Mohit a technical guy, always used to think about the way he earns huge and not being able to save as per his goals. He uses to invest in what others choose to, always uses his credit card for big purchases. This is the typical story of every individual who is either financially illiterate about saving/investing or who does not take his/her finances seriously. They will never take advice from a professional and end up doing what their friends are. They don’t understand that every individual has a different kind of lifestyle and goals to achieve. People need to understand that to achieve financial freedom every individual has to sit and decide his/her own path. Cut-Copy-Paste will never help achieve financial freedom in life.
So what actually is Financial Freedom??
An optimum financial position whereby your wealth is optimized to match your optimum financial needs and wants. Financial freedom is much more than having money. It’s the freedom to be who you really are and do what you really want to in life. Nobody can define your Financial Freedom. However, once you have decided, you can take a professional’s help to achieve it. For some people it’s about achieving goals in the future without sacrificing current life, for some, it’s about having lots of money so that they can do whatever they want and whenever they want.
In a real scenario, just because you have money does not mean you have financial freedom. You have to plan out how to manage your existing life and future life. And that what you can do when you choose to be disciplined with your finances.
Here are some points which can help you in achieving financial freedom.
1. Track your every expense – Everybody loves to do shopping, although it depends if it is monthly or weekly. But the important point is to track all the expenses. A recent study reveals that when you track all the expenses, month on month people have experienced that their expenses reduced. The reason because when you start writing every small expenditure you come to know where you are spending more or where you are spending without any reason. Always remember If you buy things you don’t need, you will soon end up selling things you need [Quote by Warren Buffett]
2. Start making your monthly or yearly budget – Making a monthly budget should be your regular exercise. If you are making a budget and following it then there is less chance of overspending and a high chance of reaching your goal. The key to building a strong financial plan for the future is to understand how much you spend and save right now. This is called tracking your cash flow, and it can give you a sense of control and confidence that makes it easier to make financial changes in your life.
3. Spend Less than you earn – Are you spending more and earning less because it is only possible if you are Richie Rich or you have a big inherited wealth. It is very easy to spend less, yet many people never learn to do it. Only by spending less, you can hope to build wealth, which is very easy if you follow the above 2 points.
4. Start an emergency fund – Now this is interesting. People use to think that if they have health insurance, credit card, and balance in bank account then their emergency funding is done. They spend whatever they earn and live on the edge. This works well till some emergency comes. It is always better to build up a rainy day fund. Logic says to have 4-6 months of expenses as your emergency fund. It may take some time to build but the sooner the better.
5. Set Financial Goals – Imagine you are going on a trip without knowing the way to reach there. Is it possible? The same goes for personal finance. People have a tendency to save/invest, but they forget to link it up with future goals. Financial goals don’t just happen. You have to sit and think about it and then prioritize it. Most people tend to have realistic goals, such as children’s education, marriage, another house, retirement. If you have not yet, do it on a priority basis.
6. Start investing to support your goals – Remember only planning your future goals will not help you in achieving them until you act on. A financial plan gets completed only when the things are implemented according to it. So if you have set your goals and have prioritized them, then it’s time to act upon. Look out for alternative investment products that can help you in achieving the result.
7. Clear your Credit card loan/debt – Today people are frequent users of the Credit cards. At almost every place you can use your CC. However, all those people who don’t know the right way to use it always end up with a huge debt. So remember before start investing for your goals or for an emergency fund, try to get out of your debt burden. One should always remember that the best alternative to their CC is the bank’s debit card. It always ensures that you cannot exceed your balance and hence do not get under debt burden.
8. Fund your retirement – I am still young and I don’t want to save for retirement currently. Will start saving once my primary goals are taken care off. If these are your words then you are forcing yourself into trouble. The early you start saving for your retirement the bigger the amount will be. That’s because the sooner you begin saving, the more time your money has to grow. Start taking the advantage of compounding.
It’s a well known saying that “No Pain, No Gain”. The above points prove a pain lot many times, but the pleasure and satisfaction you earn after religiously following them and seeing your money grow it a different feeling altogether, something which is hard to describe in words. So if you are out of debt, saving for goals, having an emergency fund, and most importantly saving for retirement then you are on your way to achieve Financial Freedom.
Ayush Bhargava, CFPCM
Disclaimer – This article was originally written by Ayush Bhargava for FPGI.