On this 75th Year of Independence Begin Your Journey Towards Financial Freedom

The Azadi Ka Amrit Mahotsav is an event that celebrates Atmanirbhar Bharat, new ideas and pledges, the elixir of independence, and freedom fighters' inspirations. The journey of 75 years after independence is a reflection of the hard work, innovation, and initiative of common Indians. India has made great strides in several economic sectors, including education, technology, finance, healthcare, and agriculture. With a wealth of knowledge and research, the country is making its mark from Mars to the moon.

The official journey of Azadi Ka Amrit Mahotsav commenced on March 12, 2021, which started a 75-week countdown to our 75th anniversary of independence and will end post a year on August 2023. The government initiative of the "Har Ghar Tiranga" movement this year inspired Indians to hoist the tricolour and display it in their homes to embody our commitment to nation-building.

This weekend, as India celebrates its 76th Independence day, it is a good time to reflect on your own financial freedom as well.

Most people use the term "financial freedom" rather loosely. But in its purest form, it refers to a situation where an individual has enough resources at their disposal to meet the expenses as well as able to accomplish financial goals without being dependent on others.

Financial freedom is something that must be "earned," because it doesn't come naturally. Every individual's definition of financial freedom is unique. It can entail being debt-free for some people and having enough cash flow or for women, it may entail being able to manage their finances independently. Financial freedom is achieved when you have enough money to take care of your life-long needs or have adequate cash flows that will take care of your monetary requirement.

For many individuals, such financial freedom means having the financial cushion of savings, investments, and cash on hand. Plus, a decent nest egg for retirement or the freedom to pursue any career without the need to earn a certain amount of salary. However, some individuals have a misconception that if you are earning a decent amount, you are financially independent or you have attained financial freedom.

There is, however, a small distinction between these two terms: Being financially independent is having the freedom to make decisions without worrying about the consequences. While financial freedom cannot be precisely defined or measured because it is subjective, it can be seen in how one views life, money, and/or the ability to live the lifestyle they desire. Thus, it is noteworthy that once you are financially independent you could work towards attaining financial freedom. Financial independence paves the way for financial freedom.

One cannot talk of achieving financial freedom by hoping to earn in the future.  Without a plan in place, the dream of achieving financial freedom will remain a dream. On this 76th Independence Day this year, let us solemnly swear to take responsibility for our finances and work towards achieving our financial freedom.

Here are a few points you must take into account as you strive to achieve financial freedom:

1. Construct a strategic financial plan

If you're travelling the path to financial freedom, strategic financial planning is a must. One major example that is evident from the recent past is how the pandemic disrupted all the plans by revealing all the additional holes in your safety net of finances. A strategic financial plan, however, will be in charge of both the present and the future.

Since financial freedom is subjective, it also becomes extremely important to have a clear set of financial goals in your mind. You will have to chalk out your goals and set some clear financial targets that you must achieve. It is only by setting up some concrete financial goals that you will be able to plan how to go about fulfilling them. It will be influenced based on your age and financial requirements. Set financial goals that are S.M.A.R.T. (Specific, Measurable, Adjustable, Realistic, and Time-bound). Classify your financial goals as short-term, medium-term, and long-term with a time frame, say three years, this will provide you with a sense of direction. You can then search for investment options that allow you to reach your financial goals.

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2. Plan your savings and investments

To achieve financial freedom, it is extremely vital to plan investments and lay a lot of emphasis on savings. Most plans start on a promising note but fail on account of various reasons. Regular monitoring of your expenses by maintaining a monthly budget will assist you in saving an adequate amount every month. To save more for investment purposes, you will have to cut down on your avoidable expenses. Although many of you enjoy retail therapy, try to restrict your indulgence in luxuries. It's also important to keep an eye on your impulse purchases.

Investments planned and rightly timed can prove to be the game changers in your way of financial freedom. The power of compounding should never be underestimated. The longer you stay invested in a quality investment, the higher return you will get. It is therefore important to start saving early in life. Consider investing from your first pay cheque or the next one and adopt the good financial habit of investing regularly.

