We all work for money. But, does having lot of money make us rich and wealthy? Does it take away the ‘stress’ from your daily life? Financial Freedom is much more than having money.
Financial Freedom means you are able to do what you enjoy without worrying about how it might impact your finances.
Financial Freedom cannot be achieved in one day. It is a process. You need to take the right steps to cushion you against losses during un-foreseen events. You need to have long-term and right investment strategies. You have to create multiple sources of income (active and passive income) and so on…
Are you on the right path to achieve your Financial Freedom?
Is your Financial Freedom at Risk?
Kindly go through the below ’15 point checklist’ to know if your financial independence is at risk.
If you answer ‘YES’ to most of the questions / points, you have taken the right steps which can cushion you against the financial losses and ensure ‘financial freedom’.
If you answer ‘YES’ to some of the questions, you may have a good chance to be financially free by taking few corrective steps.
If your answer is ‘NO’ to most of the questions or to all of the questions, you could lose your financial freedom. You may have to act NOW. You may have to SAVE more, avoid reckless spending and INVEST right.
- Financial Emergencies – If faced with a financial emergency, you do not have to sell some of your financial assets or take a loan? Do have a contingency fund to meet unforeseen financial expenses?
- Do you have health insurance? Are your family members / dependents having adequate health insurance cover?
- Does your life insurance cover ensure your family members to have same standard of living if anything happens to you? Do you have adequate life insurance cover (sum assured) which matches your income earning potential, covers your current liabilities and financial obligations?
- To meet your living expenses or to fund your financial needs, you have never withdrawn any amount from your Retirement Savings Schemes like Employees Provident Fund / Public Provident Fund.
- Do you judiciously save a certain portion of your money towards your Retirement goal? Do you save atleast 20% of your income towards this goal?
- Do you spend only 10 to 20% of your income towards repaying your loan EMIs?
- You have never rolled over your credit card bill in the last few years. Do you pay the entire credit card bill amount within due date?
- Do you have a long-term investment strategy to achieve your financial goals? You believe that financial growth can be possible over a longer-period and there is no short-cut to achieve it.
- You do not believe in short-term trading and investing in penny stocks. You prefer to invest in blue chip companies or mid-cap companies (quoting at reasonable prices) for long-term. You do not invest in stock market based on tips and speculation.
- Do you try to understand the features of a financial product before you invest in it? Do you select the investments based on your financial goals and requirements? Do you try to understand the risks associated with the investments?
- You do not invest your entire savings only in fixed deposits or recurring deposits. You believe in investing in different asset classes and portfolio diversification.
- You have clear idea about your monthly cash inflows and outflows. You track and monitor your expenses, savings and investments periodically.
- You do not depend entirely on your salary or business income. As of now, you may depend on one source of income but have clear plans to get passive income (or) income from multiple sources. (Passive income is an income received on a regular basis, with little effort required to maintain it.)
- You do not depend on your parents every time when you are in need of money. If you are a retiree, you do not depend on your children to meet your financial needs.
- You want to build your own wealth and want to achieve financial freedom.
10 steps to Financial Freedom
- Figure out where you’re at. Know and assess your Net-worth, inflows (income) and outflows (expenses, investments etc.,).
- Make a budget. Track every Rupee you spend. There are can be ton of things we pay for that we really don’t need and may actually be making you miserable. Cutting out unnecessary expenses isn’t about denying yourself convenience; it’s about learning what is really important to you and what makes you happy. (Be aware of little expenses; a small leak will sink a great ship – Benjamin Franklin)
- Create an Emergency Fund.
- Protect and Insure what you have.
- Plan, save and invest for your retirement goal.
- Set realistic Financial goals. Learn which important goals you need to set for long-term financial freedom and how to get there.
- Create a right investment policy. Most people understand they need to be investing to reach their financial goals but very few actually have a plan on how to get there.
- Eliminate high cost Loans (Read – good debt vs bad debt).
- Turn your hobby or interest into a business or career. (or) Earn extra money by taking a second job based on your hobby. Get out of your comfort zone.
- Knowledge is power. Be financially literate. Personal finance doesn’t have to be a mystery. Educate yourself.
We all work for money. But the ultimate goal or aim should be to make ‘money work for you’. Time is the biggest asset of all. Invest early. Invest right. Make your money work for you.
If you decide to work from 9 am to 5 pm, you may have to work till you are 95. Have a plan to get income from multiple sources. You can start your own business based on your interest or hobbies. You can encourage your spouse to take-up a franchise based on his/her interests. You can have ‘Plan B’to buy some good properties that could continuously generate passive income for you and your family. You can work part-time on weekends. You may start writing a Blog and monetize it 🙂 ……..Create multiple income streams and have a life-time income plan. (You may like reading – ‘How to set up a Franchise?‘)
Financial freedom is not a dream. It is a choice. Anyone can be financially free. Being financially free isn’t about not having to work; it’s about doing what makes you happy and getting paid to do it.
