It’s our 75th Independence Day. The day we walk around with pride and enthusiasm while we celebrate living in an independent country that has given us opportunities to fulfil our dreams and live our lives with liberty.
As we celebrate Independence Day, let’s take a moment to think about achieving your financial freedom.
Don’t worry. We are here to handhold you while you take your first step towards financial independence.
What is Financial Independence?
Financial independence holds a different definition for each one of us. For some, it may be living a debt-free life, while for others, it might be having a stable job that fulfils your daily needs.
But, sadly, this is not what financial independence is. Financial independence refers to a situation when you have enough money to fall back, covering all your expenses for a lifetime.
5 Steps to Plan Your Financial Independence
- Calculate how much you would need
Grab a pen and paper or open an excel file, list all your current expenses and make a future projection of them.
This would include all the expenses such as EMI for your home for the next 10 years, college fees for your kids, medicines, clothes, bills, etc.
As per the FIRE Rule (Financial Independence, Retire Early), you must aim to save at least 25x of your annual expenses. Don’t forget to factor inflation in @7% per annum.
2. Keep a savings target
Now that you have arrived at an amount that needs to be accumulated to attain financial independence, you will now have to save for it. So, make a plan where you will be saving the said amount by default. You can also consider cutting down a few expenses, such as your gym membership which you rarely visit. Instead, wake up early and work out at home.
3. Invest Diligently
Remember, there is no shortcut to earning quick money. To attain financial independence, you must earn, save, invest, and allow your invested money to earn for you. All of these efforts will bring you closer to your financial independence goal.
So, diversify your investment according to your time frame and risk tolerance.
4. Invest in Tax Saving Instruments
A penny saved is a penny earned. So, focus on saving taxes. Invest a small portion of your portfolio in instruments which offer tax deductions, such as ELSS funds or Tax saving FDs.
5. Track Your Investments
Don’t be a coffee-can investor. Keep track of how your investment is growing from time to time. If you are investing in stocks, then don’t forget to gather information about the company you have invested in by reading annual reports and balance sheets.
Always have a bird’s-eye view of your investments.
So, on this Independence Day follow these steps to make a roadmap for your financial independence.
That’s it for today.
Happy 75th Independence Day!