Different people interpret the term “financial freedom” in different ways. Some people interpret financial freedom as the freedom to buy what they want and when they want. For many, it could mean not worrying about how they will pay their bills or sudden expenses. For some people, it could simply mean becoming debt-free, while for others it could mean being rich enough to retire. While all these interpretations are somewhat correct, they are all half-baked answers.

1. Start early to be Free

If you also want to be financially free like Ghosh, start saving and investing early. An early start gives your money more time to grow. If you start putting Rs 10,000 a month at the age of 30 in an option that gives 8% compounded annual returns, you will have a corpus of Rs 1.5 crore at 60. If you delay this by 10 years but enhance the monthly investment to Rs 15,000, you would have invested the same Rs 36 lakh but your corpus would be much smaller at Rs 88.64 lakh.

Unfortunately, this simple arithmetic is lost on young people, who are busy spending their salaries without bothering to save enough for the future. Hyderabad-based financial planning firm Arthayantra examined the portfolios of more than 2,000 professionals and found that more than 90% don’t start planning for retirement in the first five years of their careers. Even by the 10th year, less than 20% would have a retirement plan in place. Investors start thinking about retirement planning when they are 30-35 years old but the actual process gets implemented only when they are in their 40s.

Retirement planning is not the only thing on the backburner. It’s rare to see a young person who budgets her expenses or keeps a tab on where every rupee is going. Admittedly, today’s 30-40 year olds don’t save because they don’t want to.

2. Understand where you are presently

The first marker on the path to financial freedom starts with knowing where you are currently. This includes having a clear idea of how much debt you have, your accumulated savings, monthly expenses, your income, etc.

In other words, you need to know your personal financial statement with a fairly accurate knowledge of your income, expenses, assets, and liabilities. Once you have these numbers, you move to step 2 of your financial freedom journey which is writing your goals.

3. Save Aggressively

Apart from starting early, you need to put away a substantial amount every month to build a corpus big enough to set you free. A 2012 study by the US based Putnam Research Institute found that fund selection, asset allocation and portfolio rebalancing did not impact the final portfolio as much as the quantum of savings. An investor who simply enhanced the quantum of his savings every year would have a bigger corpus than investors who got into the best performing funds or changed their asset allocation annually. Investors obsess a little too much about which funds to choose and how to finetune their portfolio. It would be better to put that same effort into enhancing the quantum of those savings

4. Get a Handle on your Finances

Just because you believe you’re worthy of making the money you deserve doesn’t mean all your old financial problems will disappear. In this step, you need to take a good, hard look at your finances and see which messes need to be cleaned up. If you owe money to others especially if it comes with a high interest rate a good chunk of your monthly income will be going to someone else. If you get a bonus or a raise, immediately use those funds to pay off your debt. Use the snowball method to pay off your smallest debt first, and then use the money you would have put toward that debt to start paying down the next one. Once you’ve gotten out of debt and developed a budget, you’ll have more money each month and more peace of mind.

5. Set up a Deposit Schedule

Once you have your accounts set up, create a system for ensuring they are fully funded. Many employers will direct deposit paychecks into multiple accounts, so you can divert a portion of your income to checking, regular savings and your emergency fund. For other savings goals, you may be able to set up automatic, regular transfers from your bank account to other financial accounts. Finance experts often recommend saving 10% of your income for emergencies or other goals and another 10% for retirement.

6. Pay off Your Debt

Paying off a big debt supports financial freedom in more ways than one. After all, you have more future cash flow to work with. Your credit rating is strong. And most importantly, closing a loan lifts a massive weight off your shoulders.

There are two main methods of paying off debt. The first one is the snowball method where you pay off the smallest debt first. So basically get one tick mark in your checklist and then move on to the bigger debts. And the second method of paying off debt is the avalanche approach where you first pay off the debt with the highest interest rate and then move to the lower ones.

Both these methods work efficiently and if you have a pile of debt, you need to decide what works best for you. But there is no hiding the fact that getting rid of debt is one of the most crucial factors to achieving financial freedom.

7. Spend Less

Money saved is money earned. But it’s not an equal equation wherein Rs. 1 saved is Rs. 1 earned. Because when you invest that Rs. 1 rupee, you end up earning a lot more.

Now, spending less does not mean compromising on your existing lifestyle or living a barebones life. Financial freedom is more about smart spending which can be done in many creative ways. Some of the common techniques include learning to make delicious food at home thereby reducing your eating out expenses. Setting up auto-debits so that you don’t pay late fees on your credit cards.

The mere postponement of a non-essential item by a couple of days can go a long way in reducing impulse purchases, which then moves you closer to financial freedom.

8. Monitor your Credit

A person’s credit score can determine whether they have access to loans and what interest rate they receive. In some states, employers can review a job applicant’s credit history when making hiring decisions and insurance companies in certain areas may use credit to set policy premiums. Reducing debt and paying bills on time are two ways to boost a sagging credit score.

9. Invest

The ninth and most future-looking step to attaining financial freedom is investing.

The first move is to invest as much as you can and as early as possible, therefore allowing the power of compounding to assist you. Next, increase investments each year at a percentage higher than your increase in income.

Another key thing to do is achieve an asset allocation of 50-60% in equities as quickly as possible. As a thumb rule, keep a 60-40 allocation between equity and non-equity assets. But feel free to change that ratio depending on your risk tolerance.

10. Evaluate and Make Changes

Pay attention as you work through the previous steps to financial freedom and make changes when necessary. Watch your portfolio for red flags that could be affecting your returns. Put more money into your buckets when you or your partner receives a raise or takes a new job with a hike in pay. Watch the market and diversify your investments as needed.

If you’re working with a fiduciary, evaluate how that relationship is going and make sure they are putting your interests first and that you feel comfortable with your relationship. If your broker is a bully or you don’t trust the advice they are giving you, you’re under no obligation to stay. A new financial advisor can open your eyes to new options or you may find that your financial intelligence has gotten to the point where you can handle investing on your own.

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