Financial freedom makes you retire from your job?

How to achieve financial freedom?

Is saving and investing gives you financial freedom!!

Financial freedom does not mean you are going retire from jobs, it is about do what you love do with out worrying much about money.

What is Financial Freedom?

Consider you are earning 50k/month from a 9-5 job. You are not liking the job ,you want to do some thing that you are passionate about. But without steady income you cannot able to support your family , so you hesitate to start.

Incase in your bank account you are having 1.5 crore rupees now , if you invest 1 crore in Bank FD which will give you 6% returns, then it will fetch you monthly 50k that will take care of your family and with remaining 50L you can experiment what you like to do.

If you reach above position that is called financial freedom.

So having 1.5 crore is what is missing in your life to achieve financial freedom. No one will give you this hell lot of money until your net worth is more or less equal to that much amount.

You can achieve this by saving and investing.

Personal Finance Basics

Understanding the basics of personal finance can make your financial freedom path clear.

Due to lot of noise in the market like insurance, investment ,saving ,mutual funds ,SIP,FD and RD etc.. we easily ignore the importance of it.

Wealth creation is part of financial freedom. Because real wealth will generate passive income which leads you to get the financial freedom.

Let us discuss some myth about wealth creation

Earning more creates wealth faster 

Earning less and managing the income makes you wealthy. With out knowing how to manage the income , earning more also won’t help you to accumulate your wealth .

Equity market will eradicate the wealth

Not only equity market any scheme or investment , if you see as get quick rich scheme won’t makes you wealthy. Wealth will take time and patience , share market always creates wealth and generates high returns , only thing is you want to give enough time.

Wealth should be inherited 

If you are not managing money properly, inherited wealth also will eradicate in lesser time.

Properly managing your personal finance will give you the way to achieve financial freedom, which might 1.5 crores or more according to your needs.

Steps on personal finance

Personal Finance can be implemented by following 3 ways

• Learn
  Understand basics of it.

• Plan
  Plan it according to your personal needs.

• Execution
  Implement the learned things via planned way.

Let us learn about personal finance from 2 friends.

Ankit and Arun are close friends and started their career at the age of 21 and with same salary.

Ankit at 21

1. Earning 25k/month
2. Saves first 5k for investment
3. No EMI 
4. No credit card

Income : 25,000 | Saving : 5,000| Expense : 20,000

Arun at 21

1. Earning 25k/month
2. No saving habit
3. Bought iPhone on EMI
4. Bank gave lifetime free credit , so owning one.

Income : 25,000 |Saving : 0| EMI : 5,000| Credit Card Bill : 3,000| Expense : 17,000

After 5 years down the line Ankit

 

Ankit at 26

• He continues to save 20 percent out of his salary.
• Saved money and bought new bike
• No credit card
• Properly utilized tax saving
• Goal based saving Investment

Arun at 26

• Saved nothing
• Having Bike EMI now
• Owning 2 credit cards
• No proper plan for tax saving
• No goal based saving or investment

After 10 years down the line Ankit

Arun decision at his 31st age

• He realized his mistake in personal finance.
• Requested Ankit to teach about his financial decisions
• He learned from him and started handling personal finance properly
• With in 6 month he closed all credit cards 
• Started investment

 

 

 

Clearly Ankit wins the game here , due to compounding and having the habit of save regularly. Arun adapted Ankit habit 10 years later, still he started with double of what Ankit started, he cannot able to achieve what Ankit achieves in finance.

Ankit can achieve his freedom in finance within next 5- 10 years according to his goals. By the way Arun need to work for long term to achieve his freedom in finance.

If you want to be Ankit in personal finance start early and start today, so that you won’t miss compounding benefits.

Best time to plant tree is 10 years back and second best time is today.

End of the day if you are not saving for yourself who will save for you?. Save yourself is the best rule I adopted in my life, that make my personal finance better in all aspects.

so you have learned the importance of personal finance, so the next step here is planning.

Budget planner sheet

Budget planner is high level planning sheet to allocate your budget. I know it is boring to maintain the expense regularly, but at least do basic allocation using the sheet will help to eradicate the unwanted expense.

Planning in Personal Finance

Allocation of your income to the following areas makes your personal finance planning simple

• Savings
  Save before spend

• Needs
  Rent, Groceries , bills etc.

• Wants
  Gadgets, leisure etc..

Decide you saving percentage by using the allocation sheet and save that percentage each month without fail. You can have 3 accounts salary account, save it account, spend it account. Once you decide how much is required for needs and wants ,transfer the money you decide to save to save it account once salary credited.

Send amount you allocated for needs and wants to spend it account. In this way you can easily align to your budget and that will bring discipline.

Click here to download  – Please make a copy before using it.

Next step in financial freedom is execution. Once you are ready with budget execute the plan accordingly. Here there planned things can go out of the way with 2- 3 months you can easily understand How we need to allocate budget for each section.

After I executed the above steps in my life ,I reduced debt and my portfolio in investment becomes 5 lakhs with in in 1.5 years. Before this I was not knowing where money went and except EPF nothing was there as saving or investment in my life.

So its is time to act take this small step in your life, to make big impact in your financial life.

Once you start implementing what you learn here , you can see your path towards financial freedom.

Do let me know in the comments , if you decide to start early and start today.