If there is anything I’ve missed or anything that you would like to add, feel free to share your views in the below comments section. Cheers!
(Image courtesy of Stuart Miles at FreeDigitalPhotos.net & pesosandsense.com)
Im 34 year old and working in a private US Staffing firm. blessed with one year old daughter.
My father is about to retire in one year expecting approximately 25 lakhs .
1) I have started SIP investment for the past 4 months with 3000 / month.
2) My Monthly Salary 1 lakh + Incentives
Investment Plan) Put all the pension amount in SCSS FD and he can get 11% . I want the interest to be invested in SIPs automatically .
The reason for putting them in FD is to make sure the SIP investment is carried with out any disturbances what ever may be the reason.
Another reason for putting in FD is we can have a loan against our FD whenever we need as a family emergency fund.
Kindly guide me whether my investment plan is good or please suggest the best and long term investment strategy for me.
Dear Pavan,
11% on SCSS??
The interest earned on FDs is taxable.
May be, it is better to create a separate Emergency fund (based on your monthly living expenses) in Cash + FD + Liquid Debt fund + Arbitrage fund.
May I know the investment objective(s) (or) Financial goals for choosing SIPs?
Read:
Why to avoid investing in FDs/RDs for longer period?
List of best investment options!
Thank you guys
went through the blog for the very first time
It was a wonderful learning experience for me as a carrier beginner
Dear prathamesh,
Glad to know that you like our blog.
You may continue reading below articles;
The 6 most common personal financial mistakes..
Financial Planning Pyramid.
My MF portfolio picks.
Hi Sreekanth,
As always, your article is very informative and helpful. Of late, I have been following a lot of your articles and advice. Thanks to you, I invested in MFs through SIPs recently.
Sadly, I think I am very under prepared for financial freedom and retirement planning. At this stage in my life, I am faced with dire need of your expertise and advice. Request you to please spare some time and help me. I have detailed my profile below.
I am a 33 years old male. Wife and I both work in private companies. My mother lives with us and is dependent on us.
My key requirements are:
• Retirement wealth creation- if my wife and I both retire at the age of 50. (My wife is 30 years old)
• Saving for 2 children’s education and future. Currently, my wife is one month pregnant with our first kid. (major reason why I want to get my financial planning in perfect shape ASAP)
• Getting the correct life and health cover.
Monthly income:
• Me: INR 100,000
• Wife: INR 65,000
Savings:
• Savings Account: INR 650,000
• PF, VPF(12%), PPF combined: INR 300,000
No own property, no other investments. One parental property worth INR 50Lacs in a tier two city but which will not be sold at least for 5-6 years.
For health and life insurance, I and my wife both have only the company provided covers. INR 500,000 each for health and around INR 1,000,000 each for life.
Monthly guaranteed expense: INR 80,000 (all inclusive). This includes:
• Accommodation Rent: INR 30,000
• PPF Saving: INR 5,000
• Car EMI: INR 6,500 (another 4 years left)
• Contribution to SIPs (started in November 2015); INR 7,000
Monthly SIP details:
• 2000 monthly in ICICI Prudential Value Discovery Fund – Regular Plan – Growth
• 2000 monthly in ICICI Prudential Balanced Fund – Regular Plan – Growth
• 2000 monthly in ICICI Prudential Focused Bluechip Equity Fund – Regular Plan – Growth
• 1000 monthly in ICICI Prudential Long Term Equity Fund (Tax Saving) – Regular Plan – Growth
Dear Gaurav,
Thank you for following my articles 🙂
1 – I believe that both of you are highly under-insured . Do you have any other existing life insurance cover(s)?
2 – Any particular reason for maintaining high savings a/c balance? Is this part of your Emergency fund?
3 – What about health insurance cover for mother?
4 – All the selected funds are good ones and it is diversified across fund categories. But why is that you have invested in funds of one AMC only?
Thanks much for the response Sreekanth.
1. No, we don’t have any other life insurance covers. Your guidance would really help.
2. Savings account balance would help us cover costs for the pregnancy duration and any emergency needs that might come up. Yes, in a way an emergency fund.
3. Mother is covered in both our company provided health covers.
4. Reason for one AMC was simply the fact that my friend works there and helped open the folio.
Please feel free to ask all that you need as I really would be utmost benefited with your guidance and help.
Dear Gaurav,
Though the funds are good ones, it is better to diversify across fund houses too. Do think about it.
1 – Get term insurance cover (self & spouse) ASAP. Consider buying a personal accident cover too.
