The path to financial freedom needs simple rules to follow. Fix your goal and follow these rules and you have attained the financial freedom.
What is your definition of Financial Freedom? Financial Freedom is not just a monetary term. Having a higher income can not be taken as Financial Freedom. Even people with lower income too can enjoy this freedom.
“ It is not your income which makes you rich, it is your expenses “
Financial Freedom is the state when you don’t have to worry just about the finances. You can enjoy your life to the fullest. You can get good enough time to be with your loving families.
You don’t need to stuck to your 9 to 5 jobs all those years. You can plan your retirement from your work without compromising your finances.
Financial Freedom is all about money management. You need to manage your personal finances. That is the path to financial freedom. Having fat income is of no use if you can’t manage it properly.
My father used to say to me,” son, it is too easy to earn money but it is too difficult to manage it.” Honestly, I also learnt it the hard way.
We were talking that financial freedom is the personal finance management. You would need to generate sources of passive income. You can do that in your early working years.
A source of passive income is one which gives you regular income without active working. These sources include having an investment assets such as real estate, properties, stocks, mutual funds.
To acquire an asset, you need a lot of money. Only that can take care of your future expenses. So you have to be disciplined towards your money. You have to fix a goal of getting financial freedom.
Having a goal in mind helps you taking to the path to financial freedom. And now, this is not a rocket science. Lets go through the baby steps to financial freedom for you.
Path To Financial Freedom
The path to financial freedom involves only following the simple rules. These rules are so simple that we just ignore them and do not understand their significance in management of our finances.
Cut Your Expenses
You may be earning handsomely. You have the right how you spend your money. But it is really important that you understand the difference between the Wishes and the Needs.
Needs are those which are necessary for your day to day routine. We all have to spend for those needs. We can prioritise the needs also. You can review the list and delete the things without which you can still make it out.
Others are the Wants which we want for our gratification or fun. There is no end to Wants. So you should cut your expenses on these Wants without which also you can do good.
Going to movies, outing for dinners, pizzas is good for enjoying life. But you should look the scope the cut those expenses down. These expenses may not look very big but if the frequency is high, it can be putting far behind where you otherwise can be if you have planned well.
A saving from a movie ticket or a dinner party today can turn out big after 20 years. That is the magic of investing. There are lots of examples where people made lot of money from small investing over a long periods of investment.
Find out how small and regular investment can make you millionaire without doing anything actively.
A saying by Investment Guru Warren Buffet comes to my mind. He quote-
If you buy things you don’t need, you will soon sell things you need.
So,if you keep buying unnecessary things, this may lead you to a financial mess. Then you would need to sell your important things to make the mare go. We need to learn to live below our means.
Save Your Money
The money you saved by cutting unnecessary expenses is your Saving. You should always create the habit of savings. In case of any unplanned or sudden expense, savings take care of that.
It is believed that when the recession hit the most of the European countries in 2007-08, India was insulated to that to large extent. This was only because of savings habit of the Indian people. The most people in affected countries were debt ridden because of easy credit available and no savings.
So save as much as possible from your income. A thumb rule is that you should save at least 25% of your monthly income every month.
Invest Your Money
Now that you have saved your money by cutting the extra expenses, you should look to manage this money. Leaving that cash idle in your bank accounts will yield nothing.
The inflation rates are higher than the normal savings bank account interest rates. So your savings shall be eaten away by the inflation over longer period of time.
You should invest the money in some asset class. Investing helps the money grow by value appreciation and compounding. Compounding works best over long term. You would need to give time to your investment for compounding to work. That is possible when you start investing early in your carrier.
Investing beats the inflation in terms of rates over longer periods of time and leads to Wealth Creation.You can choose any asset class like Equities, Mutual Funds, Property, Real Estate etc according to your preference and risk profile.
This wealth would be your financial security. When you have accumulated enough wealth, you can plan your retirement from work and enjoy your time and life with your loved ones.
The earlier the better. If you define your goal earlier, you would be accumulating wealth earlier.
Summing up all about Financial Freedom, we can say that –
‘Live below your means, Save your money and Invest wisely’