Remember the famous concluding words of one of the greatest speeches delivered by Martin Luther King Jr. "Free at last, Free at last; Thank God, we are free at last". The question is how many of us can ever say that about our finances? Do we really get to enjoy financial freedom? The answer is that you can work towards it. What exactly do we mean by gateway to financial freedom? It means that financial freedom is not a goal but a process. Since you need to work towards financial freedom you need to understand the steps to financial freedom. Like in most areas, there are no short cuts here. But let us try and tell you how to get financial freedom fast. At least, let us understand how to start treading down the path to financial freedom. There are 5 key steps to be covered..
Get adequate term insurance
You can be financial free only if you are adequately insured. Remember, your financial flows stop when you are not around but then your financial responsibilities do not. Your family still needs to find a way to pay for their expenses. Your children’s education must not be negatively impacted because of your absence. You need to ensure that in your absence your assets do not become their liabilities. Once you know that the expenses of the family, their future goals and your assets are adequately insured, you actually take your first step towards financial freedom. Don’t waste money buying endowments. They do not add any value. You are better off focusing on term plans of insurance and then look at mutual funds for your investment needs. Don't mix your insurance needs and your investment needs.
Are you medically covered?
Most of us underestimate the importance of medical insurance. You need medical insurance, not only for yourself and your family, but also for your parents. Medical costs are going through the roof and even a 3 day hospitalization can set you back by a tidy sum. Then there are more critical diseases which require highly expensive surgeries and also prolonged medical support. Some of these expenses are large enough to disrupt your well crafted out financial plan. You can really embark on enjoying financial freedom after you have adequately covered yourself medically.
Make your money work for you
There is only so much of a working life that you can have. There is only so much that you can do with your skills. At some point it is time for money to make money for you. But that is only possible under 3 conditions. Firstly, you need to start making money work for you early in your life. Only then will the power of compounding work in your favour. Secondly, you need to be in the right assets; especially wealth creating assets like equities and equity funds. Lastly, you need to stay invested for the long term. Only when you make your money work hard for you that you start enjoying financial freedom.
Monetize your assets better and maximize your RPUR..
It is very important that you put all your assets to good use. Leaving assets idle is an enemy of financial freedom. What is the other name for financial freedom? It is making all your assets work to maximum capacity. If you have a piece of land, see how you can make it work. If you have an idle piece of property, you can always lease it for added revenues. You can make your apartment a regular rent earner. Look at each and every fixed asset you own and make the best of it. These may not be appreciating assets, unlike equities. Hence the onus is on you to get the maximum value out of it.
A second approach is to maximize the Return per Unit of Risk (RPUR). Whether you take the risk of equities or the risk of debt, make sure that it is worth your while. There is no point in taking a risk that does not pay you adequately. It is only when you start questioning each unit of risk and measuring returns that you can actually maximize your RPUR and move one step closer to financial freedom.
Get out of high cost debt
There is no way you are going to enjoy financial freedom unless you get out of high cost debt. If you pay 18% interest on personal loans, how do you earn a higher yield than that? Obviously, you cannot and that means you are destroying value for yourself. As long as you are destroying value for yourself, you are moving farther away from financial freedom. Exiting high cost debt, therefore, is one of the pre-requisites for financial freedom. There are different reasons for taking on debt. You can take on debt if you can deploy the funds at a higher yield. You can also take on debt if you are investing in a long term asset like a house which also proffers tax benefits. Otherwise, you need to really question the need for debt.
Financial freedom is a great feeling. Ensure that you are on the right track!
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