Read :
Best term insurance plans.
Best Personal Accident insurance plans.
2 – As you have company health insurance covers (assuming maternity expenses are covered), you may invest a portion of your emergency fund in a debt fund or MIP (conservative fund).Also, suggest you to get individual mediclaims (self & spouse) and also mediclaim for mother.
Read:
Best Debt mutual funds.
Best MIP MFs.
Best Family floater plans
Best portals to compare health insurance plans.
3 – Consider allocating major portions of your disposable income towards your retirement goals & kids’ education goals.
Read:
Retirement goal calculator.
Kids Education goal calculator.
Dear Sir,
I am 39 and coud not plan due to various reasons and joint family.
Please advise how to take it further
Deepak.****@gmail.com
Dear Deepak,
Better late than never. Let’s do it now.
Kindly read below articles;
Financial Planning Pyramid.
The 6 most common personal financial mistakes..
How to create solid investment plan?
Hi Sreekanth,
Last several weeks I have been working on your advice.
Here are the changes done.
1. My wife and I are now both life insured over and above the two covers from our respectiv employers.
I have a 50L cover with LIC (e-term plan) for 35 yrs term.
My wife has 50L cover with 35L accidental insurance addition from ICICI for 35 yrs term
2. Have made minor changes to the MF portfolio
2000 monthly in ICICI Prudential Value Discovery Fund – Regular Plan – Growth
2000 monthly in ICICI Prudential Balanced Fund – Regular Plan – Growth
2000 monthly in ICICI Prudential Focused Bluechip Equity Fund – Regular Plan – Growth
2000 monthly in ICICI Prudential Long Term Equity Fund (Tax Saving) – Regular Plan
4000 monthly in SBI Magnum Fund (New addition)
Now where I am in need of expert advice is the health insurance.
My mother is 65 years old and is covered under both the plans provided by our companies.
Company covers are of 5L each.
As per your earlier advice, I have been researching and studying about the health plans.
I wish to buy a floater for myself and my wife for 15-20 Lakhs health cover.
Even after a lot of research, I am still undecided and unsure which to buy. It would be great in case you could guide again!
We have no pre-existing diseases to declare, would want a strong health cover to take care of any exigencies and to cover dental and optical options.
We would also wish to have our child covered once she/he is born 🙂
However, I am unable to make a decision which cover to buy so that our premium does not cross 20-25K per annum.
Please help.
In the meanwhile, as per your previous advice, I am working on retirement planning.
Hope to get everything in place soon.
Dear Gaurav,
Glad to know that you are working on your Financial plan and relakhs.com has been useful to you in this aspect.
2 – Any specific reason for investing in multiple funds of ICICI Pru fund house only.
3 – Kindly read below articles;
Best Family Floater health insurance plans.
Best Super Top up health insurance plans.
Best Portals to compare health insurance plans.
Best health insurance plans for Parents.
Hi Sreekanth,
Nice article. I liked this sentence very much…”If you decide to work from 9 am to 5 pm, you may have to work till you are 95″
Keep up the good work!!!
Thank you dear Sreedhar. Kindly share the article with your friends 🙂
Good one again. Really one should what he is spending and why he is spending? Also proper planning reduces the stress and he can maintain a proper work life balance and be happy
Dear Raman,
A balanced life and happy life, is more important. Failing to PLAN is planning to FAIL.Keep sharing your views. Thank you!
This is an eye opener and you checklist definitely helps us in evaluating our current status.. good work Sreekanth..
Thank you dear Raj.
Hi
I regularly follow your blogs. Public should also have goal “Be happy” and you mentioned portfolio to achieve this goal.
Excellent, Keep writing !
Best Regards
Hardik
Dear Hardik,
That’s a nice point. Thank you for following my blog. Keep visiting.
A simple way of explaining Financial Freedom is which side of the Menu Card do you see when you go to a restaurant
Dear Pradeep Sir,
Lol..good one. Keep visiting 🙂
Superb article Sreekanth. Having income from multiple streams is need of the hour for attaining financial freedom. We need to generate income from multiple streams in the form of rental income from residential/commerical property. Opting for dividend option in equity based funds, doing SWP from equity funds once accumulation phase is over.
Also, depending on your expertise and hobby, one can do consultation, teaching and many more.
Dear Lalit,
Thank you for sharing your views.
One of the main reasons for sharing this article is , I have been receiving lot of emails from IT guys (software field) regarding JOB SECURITY. Though most of them receive 6 figure monthly salary, they are not happy with both their careers & financial life. So, lot of money may not guarantee lot of happiness.Each one of us should aim for FINANCIAL FREEDOM.
Great Stuff Sreekanth. You always rock :-).
Thank you dear Bala..Do share the article with your friends.