Mumbai (Maharashtra) [India], August 23:As India recently celebrated its Independence Day this year, it is equally important to consider your financial freedom as well. Financial independence refers to having enough resources at one's disposal to allow them achieve their long-term financial goals. If you are stuck in that zone where whatever you are earning is getting used up in daily monthly expenses, you need to work towards financial freedom. 

Why does financial independence matter?

Achieving Financial Independence is a means to safeguard your future and allow you to pursue your aspirations without financial restraints. It's the ability to make life decisions without worrying about running out of money.

Ideally, one should begin early and establish adequate savings and investments in the early phases of their career. Then, work your way up to your goals, such as purchasing a home, a vehicle, educating and marrying your children, and so on. If you plan and invest carefully, you can attain your goals while still having a significant corpus to retire with that can provide you with a consistent source of income to retire comfortably.

How can you reach financial freedom?

The financial environment is continuously moving, and while a decade or more of prudent investing should help you accomplish your financial goals, genuine independence requires thorough preparation and risk mitigation. Create separate financial strategies for different goals such as marriage, health, and education. For example, by having a term life insurance plan by your side, you can be assured that your family is protected financially if something were to happen to you in the form of a death benefit. Similarly, if you invest in the one time investment plan you will also be able to make the financial reserve. Invest time in research to make informed decisions. Avoid following the herd and make attempts to establish an action plan for changing scenarios to avoid making rash decisions.

Investing for Financial Freedom

Keeping your savings in a bank account may give you a modest interest, but it will not produce wealth over time. In today's environment, there are several financial instruments and solutions available to help you build your money. There are many one time investment plan available around which you can invest such as equities, bonds, mutual funds, ULIPs, pension plans, gold, fixed-income securities, and real estate.

Both market-linked and fixed-income investments contribute to wealth building. Market-linked investments are one time investment but they are also risky, but they also have the potential for significant profits. Fixed income investments, on the other hand, can be excellent for protecting accumulated capital and directing it towards a certain objective. For long-term goals, it is critical to have a balanced investment portfolio that considers risk, time horizon, and taxation.

Financial Independence and Retirement

Retirement is commonly referred to as the end of your working life, and it is the period when financial independence is most important. Financial independence entails being prepared for your dreams and having the financial resources to pursue your goals in life, such as retiring early, starting your own business, packing your bags and seeing the world. And what could be better than a comprehensive retirement insurance policy or term life insurance plan?

You cannot get there overnight. Achieving financial independence involves proper planning as well as the discipline to stay to plan even when circumstances change. This could entail making investment decisions early in life, also buying a term life insurance plan early on and making investments as necessary. 

Financial freedom is achieved when you have saved enough money to cover all of your financial needs and expenses after accounting for inflation. This means you won't need to create additional revenue anymore. You may still choose to work, but the goal will not be confined to earning a living or maintaining a lifestyle. In a true sense, it allows you the freedom to pursue your other interests or hobbies outside of work. This target corpus is known as the FIRE (financial independence, retire early) number.

The following stages can help an individual's road to financial freedom go more smoothly and efficiently.

Set your life goals: Setting clear, quantifiable goals is the first and most important step towards reaching financial freedom. These may be short-term or long-term. The goals can range from 'children's wedding' to 'purchasing a new house', 'special trip', or 'legacy creation'.

Analyse cash flows: The greatest method to avoid debt is to create a budget that shows you where your money is going and where it can be saved and invested. It promotes a more responsible financial strategy, which helps in reaching goals while also allowing you to live within your means. Controlling your spending and monthly instalments will help you to generate the necessary surplus to fund your goals.

Invest wisely: To maximize returns, a suitable asset mix should be chosen based on the goals' duration. The ARC formula (asset allocation, regular investment, compounding) will get you to your FIRE figure at the ideal age using the best one time investment plan. Delaying this execution might lead to several years of missed opportunities to build wealth and achieve financial freedom.

Risk management and emergency funds: A sudden financial crisis can easily threaten financial freedom. A proper term life insurance plan and health insurance coverage, based on cash flows and the number of family members, can assist in controlling risk. Underinsurance is a major issue in India, and it is one of the primary reasons why families do not have financial freedom and hence why purchasing a term life insurance plan is very much needed when you start to earn. 

Periodic tracking and reorganization: Growth in inflows should be proportional to the investment amount. There are two main reasons why periodic tracking and rebalancing are necessary: one is how market dynamics are playing out, and the other is how well you are on pace to meet goals. In addition, a strategy for topping up assets to take advantage of declines, as well as regular investments, should be developed.

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