What is Financial Freedom/Financial Freedom Meaning?
Financial Freedom Meaning: There is no such fixed and traditional definition of Financial Freedom. Financial freedom means different things to different people. It is unique to every individual.
In simple terms, I can say that Financial Freedom means living a comfortable and worry-free life after meeting all of your financial obligations without much depending on others.
For some people, it’s about having enough money, so they don’t have to worry about paying their monthly bills. For others, it’s about having enough money to do whatever they want — even if it means travelling around the world or starting a new business or venture.
In a true sense, it is about being able to spend your time doing the things that matter most to you rather than working just for more money or paying off debts. It means having the ability to choose what you want to do with your time and hard-earned money.
How to achieve Financial Freedom in India?
It is no surprise that achieving financial freedom as early as possible is the goal for many people. The average person wants to have enough money to be able to quit their job, travel the world, and live the rest of their life stress-free.
The question is, though, how do we achieve this financial freedom? This blog post will look at different ways that you can get to this financial freedom.
When you’re financially free, there are no limits on what you can do with your life. You can spend more time doing whatever makes you happy instead of working hard just so you can pay the bills each month.
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How to get Financial Freedom?
While one asks how to get financial freedom, primarily the following 7 ways are suggested which can be followed very easily and consistently if one so desires.
What are the 7 Steps to financial freedom?
1. Calculate Your Net Worth: The first step of financial freedom is obviously calculating your net worth. In simple terms, it is nothing but the total of your Assets minus the total of your outstanding debts or liabilities.
Net Worth =Total Assets -Total Liabilities. The more the amount is, the more you are financially strong. Of course, there is no benchmark for this, and also it is different for different individuals.
Planning for the long term and the short term are both necessary steps in the process of achieving financial freedom. The process begins with determining your net worth. This sum reflects the value of all your possessions, less any debts and other responsibilities.
You can start taking actions that will raise your net worth’s overall value after you have a good understanding of it.
For instance, you could concentrate on paying off high-interest loans and debts, investing in rising assets, or expanding your sources of income.
It’s crucial to monitor your net worth over a period of time. This will make it easier for you to track your financial progress and spot any potential obstacles to achieving your financial freedom.
2. Set Life Goals: A ship without any goals does not reach its destination. Therefore, the next step towards achieving financial freedom is setting life goals that align with your values, aims, ambitions and interests.
This will help you in guiding your financial decisions so that they support your overall vision for the future. Setting goals will also help to keep you motivated when times get tough because it gives you something to look forward to.
For example, if one of your goals is to own a home by age of 30, then every month, when your mortgage payment comes out of your bank account, it reminds you that you’re moving closer towards accomplishing this goal.
3. Invest Money Wisely: Investing your money is one of the best things you can do to achieve financial freedom. You are effectively making your money work for you when you invest.
There is a great saying that “ It’s not important how much you earn, rather it’s more important how much your hard-earned money earns“.
Your investment will increase over time, and you can use that money to pay bills or put money away for retirement or sunset years.
When you need money quickly to meet any emergency needs, you should use your short-term investments. It is like a contingency fund which must be invested in very low-risk instruments and with instant liquidity options. Liquidity should not be compromised for contingency funds.
Where should you put your money, though?
It’s advisable to stay with low-risk investments at first, like savings accounts or government bonds. While these investments may not provide the biggest returns, they are reasonably safe and can set you on the road to financial independence.
You may take on greater risk by investing in stocks or real estate as you get more accustomed to investing. But it must be admitted that most of us are still financially illiterate though possess bookish knowledge.
Put only some of your eggs in one basket, though, as there is always a chance that you could lose money when you invest. Have a diverse portfolio of investments to help you withstand market swings.
4. Negotiate for Goods and Services: Many people avoid negotiating out of fear that it will make them appear to be stingy. If you can conquer this fear, you have the potential to save a lot of money each year.
Small businesses are usually willing to negotiate, so if you position yourself as a loyal customer or buy in bulk, you’re likely to get a good discount.
5. Pay Yourself First: Putting a fixed amount of money into your savings account or investing before paying any other bills, discretionary expenses, rent, etc., is known as “paying yourself first.”
Paying yourself first has been a straightforward step that has brought many people closer to financial freedom. This works because it drives us to look at other options to keep your costs down.
For instance, you would be required to take further action if the remaining authorised expenses were insufficient for you. This can involve making simple lifestyle adjustments to reduce spending or starting a side business to complement your current income.
In either case, paying yourself first ensures that you consistently set money aside to invest in your future finances and self-improvement. It’s like a win-win situation for you.
6. Pay Off Your Debt: Eliminating a large debt promotes financial independence in numerous ways. Because of this, you have more potential future cash flow.
Your credit profile is excellent. The biggest benefit is that when you close a debt, a huge burden is lifted off your shoulders and you take a big sigh of relief.
There are two primary ways to pay off debt. The first is the snowball strategy, in which you start by paying off your smallest debt first and move on gradually.
Thus, check off one item on your list before moving on to the larger debts. The second technique of paying off debt is the avalanche strategy, in which you pay off the debt with the highest interest rate first before moving on to the debts with lesser interest rates.
Both of these approaches are effective, so if you’re drowning in debt, you’ll need to choose the one that suits you the best.
7. Make a Plan for Retirement: There is no secret formula for achieving financial freedom. You can take a few specific actions to improve your chances of achieving this objective with ease and peace of mind.
Make a Retirement Plan as a first step. This doesn’t have to be elaborate, a straightforward spreadsheet will do it for you. Include a timeline for achieving your short-term and long-term financial goals as well as both of them.
Secondly, prioritize your retirement savings. Start by making small contributions to equity instruments consistently if your retirement is 15 to 20 years away.
Also, you can consider various retirement savings plans, PPF, EPF, NPS and many other low-risk instruments to achieve a substantial amount as per your requirements.
But in this case, you must be consistent and perseverant enough to ensure that you put in enough money each month to meet your desired goals or objectives.
Conclusion: Therefore, you can see that achieving financial freedom does not seem so much difficult. Also remember that “achieving financial freedom is a journey rather than a goal”. Stay with your plans even when things are complicated, and feel free to review your plan periodically, ultimately it’s your life and your hard-earned money.
Author Bio: This post is written by Naina Rajgopalan and edited by ArthikDisha.
She has a deep fascination to learn about all things in finance. She’s been money-wise from a young age and has always shared her knowledge and tips with those around her.
Being a part of the content team at Freo Save, a neobank that offers a 7% interest rate on savings along with benefits such as insurance on balance, safe & secure banking, and so on, Naina stays updated with the latest of what happens in the banking and fintech industries.
She has taken upon herself to share her knowledge with readers across all walks of life to help them manage their finances and budgets better, so they can make better decisions while spending, borrowing, investing and saving.