The current economic climate has only pushed us to focus harder on seeking financial independence. And while that term might mean different things for different people, the simplest way to chart our way to financial freedom starts with defining our end point and then figuring out how to get there. We’re all different so there’s no blue print to this.
But here are 6 steps that might possibly help.
You could broadly classify income into active and passive. Simplicity sake, active income for salaried people would typically mean their salary. For professionals, it would be the money they make from offering their services, e.g., consultancy for a doctor.
While it may seem more laid back, passive income is money being earned regularly with little or no effort on the part of the person receiving it. Passive income helps in the later years, whether it be from investments or asset earnings, say rental. So make sure the next time you’re investing, it’s in something that will surely contribute in the long term.
Getting a sense of both active and passive incomes, and making sure it’s increasing over time will surely help.
Financial independence starts with planning our savings and investments early on, staying the course and investing for the long term.
Some of us delay starting that SIP we heard about or converting our savings account into a recurring fixed deposit. Saving is half the story, deploying those funds is what creates tangible wealth.
A better overview on our spending, and curtailing expenses that may not necessary. A good way to go about that is being in absolute control of both, the necessary and the unnecessary.
Most of us are realising life can be full of unexpected surprises and changes, so it’s sensible to set aside some cash for quick access in case of an emergency. It could be kept in a savings account, or a fixed deposit or a liquid mutual fund investment.
EMI is a trap, especially if we’re paying those on our credit card. Debt that isn’t creating an asset must be the first one to let go. If we’re paying a higher interest on loan, it’s best to consider changing the terms or refinancing, or paying off the ones that might free us a bit. Remember that interest amount could easily be an SIP instead
While all of these are essential to improve our financial wellbeing, true financial independence will come about with investment and determining our long-term financial goals
SIZE OF PORTFOLIO
Investing is about using our money to make more money. Starting an investment early on, however small the amount may be is always a better idea than waiting to have a larger amount. Large investment portfolios don’t happen right away. You keep adding to your initial investments to get closer to financial independence.
The past few months have meant a lot of economic uncertainty and while there have been better times to invest in, no one can really predict what the future holds. Best to invest irrespective of market sentiment, sensibly though. If the market is low, it makes sense to invest since we’d be rupee cost averaging or simply averaging out the cost.
Diversifying the portfolio is always a great idea. Invest in the less risky, fixed rate debt funds to ensure your hard-earned savings are making money, or gold-based funds when gold prices are rising. But if you’ve witnessed the recent market surge, it’s surely time to invest in some equity based mutual funds.
And while there’s no short cut to financial freedom, there are interim goals like a much-needed vacation, higher education or a home we’ve been dreaming of that will need funds as well. The small or big moments in life that make our lives what they are. The best way to manage them would be to allocate money proportionately to keep financial independence separate from these goals.
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*Mutual fund investments are subject to market risks, read all scheme related documents carefully.