The term financial freedom has become increasingly popular in the past decade. With the new generation of youth wanting financial freedom to combat the need to work long hours till the age of 60. The term ‘financial freedom’ has become an elusive goal that every young person seems to be chasing.
But what is this financial freedom? How do you define it? And in this day and age of never-ending hunger for more, is it even realistically achievable? Let’s find out.
What is financial freedom?
Well, most people operate under the assumption that financial freedom is a state where you are not bound by any financial restrictions and have the funds to do anything you desire. This creates an elusive definition of financial freedom that can never be achieved.
The true meaning of financial freedom is the freedom to continue to live a decent lifestyle for a sustainable period of time. This is a state where you have enough funds to sustain yourself without hampering your health and well-being.
This means that you will have enough money to fund your living expenses. The definition of financial freedom is also highly subjective and varies from person to person.
Can you achieve financial freedom?
The answer is simple, yes you can achieve financial freedom as long as you have a realistic expectation of financial freedom. Here are 5 simple ways you can achieve financial freedom;
1. Have a clear goal
This means that you should have a clear understanding of what financial freedom is to you and the various financial goals that would take for you to achieve it.
Having a vague idea like retiring comfortably is not going to be helpful to achieve financial freedom. You need to be clear about what comfortable living will be for you after retirement and how much funds you would need to get there.
2. Have all your mandatory funds ready
No matter how secure and stable you are financial, there are always unforeseen situations that can derail your financial stability. Things like health emergencies, disruption in the economy, or a completely unforeseen pandemic can suddenly create a major disruption in your finances.
Mandatory funds like health insurance, emergency funds, etc are created to protect you from uncertain and unfortunate adversities of life. Here we have a list of 5 mandatory funds that everyone should have.
Your mandatory funds should also be updated from time to time again to keep up with your changing lifestyle and inflation.
3. Tackle your debts
The very opposite of financial freedom is a debt-ridden life. While it is true that there are some loans that offer benefits like tax deductions, it is still better to consider a debt-free life. Certain debts like credit card debts offer little to no benefit and can create significant financial setbacks.
Indulging in a debt-dependent life can create unhealthy financial habits of living beyond your means. It is better to be completely debt free in terms of long-term financial stability.
4. Prepare for inflation
Inflation is a harsh reality of life. You might have heard your parents say that they could buy so much with just ₹100. The economy is going through constant inflation which means the value of ₹500 will be much less in the next 10 years than it is now.
This is why you need to start investing as soon as possible. If you are just focusing on saving your money, then the value of that money will decrease in the future and you will be at loss. But if you consistently invest your money in stable instruments like mutual funds, then you will earn interest which will get reinvested, and this way you can increase your initial investment amount and beat inflation.
Investment is extremely important and investing early is even more important as you will get the benefit of compounding. Click here to understand what compounding is and why it is important in investing.
5. Keep track of your financial goals
Investing is always a good idea, but investing with a certain goal in mind is always the best way to go about it. Having a particular goal or multiple goals that you are investing towards will keep you accountable and disciplined with your investments.
The sense of fulfillment and satisfaction that comes with knowing that you are getting closer to these goals will make the investment journey fun and interesting instead of it being a monotonous task that you are required to do.
It is true that achieving financial freedom is not a quick and easy process but it is possible to achieve it with proper planning and discipline.
Click here to read our series on easy and simple ways you can manage your finances and become financially free.
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