On India's 77th Independence Day, Take These 7 Steps To Also Achieve Financial Freedom

August 15 has been a special day in our country¡¯s history ever since we got independence in 1947. The day marks the nation's independence from British rule.

This year, as India proudly celebrates its 77th Independence Day on August 15, let us take this as an opportunity to become financially independent as well. This has become more important now than ever, with mass layoffs, high inflation, high-interest rates, recession fears and economic uncertainty affecting most parts of the world, including India.

And yes, your financial life does not start and end only on earning your bread and butter. When you put your money to work for you instead of only the other way around, only then can you call yourself financially independent.

Steps To Achieve Financial Freedom

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On India's 77th Independence Day, let us bring to you 7 financial steps that you can take towards achieving financial freedom.

Also Read: How India's First PM Became The Brain Behind the Country's First Cosmetics Brand

1. Make emergency fund your financial best friend

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If the past three pandemic-hit years weren't enough, then the sudden and mass layoffs should have at least re-emphasised the absolute necessity of having an adequate emergency fund in place.

This is the first step towards financial independence. This fund acts as a cushion during financial emergencies that can be in the form of a sudden job loss, severe illness, disability, or significant pay cut. In all such adverse events in financial life which can temporarily hamper your income inflow, having an emergency fund is what can rescue you by helping you carry on with your recurring monthly expenses.

It is usually advisable to have an emergency fund with an amount equal to at least six months of your recurring monthly expenses. The size can be even bigger, such as 9¨C12 times the monthly expenses if you can maintain that size. After all, the bigger, the better!

The mandatory recurring monthly expenses to factor in the emergency fund are your rent, utility bills, loan EMIs, monthly investment contributions (like SIPs), insurance premiums, your children¡¯s education fees, etc.

2. Adequately insure yourself and your family

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Another big step you need to take is getting adequately insured. If you still don't have life and health insurance despite the COVID pandemic and mass layoffs being massive wake-up calls then wonder what is holding you back from understanding the importance of these two.

Firstly, the primary objective of buying a life insurance policy is to provide a replacement income to your dependents in the event of your untimely demise. Make sure your life insurance coverage amounts to at least 15 times your average annual income. You can prefer purchasing term life insurance over other life insurance products as it provides large life coverage at very low premiums.

Secondly, in addition to term insurance, it¡¯s equally important to have health insurance.
Keep in mind that having a health insurance policy with adequate coverage reduces the risk emanating from rising healthcare costs. Youngsters should also remember that even if their employer provides coverage under group health policies, such coverage is usually inadequate to meet hospitalisation costs, and such policies lapse once they switch organisations. This leaves you without health coverage until you get covered through another employer-provided health plan.

Also Read: Why Life Insurance Premiums Are Cheaper For Women

3. Start investing with whatever amount you can

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Albert Einstein once called compound interest the eighth wonder of the world. Those who understand it, earn it; while those who don't, pay it. The magical power of compounding is something that has remained one of Warren Buffett¡¯s central principal investments.

The sooner you begin investing, the more time and scope you allow for the magical power of compounding to work wonders for you in the long run. It is one of the most powerful weapons that every person who became rich swears by. Compounding increases your invested money¡¯s value by getting the interest earned added back to the principal and thereby generating exponentially greater returns. This especially works wonders over the long term.

Also, even if you want to start investing with small amounts, mutual fund SIPs can be a great way to do so. Click here to understand its benefits.

Also Read: Step-Up SIPs vs Regular SIPs

4. Take up side gigs for passive income

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Whether you are an engineer, entrepreneur, doctor, journalist or earning your bread and butter through any other career, there is some hidden talent, creative outlet or hobby which we are passionate about, right? So, when you enjoy doing something and are even good at doing it, why not monetise it by turning it into a side gig?

While the list can be endless, some of the side gigs can be content creation, storytelling via podcasts, online tutoring, social media influencer, selling handmade, personalised goods, taking up vlogging, photography, delivering food or parcels part-time, renting out the extra room of the house, transcribing audio files, etc.

5. Learn to save first & spend later

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In Warren Buffett¡¯s words, if you buy things you don¡¯t need, you will soon sell things you need. That is exactly why most rich people save first and spend later.

So stop cribbing about your inability to save and get rid of excuses like insufficient income, high expenses or the no compromise policy on fulfilment of the YOLO (You only live once) motto. The key to saving lies in the habit of saving first and spending later. Every month, set aside a part of your income as your savings. It can be 20%,30% or 50%, or any percentage to begin with.

Just ensure to be disciplined and stay true to the habit. And remember that whenever your income rises, increase the proportion of savings, instead of spiking up your spending upon obtaining more money!

Also Read: 5 Financial Habits Youngsters Should Not Inherit From The Older Generation

6. Try remaining debt free as much as possible

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One of the biggest roadblocks to financial freedom is having a lot of debt, such as outstanding credit card bills piled up, and multiple loan EMIs. So, on your road to becoming financially independent, it's important to remain debt free, but if not possible, then at least minimize your debt. It is usually advisable to keep your EMIs under 50% of your monthly income.

And if you currently have multiple loans, then click here to understand how you can manage them efficiently.

As far as credit cards are concerned, there is no doubt that they have their own set of benefits such as quick payment, EMI options, interest-free periods, reward points, discounts, cashback, helping in building and maintaining good credit scores, etc. But at the same time, it's equally important to not end up overspending to the extent that you end up sitting on a pile of credit card debt, which in itself has super high interest rates of around 40%!

Also Read: Warning Signs Of Approaching A Credit Card Debt Trap

7. Start retirement planning in your 20s itself

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What would be your reaction when someone asks you to start retirement planning as soon as you begin earning? You would think it's crazy, right? But that's exactly where you are wrong.

After all, the sooner you start, the more time you allow your money to grow, benefit from the power of compounding, and thus accumulate a bigger corpus for yourself. On the other hand, the more you delay, the lesser time you have in hand to accumulate the target corpus, which may in turn put you through more financial stress because you would need to invest more money to reach the target corpus within a shorter period.

For example, let's assume you wish to create a retirement corpus of Rs 75 lakhs (after factoring in inflation cost), aim to retire at 50 years of age, and a conservative 12% p.a. Return is assumed on equity investments. So, if you begin investing at the age of 25 years, a monthly SIP of just Rs ?3,992 would fetch you this corpus by the age of 50. Whereas if you begin investing at the age of 30 years, 35 years and 40 years respectively, you would need to contribute a monthly SIP of close to ? 7,581, ?15,013 and ?32,603 respectively to accumulate the target corpus by the age of 50.

So, you see, the later you start, the deeper you need to dig your pocket every month to sufficiently accumulate the target retirement corpus on time. And, with more and more millennials and Gen Z preferring to retire as early as the late 30s or 40s instead of the usual 50s or 60s, doesn't it make even more sense to start investing for retirement as early as possible?

Also Read: Child's Higher Education v/s Your Retirement: Which One To Prioritise As A Parent?

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