What does financial freedom mean? Financial Freedom is the state of having sufficient wealth to live and you don’t have to work for that. You should have enough assets to generate the required cash flow. Typically instead of you working for money, you should make money work for you; Following are some of the basic principles based on which you can achieve financial freedom or independence.
- Save First – Spend Next
This is the most important habit if you want to create wealth for your golden years. Start saving a comfortable minimum percentage of your take home income in the initial years still you gets habituated; once it becomes a habit then you will automatically increase the saving percentage.
- Buy enough Risk Cover
Buy a term insurance for yourself first, it can be 20 times of your average expenses or 10 times of your salary or anything but get one first. Here don’t go fall for any ULIP or endowment plan, just take a simple term insurance to cover your financial risk.
Second buy a medical insurance, with increasing life expectancy and medical cost, its imperative you buy a medical insurance for yourself and your dependents. This is irrespective of one provided by your employer.
- Build emergency funds
Keep a minimum of 6 times of your monthly expenses as emergency funds, this can be in savings account or fixed deposit or liquid funds but create one. And also make it a point not to use this for any other purpose. This money has to be used only in case of any exigencies.
- Start Early
If you are young earners, then don’t procrastinate on savings or investments. Whatever little you can just start investing at the early stage to enjoy the benefit of compounding. The below post will narrate more on this subject.
- Avoid debt
Don’t borrow to buy any fancy items, though it’s okay to get into loan to buy any asset but i would recommend to build wealth for that and in case if there is a mismatch between the requirement and availability then go for a loan. Whether one is smart or not is known by; whether one is receiving interest or paying interest.
Have a plan before starting anything, try to get the cost of your investments before investing , hire a financial planner if you need any assistance as path to financial freedom is a continuous journey not a onetime exercise, diversify between different asset class these are some other points to keep in mind to achieve financial freedom.
Happy Investing!
R♥Vi
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