How To Become Financially Independent
For many people, financial independence or financially stable is having enough savings and investments to live the lifestyle they desire for themselves and their families. But, it also entails building a large nest egg that allows you to retire or pursue whatever career you like.
Unfortunately, not too many people achieve financial independence. Even in the absence of rare financial catastrophes, accumulating debt due to overspending remains a constant burden. It prevents them from accomplishing their goals. It is only during times of sudden emergencies or unfortunate events that exposes more gaps in their safety nets. Covid-19 exposed a lot of vulnerabilities in our personal finances!
What Is Financial Freedom?
Each individual calls financial freedom their aim. For most people, it implies having the financial cushion to support a particular lifestyle. It acts as a nest egg for retirement. It can also give freedom to follow any vocation without earning a specific wage.
What Is the 50-30-20 Budget Rule?
Senator Elizabeth Warren popularized the 50-30-20 budget rule. It divides after-tax income into three categories of spending. 50 percent for needs, 30 percent for wants, and 20 percent for savings and debt repayment. So we created an easy-to-use investment calculator to assist you in categorizing and controlling your spending and protection — the critical first step toward financial freedom.
Ways to Become Financially Independent
1. Set Life Goals
What does monetary freedom mean to you? Although it is a universal desire, that goal is too nebulous. You must be precise in defining sums and due dates. Your chances of success increase with increased target specificity.
The next thing is to work backward from your deadline to your present age and set up financial checkpoints at regular intervals between the two. One should place he target sheet at the front of your financial binder. Note all amounts and due dates on it.
2. Make a Monthly Budget
The easiest method to ensure that funds are on track and all bills are paid is to create and adhere to a monthly household budget. It also serves as a consistent habit that helps you stay to your objectives and resist the urge to indulge.
3. Pay Off Credit Cards in Full
Wealth-building is poisoned by high-interest credit cards and other consumer borrowings. Aim to pay off the complete balance each month. Mortgages, student loans, and other loans with similar terms often have lower interest rates; so paying them off in full is unnecessary. But, making on-time payments on these lower-interest loans is still crucial because doing so will improve your credit rating.
4. Create Automatic Savings
First, pay yourself. Enroll in the retirement program offered by your workplace, and use any matching contribution benefits—free money—to the fullest. It’s a great idea to set up automatic contributions to a brokerage account or a similar account and withdrawals into an emergency fund that can be used for emergencies.
The money for your retirement account and the emergency fund should be taken out of your account on the same day you are paid your salary.
Remember that your situation will determine how much money is appropriate to save for an emergency fund. Also, you shouldn’t use a tax-advantaged retirement plan as your only source of emergency funds. It’s because there are restrictions on how you can access these funds in an emergency.
5. Start Investing In P2P Lending
Peer-to-peer (P2P) lending is a terrific investment opportunity to increase income and diversify your portfolio. Even when interest rates are low, P2P lending is an alternative asset that offers enticing high returns at low risk.
Peer-to-peer lending is no different from other investment opportunities that offer greater than average returns in terms of risk. Using P2P platforms like LenDenClub to lend decreases your risk. This is due to LenDenClub’s hyper-diversification feature, which divides your funds into small amounts, some as small as ₹1. Invest Now!
6. Watch Your Credit Score
The interest rate you are offered when purchasing a home or a new car is based on your credit score. Additionally, it affects the cost of several other necessities; for example, life insurance premiums and auto insurance.
Credit ratings are important because it’s assumed that someone with risky financial habits would also have reckless behavior in other aspects of life, like maintaining their health. This perception of insurance companies can hamper an individual’s chances of getting insurance.
It is crucial to get a credit report to ensure that no black marks are damaging your reputation. To further protect your information, it can be worthwhile to research reputable credit monitoring services.
7. Negotiate for Goods and Services
Due to their fear of being seen as cheap, many Indians are reluctant to haggle over the price of goods and services. You could save a lot yearly if you get over this phobia. Purchasing in bulk or presenting yourself as a loyal customer can get you large discounts. It’s because small firms, in particular, are amenable to bargaining.
8. Stay Educated on Financial Issues
To ensure that all modifications and deductions are utilized to the fullest extent possible each year, review pertinent changes in tax laws. Keep an eye on market movements and financial news, and don’t be afraid to make necessary adjustments to your investment portfolio. Knowing how to protect yourself from fraudsters relying on inexperienced investors to make a quick buck is also essential.
9. Maintain Your Property
Everything from lawnmowers and vehicles to shoes and clothing lasts longer when it is well-maintained. Maintenance is also an investment that should not be overlooked because it is much less expensive than replacement. Proper maintenance of your real estate assets can get you a better resale value. Place yourself in a situation where you plan to buy a house. You would prefer a well-maintained house to a property that looks shabby, even if that means a higher price. The same rule applies to your prospective buyers when you want to sell one of your real estate assets. In that way, maintenance is an investment and your return comes in the form of a higher resale value.
10. Live Below Your Means
It’s simpler than you might think to master a frugal way of life if you cultivate a mindset centered on getting by on less. Many affluent people form the practice of living below their means before becoming successful.
Making the transition to a minimalist lifestyle is not difficult. Yet, making tiny modifications that improve your financial health entails learning to differentiate between your needs and wants.
11. Get a Financial Advisor
Get a financial counselor to help you stay on the right track once you’ve accumulated a respectable amount of wealth, either in liquid assets (cash or anything that can be changed into money easily) or fixed assets (property or anything that cannot be converted into cash readily).
12. Take Care of Your Health
Taking exceptional care of your physical health has a significant positive impact on your financial health. The notion of regular maintenance also applies to your body.
It is simple to invest in your health. It entails going to a dentist or a doctor regularly and adhering to their medical recommendations for any issues you experience. Also, simple lifestyle adjustments, including increasing exercise and eating healthier food, can prevent many medical conditions.
Poor health maintenance has adverse short- and long-term effects on your financial objectives. Because some employers only allow a number of paid sick days and you start losing money once those days are used up. Along with forcing early retirement with a lesser monthly income for the rest of your life, poor health can cause your insurance burden to increase.
Although these 12 steps won’t fix all your financial issues, they will assist you in creating positive habits that will set you on the road to financial security. Creating a plan with precise amounts and due dates strengthens your endeavor to reach your goal and protects you against the need to overspend. Financial freedom is within reach once you begin to make actual progress and are freed from the strain of mounting debt.