Over the years, many investors have switched from making significant investments in gold and fixed-income securities to other asset classes that are perceived as riskier, like equities, mutual funds, and exchange-traded funds (ETFs). Ensure to choose worthy investment avenues based on suitability criteria such as your risk tolerance, investment horizon and financial objectives. If you are worried about investing large amounts, you can simply start investing in mutual funds through SIPs that allow small investments as low as Rs 500 per month.

Additionally, whatever schemes or plans that you have invested in, be it mutual funds, stocks, or bonds, do ensure that you keep a regular check on the returns you are getting. It is important to conduct a periodic review of your portfolio to monitor and enhance its performance and switch or eliminate the underperforming assets after assessing their quantitative and qualitative parameters.

Sometimes the plans you have invested in may look good on paper, but will not give you the expected returns. Investing in worthy mutual fund schemes can help achieve the envisioned financial goals early and you will take a step closer to attaining financial freedom.

3. Maintain a debt-free life

Due to the ease of access, many individuals avail loans from unregulated lenders to regulated players like banks, NBFCs, peer-to-peer lending platforms and even online instant loan platforms that charge a higher interest rate. This creates a debt burden and prevents you from attaining your financial freedom. Debt is not bad if you have the intention to pay off your loan in time.

However, to attain financial freedom, you must stop living paycheque to paycheque. Ensure to reduce or pay your pending debts as soon as possible. Avoid borrowing loans or frequent usage of credit cards to fulfil your short-term requirements, which can derail your financial well-being. Maintaining a debt-to-income ratio of less than 40% will give you a better perspective on managing your debt to avoid any credit score complications.

4. Built an emergency fund

Given the uncertainties of any unforeseen event, constructing an emergency fund as a safety net to protect you from a financial crisis is a crucial task. An essential step towards your financial freedom is to secure yourself against uncertain times, without having to pay for it. The pandemic has emphasised having a rainy day or emergency fund with 12-24 months of living expenses including loan EMIs to stay afloat during an emergency.

To be in a position to cover unexpected expenses the emergency fund should be liquid, it is the most critical feature to keep in mind when you are choosing where to park your emergency fund. The ideal thing to do would be to spread the emergency fund across savings accounts, liquid funds and short-term debt mutual funds.

5. Ensure an Insurance cover

Contrary to popular belief, insurance is a vital aspect of financial planning. You must have an adequate insurance cover to indemnify risk to life and health. A health insurance policy helps you pay for expensive medical treatments, whereas a life insurance policy protects your family's financial needs in your absence (untimely demise).

When you are young you do not realize the importance of having an insurance policy. One mishap or an untoward incident can ruin your life as well as your family. The only way to protect you and your family from the financial crisis if anything unfortunate happens is to take comprehensive medical insurance and a term policy.

In conclusion, anyone who wishes to achieve financial freedom can take on the path of skilful financial planning and strategic execution. However, the main reason many individuals put off being financially independent and achieving financial freedom is a lack of financial knowledge. They are unaware of the nuances of financial planning.

You can sustainably achieve financial freedom by investing in your financial knowledge. Improve your financial knowledge to effectively implement the above-mentioned steps towards achieving your financial freedom. Financial literacy is the doorway to effective financial planning for a bright financial future and is undoubtedly an essential life skill. Financial literacy enables you to take on the role of financial guardian for your family and support them in making sound financial decisions.

Therefore, this 15th of August which marks the 75th year of Independence and our nation’s freedom from a colonial past is the ideal time, to begin, your journey towards financial freedom.

PS: We at PersonalFN understand that not everyone holds deep financial knowledge. Here we encourage you to gain and enhance your financial knowledge and become a 'Financial Guardian' to your family. You will understand the financial planning elements to become your financial planner.

And in case you are wondering how to become that financial guardian for your family, PersonalFN's latest unique initiative, the "Certified Family Guardian," offers you an exclusive opportunity to learn the finer nuances of money management.

So, if you wish to begin your journey towards financial freedom, this independence day you must enrol for the "Certified Family Guardian" programme today!

Warm Regards,
Mitali Dhoke
Research Analyst