The fifteenth of August serves as a reminder that independence is a cause worth having. On August 15, we celebrate India’s independence from British Raj’s control and influence. Financial Independence also means freedom. Declaring our own Financial Independence is the first step in achieving it. Here’s how to declare your own Financial Independence Day and win it.
KEY TAKEAWAYS
- When you no longer need to work and can live the lifestyle you want, you are financially independent.
- It is a good idea to start saving and investing early in order to reach financial independence.
- Setting up and adhering to a long-term strategy is frequently necessary.
What Exactly Is Financial Independence?
To put it simply, financial independence may be described as having enough money to live well without having to work. In actuality, what various people define by financial independence varies.
- Only 18% of young Indians surveyed between the ages of 22 and 29 believed they were financially independent, defined as being able to manage their financial obligations without assistance from their parents, grandparents, or other family members.
- Only 24% consider ‘savings for retirement’ as a financial priority
- 50% believe that savings will be exhausted within 10 years of retirement
There are other definitions of financial independence that fall between those two standards. Some people have no intention of ever leaving their jobs. They merely need enough money to live comfortably and to be able to deal with an emergency without incurring debt. Others view financial independence as having the opportunity to travel, spend time with family, unwind, and enjoy the “fruits of their labour” when they retire. Others define it as having enough money to sustain themselves, their loved ones, and the organisations and causes they care about while still being able to support themselves and be there for family members when they need them. Many of these objectives could be included in your definition.
Whatever it is that you define as financial independence, it is likely that, barring a lottery win or a wealthy inheritance, it will only come to pass if you are prepared to work for it. Our freedom fighters were aware that India’s independence would require conflict. And they understood that a battle plan was necessary for victory. Financial independence is similar.
The strategies we’re going over can help you progress toward financial independence. But it’s crucial to understand that caution and strategy only go so far. How free a person is to accumulate wealth and achieve financial independence is greatly influenced by factors such as family obligations, health, personal circumstances, and social privilege—or lack thereof.
Given that India has never had an entirely level playing field, this advice is being given in that spirit. It is vital to commemorate the independence and freedom that were proclaimed on August 15 and earned through the Fight for Freedom. However, India (both citizens and non-citizens) must also acknowledge that it excluded the majority of the people who made up the new country; our country continues to struggle for a sense of equality and complete freedom.
Your Strategic Plan for Financial Independence
There is no single method that will enable you to achieve financial freedom, just as there is no definitive definition of what constitutes financial independence. Nevertheless, all strategic plans share some characteristics. Set financial goals, decide on the resources—financial and non—you will need to achieve your objectives, choose the investment strategies and other strategies you will use, and commit to perseverance to keep fighting for your financial independence until (with a little luck and hard work) it is in your possession.
Financial Objectives
Your financial goals are particular to you. Consider your long-term objectives. Do you desire complete financial freedom—the opportunity to do as you please without having to work for a living? Or do you have more modest goals? Are you comfortable living a largely independent lifestyle with the occasional need to increase your passive income?
Your choice of goals will be influenced by your age and financial position. You have decades to accomplish your ambitions and the freedom to take greater risks if you are in your 20s or 30s. You might even consider pursuing the FIRE (Financial Independence, Retire Early) approach at that age, which comprises intensive saving and investing practises intended to enable you to retire much earlier than usual.
If you are older, say between the ages of 50 and 65, you probably already have goals for saving for retirement, but even if you don’t, you still have time to make financial independence plans. To make up for lost time, this may entail a riskier investment plan depending on your ambitions and collected assets. Or perhaps you need to redefine what comfort in retirement means.
Whatever your goals are, make a note of them. Keep them in sight to serve as frequent reminders of your eventual goal—living a life of financial independence, according to your definition.
Assets
Which instruments (weapons) will you require to accomplish your goals? These could be any number of different income-generating assets, from savings accounts or certificates of deposit to a portfolio of dividend-paying stocks, bonds (or bond funds), and real estate.
The largest asset for many people is their property, which can be utilised as a source of wealth or as collateral for a reverse mortgage to assist finance retirement. And there are other ways to invest in real estate than that. Although they can entail a sizable investment and degree of risk, rental properties can produce enormous sums of cash flow. The COVID-19 pandemic demonstrated how the value of real estate may fluctuate over a short period of time. But over the long run, real estate has shown to be a reliable source of income.
Starting and operating a profitable business with the eventual goal of either ceasing direct involvement in day-to-day management or selling the business for a sizable profit would be another asset for growing wealth.
Intangibles like knowledge and expertise are also considered assets. You weren’t taught how to manage a small business, invest in real estate, or trade stocks when you were a baby. You were endowed with the capacity to acquire knowledge, conduct study, read, and test out various approaches to determine what works.
Tactics
Your choices will have a significant impact on how well you achieve financial freedom. To attain financial independence as you understand it, you need to become knowledgeable about and take action on these topics.
Start by creating a budget that allows you to pay your living expenses, allows you to save and invest, and takes into consideration your income and other resources. Consider your spending plan as a path to financial security. Pay attention to where your money is going and steer clear of pitfalls. Wherever possible, reduce expenses to open up more space for investing and saving.
If your workplace offers retirement savings plans, take full use of them. If not, make your own by investing in GLIP (Guaranteed Lifetime Income Plan). On the other hand, it’s crucial to make room for enjoyment (unless you are following the FIRE strategy above). Just be careful not to overdo it, and avoid borrowing for leisure above everything else.
In the same line, prepare for the unexpected by setting up an emergency fund that will provide you access to funds for unanticipated (but necessary) expenses when you most need them. Planning for unforeseen circumstances that can interfere with your plans is essential. A pandemic is not necessary; it might also be a disease, an unforeseen job loss, or an economic disaster.
Finally, create an investing plan that leverages compound interest’s strength. Compound interest accumulates over time and is free money. Gain as much knowledge as you can about investing, but also make use of what others already know. Find and work with an investment advisor as early in the process as you can if investing plays a significant role in your wealth goal.
Perseverance
It takes a lifetime commitment to consistent budgeting and investing to reach financial independence.
Additionally, you need to be on the lookout for circumstances that can cause money to leak out that could be used more wisely. Or it can cause you to accrue more debt than you can manage. If you see it happening, force yourself to stop and pay attention. Then, attempt to find a solution, such as debt consolidation or debt counselling, or even the tried-and-true method of putting your credit cards away and not using them.
Keep searching for fresh chances and innovative strategies to maximise your hard-earned money.
In order to keep your investment portfolio moving in the direction of your financial goals, perseverance also requires that you learn how to create a profitable investment portfolio and make sure to rebalance it frequently. Then, as you near retirement, make adjustments.
Independence Finally!
Success can sometimes surprise us. Fight the good fight until you’re confident that you’ve accomplished the goals you had in mind. Independence starts with a declaration, followed by a strategy that includes goals, resources, tactics, and—most importantly—perseverance, just as it did on August 15, 1947.
Additionally, a little good fortune can’t hurt. Additionally, be kind to your countrymen. Nations and people alike require each other’s assistance and company.
Donald G. is the Principal Consultant at NRI Money+. He specialises in creating personalised financial plans for NRIs (Non-Resident Indians) and HNI (High Net-worth Individuals).
