How to get Financial Freedom?

Financial Planning | admin | August 20, 2011 at 9:08 am

Financial freedom is a term that has a lot of significance for each one of us. A person may be earning Rs 1.5 lakh a year and still be happy, while a man earning in crores loses his sleep. So, if financial freedom is not related to income, what does it actually mean? To a fresh graduate, it could mean having an income that would set one up for a successful career, to a young married couple, it could signify being able to afford things necessary to set up a home, while to others it may mean ensuring there is enough money for them to live comfortably after retirement. While it varies between individuals, every one wants to know how they can achieve financial freedom. Is it within the grasp of every Indian?

Financial illiteracy is usually the bane of financial freedom. Therefore, it is important to recognise and plan for various needs that arise at different stages of life, such as a child's education or buying a house. It is equally important to avail of the services of a qualified financial planner who can guide you. Having a good financial planner is a must because only he can profile your risk appetite and recommend investment avenues accordingly.

Save regularly

As a first step, you should focus on saving for the future. This simply means that you have to ensure that your combined expenses are lower than the income generated. If there are no savings, there is no bulwark for building the future because there is no discipline to follow. In essence, this is basic financial planning.

Invest wisely

A steady stream of savings would lead to a feasible pool of money. After keeping some money aside for contingencies, in reasonably liquid avenues such as bank fixed deposits, one should graduate to the next step of investing.

Investments are assets that typically grow in value over a period of time and create wealth. In an elementary sense, it is money working overtime for you and creating more of its own kind. There are several investment options available where you can invest your hard-earned money—bank fixed deposits, insurance policies, National Saving Certificates ( NSC), Public Provident Fund ( PPF), real estate, mutual funds, stock markets and pension schemes.

Typically, returns are a function of the risk embedded in each product—the more the risk, the better the chances of return. An equally important maxim of investment, as a corollary, is that the longer the duration, the lower the risk and better the returns. Typically, higher risk investments, such as stocks and equity mutual funds, are recommended for a minimum period of 3-5 years.

Mutual funds: gateway to financial freedom

It is here that mutual funds play a very important role. They are the catalysts which channelise even very small amounts of money into investment vehicles, which, in turn, generate wealth, regular return or capital protection, depending on the risk appetite of the investor.

Mutual funds also provide the convenience of various frequencies, amounts and even different types of asset allocation.

At one end, there are systematic investment plans (SIPs), which channelise small sums of money primarily into equity, while at the other there are the so-called absolute return funds, which endeavour to capitalise on the benefits the stock markets provide with very low levels of volatility. The choice and customisation offered by mutual funds to convince and comfort the investor fraternity are plenty. Every investor can easily find one that is suitable for him.

As India develops from a nation of savers to a nation of investors, long-term financial planning and wise investment decisions will help Indians plan to achieve ambitious goals, structure their lives around their audacious dreams and achieve financial freedom in order to live to the fullest

Invest wisely and experience the joys of financial freedom.

Source: Economic Times