What Is Financial Freedom and why it matters?

“Financial intelligence is simply having more options, figuring out ways to create opportunities, or altering situations to work in your favour.”-Robert Kiyosaki

The well-renowned author of the book – Rich Dad Poor Dad encapsulates the value of financial intelligence, which leads to freedom. Having money and building wealth are two completely different narratives that determine when and how you achieve financial freedom.

But How Can You Become Financially Free?

No quick fixes or shortcuts will get you financial freedom overnight. It takes discipline and patience, along with a solid plan of action.

• Either passive income or active income can lead to financial freedom. When you earn money without working for it, it’s called passive income.
• For instance, passive income might come from owning a property with a monthly influx of rent payments.
• When you have to work for your money, you have active income. Active income might be, for instance, your monthly salary as an employee. 

Important Elements for Financial Freedom

Even today, there’s a gap in allocating funds and savings to asset classes.

In India, 77% of households invest in real estate and 11% in gold. Though it has worked in the past, many other assets require emphasis today.

So, how do you shift your focus?

The answer to this question lies in gaining insights and traction through in-depth research of the contributing factors. These factors include:

Income Variances

Your capacity to regularly save and accumulate a sufficient retirement fund is impacted by fluctuating income. This can make it challenging for you to save money.

This is a vital reason why you must consider the following for your retirement plan:

• Income patterns
• Spot probable variations

Savings Rate

The percentage share of money that you can set aside from a part of your income outside of your expenditures is called the savings rate.

To establish an ideal savings rate for a strong retirement fund, it is essential to assess the following:

• Financial status
• Time taken to achieve it
• Level of risk tolerance
• Retirement lifestyle

Returns on Investment

Consider several investing choices, including mutual funds, equities, bonds, and real estate.

Recognise the advantages and pitfalls that might be involved with any investing option, taking into account the following factors:

• Average rate of return
• Prior performance and professional forecasts
• Investing goals
• Risk tolerance
• Inflation rate

Rate of Inflation

The steady, long-term increase in prices for goods and services that lowers the purchasing power of money is known as inflation.

While estimating your retirement corpus, it is critical to assess the following factors:

• Predicted costs
• Average rate of inflation
• Savings
• Investment goals

Illustration of an Example

Here is how you can alter your savings rate and choose the appropriate  fund/plan that helps you achieve financial freedom faster:

Annual Income Range	Savings Rate	Average annual returns	Total number of years	Accumulated corpus at retirement
25-30 lakhs	10%	5%	25	40-50 lakhs
25-30 lakhs	20%	10%	15	40-50 lakhs

Financial Independence Strategies

Financial independence can be attained by prudently investing and saving money, leading a moderate lifestyle, and avoiding long-term debt. Here are some ways to manage your portfolio:

Establish a Variety of Revenue Streams

Suppose one of your income sources disappears due to an unforeseen circumstance or because your career has reached a plateau. In that case, having alternate income streams can help secure your financial stability.

You can also consider launching a side business or finding freelance work in your profession.

Set up a Buffer of Reserve Money

Start by allocating a portion of your income to a high-yielding investment plan if you don’t have any savings. Then, make a budget plan.

The emergency fund is a preparatory phase for an unplanned occurrence. You can invest in it until it reaches six months’ worth of living costs (excluding housing).

Pay off All Debts in Less than Three Years

Credit card debt and any other loans with interest rates exceeding 10% annually fall under this category.

Your monthly cash flow will increase if you pay off debt quickly.

This will make it simpler to start saving for retirement or investing in other types of assets that could offer greater returns than savings accounts or fixed deposits.

Establish Regular Monetary Objectives

Setting clear financial objectives enables you to monitor your development and stay motivated over time.

If your monthly savings target is INR 30,000–40,000, save it from your monthly income and add it to an investment.

Acquire Prudent Investing Skills

The earlier you begin saving, the more time compound interest has to work its magic for you later on down the line.

Start with INR 10,000 per month and increase it by 10% annually. You’ll be surprised at how much this will add up over time.

So, How Does One Achieve This Level of Financial Independence?

Simply put, it all comes down to three factors: 

• Cutting back on spending
• Making the most of your savings 
• Earning money you can put towards investments

To be financially free and independent, you don’t have to be a multimillionaire or a great businessperson. By nurturing your savings habit, you’ll not only secure your future but also enjoy the peace of mind that comes with financial independence. Start your journey now, and steadily move towards the life of freedom and fulfillment you’ve always envisioned.