Have you ever tasted freedom? It is that feeling where you don’t have to ask anyone to do things that you have always wanted to do. Nor do you have to worry about a paycheck to hit your bank account and then plan your next spending.
In simple words, financial freedom means that you can live a carefree life within the means you plan your financial freedom. If you can achieve financial freedom, life’s going to be an easy and breezy journey for you.
A lot of people have achieved it and here is a step-by-step approach in which you can do it too.
Step 1: Write down your Current Finances
The first step towards becoming financially free is to list down all your assets, liabilities, income streams and expenses. Being self-aware of your financial situation is a good starting point towards becoming financially independent.
Make sure to study all the assets thoroughly to identify all the plausible income streams. If you have property, find out if you can rent it out and start to generate a rental income from that property.
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Similarly, if you have any loans, try to pay them off as quickly as possible. Taking
Debt can deplete your income and is not a very good thing to have in your portfolio.
The best way to improve your income is by growing your income avenues. Switching jobs at an interval of 3 to 4 years is ideal for a good salary hike. Developing sources of passive income is another great option to improve your income growth.
Step 2: Create your Financial Goals and Milestones
Create goals that you wish to achieve and attach a monetary figure to that goal. Make your goals more attainable, and be specific with the amounts and deadlines. The clearer your objectives, the better your chances of reaching them.
Set financial milestones at regular intervals along the way. Record all amounts and deadlines on a target sheet and keep it in a place that you can often look at.
Focus on three goals for your financial freedom:
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The lifestyle you want to maintain and attach a monetary number to it. For instance, you need Rs 1 lac per month to run your household.
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The minimum bank balance you need to sustain that lifestyle.
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The age by which you plan to reach financial independence.
Step 3: Monthly Budgeting
Creating a monthly budget is the best way to make sure all your bills are paid and your savings are progressing as planned. It also helps you stay focused on your goals and avoid unnecessary spending.
You can either use a budgeting tool or create a budget on your own. Here’s a simple way to set up a 50/30/20 budget:
- Ideally, you should spend 50% on your needs, 30% on your wants, and 20% on your savings.
- Review your expenses and categorise them according to your budget. For example, non-essential items like streaming subscriptions, movie tickets, and other extras fall under the "wants" category.
- Once you are ready, map your spending to the 50/30/20 rule. You can find free budget spreadsheets and templates online if you prefer using Excel.
Even with a budget in place, sticking to it can be challenging. If you find yourself struggling, try different budgeting strategies to get back on track.
Step 4: Start Saving & Investing Now
To become financially independent, it's important to save money. The saying, "Every penny saved is every penny earned" is true. Don't fall for any kind of impulse buying.
Save money for emergencies, retirement, and even for the unfortunate event of your passing, so your family isn't burdened with bills. Buying Life Insurance and Health Insurance is an absolute must if you are seeking financial freedom.
Once you save up your money, you can start investing it multiply. You can invest in the stock market, start an SIP, buy gold or invest in properties if you can.
Step 5: Live Below Your Means
Mastering a frugal lifestyle requires a mindset focused on making the most of what you have, and it’s easier than you might think. Many wealthy people cultivate the habit of living within their means long before they become affluent.
Living simply isn’t difficult; it’s about learning to distinguish between what you need and what you want and then making small adjustments that can greatly improve your financial health. Reducing consumption can significantly boost your wealth.
Spending less benefits you in two key ways: First, you’ll have more money to save toward financial independence. Second, you’ll realise that people often require much less than they think, leading to even more savings.
Conclusion
Achieving financial independence comes with its challenges, but by using common sense and planning, taking control of your finances can be more straightforward than you might expect.
If you plan as per your finances step wise as mentioned above, it is likely that you will gain insight into your financial situation while managing a better lifestyle.
Remember, financial independence is not about becoming rich. It’s about leading a planned and fulfilled life.
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