Be Financially Independent This Independence Day!

What does independence mean at an individual level? Is it the liberty to exercise rights or the ability to fulfil family and personal needs? To say in a generic sense, independence is a state of not being dependent on anyone for their needs and wants. India has achieved independence after a long struggle. Through many years of fights and the efforts of citizens in civil movements, freedom was earned. Their struggles are the reason for the liberty Indians enjoy today!

The struggle is part and parcel of everyone's life, which keeps going on. In this journey of the quest for freedom, at a personal level, the way to become self-sufficient over a long period comes into the picture. This long-lasting self-sufficiency can be achieved when there are continuous means of resources accessible for fulfilling one’s basic needs beyond their retirement.

This can be possible when there is a medium to exchange. Hence, money plays a key role in attaining personal independence. This is, in other words, called financial independence.

Financial independence is the liberty to choose one's own retirement plans, irrespective of age. This is possible when there is a deliberate plan of trimming down expenses and multiplying savings through different investment options.

So, in this post, you can find some useful tips to achieve financial independence that you were longing for a long time.

How is Financial Independence Plausible?

Financial independence is attainable if self-discipline and personal progress go hand-in-hand. Below-mentioned are steps that need to be followed to commence the journey towards financial independence:

Start Working Early

If you start at a young age, there is a diverse scope of personal development and also a step towards financial independence. A job would help in collating the Income and turn it into wealth. Now, what's the difference between income and wealth? Aren't they both the same? No, they aren't! Income is the salary or the money earned from work, whereas wealth is the outcome of a person's investment. A person’s investment can be the investment of income in Capital assets or savings. So, the earlier you start earning, the earlier you generate wealth.

Differentiate Between Need and Want

In the journey of financial independence or money management, you need to first start by distinguishing your needs and wants. The livelihood expenses, like housing, clothes, food, health etc., are basic and can't be done away with, whereas expenses on luxury items, like cutting edge vehicles, branded clothes, etc., need to be cut down as these are wanted.

You can survive without these luxury items, but the same cannot happen with basic needs. The most important thing is to list down the necessities and wants and then continue accordingly. However, keep in mind that these luxuries and wants vary from person to person.

For instance, training and going to the gym may be a need for actors, fighters, trainers, PT or sports teachers. But it will be a luxury for people in a career path totally different from sports or cinema.

Flow of Income

It is essential to keep an eye on the flow of self-income for better comprehension, inculcate money management, etc. Here are the few things that will help you to trace the flow of self-income:

Maintain a Budget Journal

A budget journal is to keep note of every income and expense. By doing so, a monthly budget can be made. Thereby, it becomes easier to analyse the unnecessary expenses and put the same amount of money in varying investment options.

Say No to Credit

credit cards are the most expensive way of drawing out money due to a lack of affordability. As debit cards are limited to income, it is a wise option to retain the same and cut down on unwanted, expenditure-prone credit cards. Also, considering that with credit cards, there is no limit on the expenses, you end up spending way beyond necessary; thus, saving in the best possible way.

Also, keep in mind that in order to achieve financial independence, there is a need for self-restraint during the working period.

How to be Financially Independent as a Student in India?

If you are a student and willing to achieve financial freedom at an early age, here are a few tips that will help you lead a happier life:

1. Mutual Funds

Being young, you should focus on long-term investment horizon. Thus, you can simply unleash the power of investing in Mutual Funds. Moreover, to invest in these funds, you will not require the comprehensive knowledge of Mutual Funds as they are managed professionally by fund managers who have an excellent track record of managing a variety of investment portfolios.

As a young investor, you can invest in Equity Funds as they offer amazing returns in the long run. You can also diversify your Portfolio by considering debt and Hybrid Fund. If you wish to save Taxes, you can invest in equity-linked savings schemes, They provide double benefit of wealth accumulation and tax deductions.

Ideally, there are two ways to invest in MFs - SIP & Lump Sum. With SIPs, you can start from as low as INR 100 or INR 500 each month. You can also have multiple SIPs, but make sure that each of them has an objective. Lump Sum is Investing corpus all at once.

During the tough times, SIP has turned out to be a blessing for many. They save you from the issue of timing the Market, provide a disciplined methodology to invest and let you sync the regular flow of income. Also, you get a fixed sum periodically, typically every month, and the units can be bought on that date.

Best SIP for Students 2024

2. Bank Deposits

Bank deposits are generally for those who are not ready to take a risk. But, one thing to be kept in mind is that low-risk investments also come with low returns. If you have a lump sum amount, you can put it in the Fixed Deposit. The fixed deposits have quite attractive interest rates and can help accumulate a huge amount in the long-terma long-term.

Also, if you can invest a certain amount regularly, be it monthly or quarterly, you can invest in a Recurring deposit.

How is Self-Resistance Possible?

Even though a loan or Credit Card Bill can be paid later, why spend it on something which is beyond your affordability? Rather save up for the commodity or expense and buy it later. To attain self-restraint, get accustomed to a routine that inculcates money management. Here is how you can follow up to hone skills of money management:

Try to Limit Expenditure to 20% of Salary

One of the best ways to limit the amount you spend is by dedicating a certain percentage to it. Generally, experts recommend that not more than 20% of your salary should go to expenses. Try finding a comfortable percentage and assign the same.

Invest Cautiously and Smartly

Investing is a major benefit that you can avail yourself while saving your money and avoiding expenditure. Whether you are investing in mutual funds, Real Estate or buying gold out of your income, ensure that whatever you are choosing pays you well.

Get Out of Comfort Zone

Now that you have finally decided to be financially independent, one of the important steps to be taken is to stop depending on parents or family for expenses. Stagnation persists as long as this dependency on parents exists. When a person has no one to rely on, they tend to adapt to the situation and find the means.

How much Money is Needed for Financial Freedom in India?

You can only try to weigh the extent of money needed to fulfil your needs. As basic needs are constant throughout life with a meagre Inflation rate, you can consider them over long-term expenses.

• Calculate family expenses, miscellaneous expenses, monthly fixed expenses etc., which are basic needs of a person and family.
• Allocate some towards emergency funds in case of unforeseen circumstances, like present pandemic and future accidents.
• Annual expenses like insurance, health expenses etc., which are vital needs, must be taken into consideration.
• Corpus amount for setting up a business enterprise should be regarded if any plans are there.

A Generic Metric to Calculate the Sum Needed in the Long Run

Calculate the basic amount needed to manage the expenses. Through this, you can figure out the minimum money needed to sustain, as a component to calculate the quantitative amount of financial independence enjoyed in the long run.

Over here, following the reverse approach of calculating future fixed expenses can aid in present investment options. Now, check different investment options and their returns. The key is to diversify those investments and invest in portfolios with different ventures. It is always a better option not to invest all of the savings in one place.

Conclusion

There is a slight difference between financial independence and financial freedom. It is similar to self-sufficiency over needs and wants, respectively. Learn from history that revolutions are not immediate actions but are based on step-by-step progress through hard work and over a very long period of time. In the same way, let's work on becoming independent financially without the constraints of money or stress. Financial independence is easier to attain through proper routine and saving habits.