Financial Freedom: Here’s all you need to know

Understanding Financial Freedom

Have you ever wondered what it would feel like to never worry about bills again? Or to plan a vacation without counting pennies?
Financial freedom is a term we hear often these days but rarely talked about. For some, it might mean having a passive income, while for others, it could be being debt free. From building an emergency fund to investing for the future, the idea and the goal of Financial Freedom can differ widely.
In essence, Financial Freedom means having control over your finances and the freedom to make choices that align with your goals. When money makes money, you’re on your way to financial freedom!
It is not just about having money, but the ability to live life on your own terms without financial constraints.
Financial freedom is more than just having extra cash. It’s about sleeping better at night, worrying less, and finally having the time to do what you love. That’s what makes it so rewarding and empowering!

Step by step planning towards Financial Freedom

1. Choose a starting point:

   Any journey towards any goal starts with knowing where you stand right now. Whether you are just starting out on your goals or already way ahead, understanding your current position - your income, expenses, debts, and savings is crucial for mapping out the path to future progression and achieving your objectives.

2. Write down your goals:

   Is there a place you always wanted to travel to? Are you in some sort of debt? Or do you want to escape the 9-to-5 grind? Do you want to save for an upcoming event or an unforeseen emergency? College fee or a wedding? Jot any and all of it down. Making a clear goal can help you decide how much money should go towards each investment or towards clearing your debt

3. Once you have a clear idea of your goal(s), break them into smaller, specific, and measurable steps. Make sure you give a realistic timeline to your goals. You may not achieve all your goals in the given timeline and that’s okay, too. It is, however, important to constantly work and build towards your goals.

For example: Instead of saying I want to save more, make a plan to save, let’s say Rs. 500. Start small, but start for sure.

4. Clear your Debt:

   While paying off debts might not seem as exciting as having money in the bank, it brings you one step closer to achieving financial freedom. Make a clear plan of clearing your debt and stick to it.
   You can take help of Debt Relief Platforms like FREED create a customized plan and also help you save on your outstanding debt.
   The burden of debt often extends far beyond the numbers in your bank account, affecting your mental health, peace of mind and overall quality of life.
   Once your debts are paid off, you can focus on using the resources for other goals.

5. Create a Budget:

   A good budget lets you have control of your finances and make saving for your goals easier. You can consider following these steps:

   • List fixed and variable expenses
   • Consider specific yet realistic spending limits
   • Identify areas to cut costs
   • Follow the 50:30:20 rule - Needs:Wants:Saving
   • Keep on updating your budget and put in extra funds towards your savings.
6. Early Investment:

   Or call it - paying yourself first. The earlier you start, the more you’ll end up saving. Understand the power of compound interest - with time, you will also gain interest on your investments. You can start investing small amounts and build it up with time.
   Increasing your investment gradually will also put a lesser burden on your paycheck and ensure your financial freedom at a faster pace.

7. Emergency Fund:

   An Emergency fund builds a safety net for unexpected expenses, providing financial security for situations like job loss, illness, or a recession, helping you cover expenses without taking on high-interest debt or dipping into your retirement savings. The fund’s main goal is to keep you afloat during tough times. Ideally, your emergency fund should be able to cover 3-6 months of your expenses.
   How to set up an Emergency Fund: Take an approximation of 6 months’ expenses as the target and allocate a fixed percentage of your income to the funds to build it. Alternatively, you can also save up your tax refunds to your Emergency Fund.

8. Income Streams:

   Relying on just one income source is passé - diversifying income sources will not only lower your dependence on your paycheck, but also help you build wealth for your future, expediting your Financial Freedom process.

9. Spend Smartly:

   When you know how, when and what to spend on - you are doing a favor towards your savings and eventually towards your Financial Freedom. Spending more than what you can afford can even lead you in debt, and you wouldn’t want that. Here are some tips:

   • Know where your money is going - there are several apps you can use to track your income and expenses
   • A few lifestyle changes here and there will make a bigger impact on your savings.
   • DIY it - Learning a few skills like cooking, repairing your own clothes and appliances, learning to drive etc. can help you save more than you think. They are not only good for you, but also for the environment!
   • Keep a check on your health - Working out regularly and eating healthy will save you a lot on your medical bills!
   • Make your Credit Card payments on time to avoid any late fee.
10. Retirement Planning:

    A Retirement Plan is not static, you’d need to make changes in it from time to time and review your progress.The process of Retirement Plan includes determining your long term financial goals - taking into account:

    • your income(s) and expenses
    • investments
    • life expectancy
    • healthcare costs
    • housing
    • food and clothing

    Once all this has been considered, make a budget on how much you’d need to save monthly or annually to reach your goal. Do your research and choose tax-advantaged Retirement Plans.
    There are also non-financial aspects and benefits of starting your Retirement Plan early:

    • Mental Peace
    • More quality time with family and friends
    • Flexibility to pursue your hobbies, even a second career
    • Increased Confidence
11. Keep an eye on your Credit Score:

    Regularly reviewing your statements will help you:

    • keep a track of your expenses
    • track any unauthorized charges or anomaly
    • ensure you stay within your budget
    • avoid unnecessary interest
    • maintain a good credit score

    Once all this has been considered, make a budget on how much you’d need to save monthly or annually to reach your goal. Do your research and choose tax-advantaged Retirement Plans.
    There are also non-financial aspects and benefits of starting your Retirement Plan early:

    • Mental Peace
    • More quality time with family and friends
    • Flexibility to pursue your hobbies, even a second career
    • Increased Confidence

Know your Finances:

Knowledge is power - especially when it comes to your finances. The more you understand about managing money and saving, the easier things get. Staying informed about how finances works, helping you make smarter choices and grow your savings faster. Don’t hesitate to ask friends for advice or seek professional help if needed; sometimes a little guidance can make all the difference!

The Role of Mindset in Achieving Financial Freedom

Looking at challenges as opportunities for growth will help you overcome and adapt to any financial obstacles that come your way and you’ll actually enjoy this journey.

• Aspirational Spending: We all have been guilty of Emotional Spending - buying stuff because of how we’re feeling - (very happy or very stressed) and at times it’s okay too - Until you hear of “Emotional Saving”: setting aside money when you want to feel peace of mind, sense of fulfillment.

    - Both are driven by some emotion, but both have different outcomes.

    - Prioritizing long-term planning over short-term pleasures
      E.g.: Instead of buying yourself a gadget or dress now, you decide to invest this money which will help you build savings for your future.

Key Takeaway

Financial Freedom is not a destination but a journey that is fuelled with regular investments and tracking expenses. With the right mindset and strategies, it is an achievable reality. It is about making deliberate choices today and daily that will allow you to live the life you desire tomorrow. By focusing on making a proper budget, debt elimination, smart investments, tracking them, and continuous learning, you can achieve Financial Freedom to live on your own terms. Keep faith in yourself and move on with a positive attitude. Take help whenever required. Always remember, it is your discipline and resolve that will help you achieve your goals more than anything. All the best!