part of your income into capital; turn capital into enterprise; turn enterprise into profit; turn a profit into an investment, and turn the investment into financial independence.”
Achieving financial freedom in 2022 sounds quite a challenge, but if you can control your expenses, you have the power to become financially independent, too.
You can start your financial freedom journey by contemplating where you currently stand. Make a list of your major monthly expenses, along with the fixed debts you pay. Calculate your income inflows from all active and passive income. This will give you an idea about your ins and outs and whether you are left with any money at the month’s end or not. Once you know this baseline, you can take the ultimate step toward a life of financial freedom and stability.
Remember that financial freedom is more of a mindset than saving money. You need to have a positive relationship with your finances to achieve freedom.
How to Achieve Financial Freedom?
Here is how to get financial stability and become independent. The thumb rule is to be consistent and believe in the process.
1. Decide your financial goals
The first step to achieving financial freedom is to set goals for yourself. For example, buying a house. This is a long-term goal and most likely the biggest spending of your life. Like that, make a list of your goals.
Calculate the amount you will need to achieve those goals and tally that with your current income and savings to figure out how much more you need to save. Also, set a timeframe to achieve that target. Make sure that your timeframe is realistic and that you will be able to achieve it. However, try to push yourself to do better at it.
2. Make a budget
We often spend money whenever we deem fit, even if it’s not a need. For instance, you go out with your friends for a movie and end up buying popcorn and a coke; you accompany your friend for shopping but end up reducing your bank account, too. The list can go on, and we hardly realize those small expenses we unintentionally make that burn a hole in our pockets.
The solution is to make a budget and stick to it. At every month’s end, write your expenses and divide them into different categories for the new month, i.e., utility, food, commute, entertainment, etc. You can also make envelopes, in the old school way, and keep cash in them separately to avoid breaking your budget limit. Eventually, you will learn to stay focused, and that will take you a long way.
3. Avoid overspending and expensive purchases
Overspending is the biggest reason that most people fail to attain financial freedom. If you can control your urge to buy that “one more thing”, you can save a lot of money. Make it your lifestyle to live below your means. This also includes avoiding unnecessary expenses of frequently dining out, movies, shopping, etc.
Even when you buy an expensive item that is really a need, like a laptop, make sure you are paying for the value, even if it goes a little on the higher side. It will save you on the long-term maintenance and modification charges.
4. Pay off your debts
Have you heard about “every time you take a debt, you rob your future self?” Well, this is true when you calculate the interest your future self will have to pay on debts. Thus, getting debt-free should be your top priority.
This starts with avoiding any new debts, paying the debt in full and on time, especially credit card debts, and trying to clear all your debts at the earliest. Start with paying off the debt with a higher interest rate, so your money outflow is reduced. This will also help you maintain a good credit score which you can avail to get better deals.
5. Use cash
While we are living in a digital age, it is better to keep cash for your daily use. For that, you can decide a certain amount for each month. It is quite easier to scan a QR code or use cards for payment which often leads to higher spending. Thus, if you carry cash, you will, at some point, run out of it, which will limit your spending, and slowly, you will see it reflecting on your bank balance.
6. Automate your investments
Automating your investments is the primary force that leads you to attain financial stability. If you find it hard to save each month, automate it. There are so many tools available for you to automate your savings, such as Systematic Investment Plans, bank recurring accounts, etc. Utilize them for your goal and start saving money, even if it’s a small amount. Make “save money before you spend money” your go-to mantra.
You can even set up SIPs in Mudrex Coin Sets. They enable you to leverage the benefits of crypto by applying index-style investing.
7. Believe in the power of compounding
To get rich, you have to be making money while you’re asleep.” – David Bailey. This is what the power of investing is; it helps you create wealth over time. Having a bigger salary is not as much a need as investing money. That’s what differentiates the richest from the rest of the world. Pay yourself first and invest; use the rest you have.
8. Health is wealth
The big Indian bull, Rakesh Jhunjhunwala, recently died and one of his letters went viral that said invest in your health first. If you are fit, you can achieve anything in your life; invest money to eat healthily and stay fit. Additionally, buy an adequate health insurance policy that suits your lifestyle and can cover your medical bills if you have to go through a surgery or emergency medical procedure.
9. Build an emergency fund
What happens if you suddenly lose your job? Would you be able to maintain your lifestyle and provide for your family? It is difficult, right? That is why it is important to build an emergency fund. It should ideally be equal to 6 to 12 months of your salary so that you can avoid a panic situation that can lead you to take on debts at higher interest rates.
10. Buy assets, not liabilities
While a house is an asset, a high-definition TV or a fancy car is just a liability. You can live without those things and save yourself some bucks. According to several financial experts, anything that generates positive cash flow is an asset. The rest are not! Before every purchase, think about whether it is an asset or a liability. Ask whether you can work without it and, if you buy, what value it would serve. Make a well-thought decision.
11. Try to gain passive income
As Warren Buffet says, you need multiple income sources to create wealth and achieve financial freedom. To achieve this, you can start side hustles and earn some extra money in your free time. This side hustle can be online tutoring, blogging, social media handling, etc. Anything that you are comfortable doing in order to earn extra money, start doing it in your spare time.
You can explore Mudrex Vault to create a passive income stream. It offers a 10% stable return on your investments.
Conclusion
What is financial freedom? In Tony Robbins’ words, “Working because you want to and not because you have to is financial freedom.” Achieving financial independence is a personal finance concept and a process that you learn with time and effort. You have to be conscious about where your money goes to reach your goals. An ideal step would also be to educate yourself on finance and investment options and, if required, consult a financial advisor.
Remember that spending money is not a barrier to attaining financial stability. You need to develop the vision of limiting unnecessary expenses and investing in the value to create wealth. Slowly and steadily, you will get there; trust yourself!
FAQs
1. What is the 30 days savings rule in financial freedom?
We often make impulsive purchases and regret them later. To avoid that, the 30 days saving rule helps. It says that if you want to buy something, wait for 30 days. If you still find the need to purchase it and are sure of its value, go for it. This helps in avoiding purchases that are not required. We put this ‘purchase money’ aside in a savings account, which ultimately results in saving.
2. How long does it take to achieve financial freedom?
The answer to this question is very subjective. Everyone has different living expenses and lifestyles. The life stages are also different. Thus, it is individual requirements, goals, and dedication that decide the time to achieve financial freedom. It can be 5 years for some, while for some, it can be 10 years, too.
