Learn how to create a roadmap to achieve financial independence at different stages of your life.
Do you dream of being in control of your life, where money isn’t a constant worry? If someone asked you this, you would say a big YES! But here is the thing: When people are asked, “Do you have a roadmap to be financially independent?” they often look puzzled.
If you feel the same, don’t worry. Whether you are starting in your adventurous twenties or mid-40s, there is a path to financial independence for you. After all, where there is a will, there is a way.
Today, let’s talk about mapping out this financial independence journey through the different stages of your life. We will find how the roadmap should be and look at solutions if you are left behind in your financial independence journey.
So, let’s get started!
Achieving Financial Independence Based on Age
1. In your 20s
As the years pass, our time to save and establish financial security becomes more limited. This is the harsh truth we all must accept because as we grow older, we must take up more responsibilities.
Moreover, many individuals do not get a robust financial education early in life. Hence, even after having a good job and career, they do not consider taking steps toward financial independence.
But if you are reading this article and you are in your 20s, here is what you must do.
In your 20s, laying the foundation for good money habits is very important. Why? Because this is when you have the time and the energy to start saving. It will go a long way in boosting your financial independence goals. By the time you reach 25, here is what you should aim for:
Emergency Fund: Figure out how much money you need for your monthly essentials like rent and utilities. Try to save up at least 3-6 months’ worth of these costs. This emergency fund is a big deal. It acts as a safety net, especially when you are just starting and might switch jobs often to find the right career path for your life.
Kickstart Your Financial Independence Savings: This is the perfect time to start saving to become financially independent. After all, it is never too soon!
After saving, you need to invest to help your money grow. So, use the ‘100 minus age’ rule. If you are 25, put 75% of your savings into investments like stocks (equities) and the remaining 25% into bonds (debt instruments). Why, you ask? Because you have a good chunk of disposable income, and even if there are some ups and downs, you are on your way to building substantial wealth.
2. In your 30s-40s
As you enter your thirties, it is time to embrace maturity and responsibility in managing your finances. You must strike a balance between your financial needs and managing responsibility. So, here are some milestones to aim for as you approach 30.
Avoid Unnecessary Loans: Loans can burden and drain your savings. Hence, avoid taking unnecessary loans like a car loan or other things on EMI. Secondly, if you have taken a loan in your 20s, repay it as soon as possible and reduce your debt burden.
Save As Much As You Can For A Downpayment: If you are considering buying a home and settling down, it’s time to start saving for a down payment. Here, you can track your wealth creation journey of your 20s and focus on growing that money so that you can use a part of that towards your down payment. Typically, you will need around 10-20% of a home’s purchase price before you can make the purchase. Having a substantial down payment not only lowers your loan payments but also builds up a great asset. Also, renting is a sensible option until you reach this milestone.
Boosting Your Financial Independence Savings: As you reach this stage, you will earn more than you used to in your 20s. Hence, strive to allocate at least 15% of your income towards your financial independence fund. It might seem like a significant chunk, but you will appreciate the foresight when you hit your 60s. Also, according to the ‘100 minus age’ rule, if you are 35, you will allocate 65% of your funds towards equity and 35% towards debt. But, due to the power of compounding, your wealth will grow much faster than before.
3. In your 50s to 60s
If you have followed sound financial advice in your 20s to 40s, you would be in a good spot in your 50s with a good amount of compounded wealth. Here, you can be more conservative with your money and focus on capital preservation rather than capital growth.
How To Catch Up When Time is Short?
In the above cases, we spoke about a perfect scenario. But not everyone has a perfect life. So, if you are someone who has realised much late in life, here is what you must do.
Focus on Earning More to Catch Up
Achieving financial freedom is about making money for the rest of your life. Instead of saving money, you can focus on earning more. Try taking different courses to improve your skillset. If you are a professional, provide part-time services, take up new opportunities and excel in your earning potential. Doing so can save and invest a huge part of your income to achieve financial independence.
Where Can You Invest?
Entering the equity market is an option worth exploring. However, if you are new to this arena and find yourself short on time and expertise, there is an alternative approach. You can opt for ready-to-invest portfolios provided by SEBI registered Research Analysts.
To conclude, your financial journey is unique and can be tailored to your specific stage of life. Whether you are just starting in your twenties, cruising through your thirties, or navigating your way into your fifties, there are steps you can take to achieve financial independence. Remember, it is never too late to start making positive changes in your financial habits. Being mindful of milestones and making strategic smart investments can pave the way for a secure and prosperous future. So, embrace these insights and embark on your path to financial empowerment – because where there is a will, there is a way!
*The article is for information purposes only. This is not an investment advice.