Who does not want financial freedom, right?
But do you think that to achieve the financial freedom you require lots of money? So much money that you do not have to work and can do anything in the world.
Let me tell you it’s not like that and in this article, I will take you step by step on how to achieve financial freedom in the next 10 – 15 years.
There are many misconceptions regarding financial freedom that I see around.
I am writing this post to clear some clouds around these myths and to set some step-by-step processes to achieve financial freedom.
Disclaimer: I have not achieved financial freedom yet, I work as a Software Engineer but I am on the path to achieve financial freedom in the coming years.
I constantly keep learning about this and would share the same steps which I am following.
It’s not going to be something that you could achieve in the next year or two but you would require at least a decade if you start now.
I have set myself on the path and if you too want to be on the same path then read this complete article and I am sure you will know what financial freedom is in a real sense, steps to achieve financial freedom, and the key to achieving financial freedom as early as possible.
Let’s get started.
- 1 What Is Financial Freedom
- 2 Why Financial Freedom
- 3 Steps To Financial Freedom
- 3.1 Preparation
- 3.2 Increase Income
- 3.3 Reduce Debt
- 3.4 Invest
- 4 Key To Financial Freedom
- 5 Frequently Asked Questions
- 6 Conclusion
What Is Financial Freedom
If I ask this question lot of may answer like
Having lots of money, so I do not have top work is financial freedom.
This statement will not hold true in the real world because it is not showing any fixed amount to demonstrate the same.
How much money is required depends on the person’s expenses, my expenses can be different from yours, my responsibilities can be different from yours.
The right definition of financial freedom is:
Having enough money or fixed income to support one’s living expenses for the rest of life without having to be employed or dependent on others.
So, do you have enough money to fulfill your expenses?
I know you may have not calculated your monthly expenses yet. First, take a pen and paper or open excel and put down your monthly expenses like below.
Put all little monthly expenses correctly because your amount for financial freedom depends on this amount.
If I take an expense of Rs. 30,000 then yearly expenses would be Rs. 3,60,000 and want to know how much amount would be required to have financial freedom today, the simplest way is to multiply yearly expenses by 25.
360000 X 25 = 90,00,000
So, if I have around Rs. 90,00,000 in my bank account then I am financially free from today.
Now I know you might say like this is a huge amount but not something that is not achievable, as you can see in the SIP calculator.
A monthly SIP of Rs. 20,000 for 15 Years can easily help you to achieve this amount.
Does this look achievable now? I hope yes, looking at the past trend of equity returns.
Why Financial Freedom
Now we know what financial freedom actually means but why financial freedom, why to take so much effort, and what do we gain doing this.
Let’s have a look at that.
#1. More control on your time
Most of us work 9 to 5 jobs and 5-6 days a week because we have to pay for bills and expenses.
We want financial security and regular income to meet all our needs.
Once you achieve financial freedom you can try to work as a freelancer or maybe work part-time and work any time you want to.
You can work just 4 hours a day and 4 days a week or take leave for a few days, a month if you want to because you are no more worried about your monthly expenses.
#2. More family time
We all know that it’s not just 40 hours a week work if you include time wasted in traveling and other things it goes to working 55 – 60 hours of working a week.
And this leads to less time for family. Many times it feels like you just go home to sleep during the workweek and have to wait till weekends so that you can spend some quality time with family.
#3. Try different things
Maybe you want to learn new skills or maybe you do not want to do anything and do gardening, read books, or anything that you want to pursue.
Financial freedom can provide you with this flexibility as you do not have to worry about your expenses.
Maybe you want to travel and visit different places and since your expenses are already handled you can do some freelance jobs to collect some money and use that to travel.
Or if you want to change your profession or have some business idea, financial freedom provides you with a cushion to take that kind of calculated risk.
Basically, you can afford to get out of the rat race and build your own path.
Steps To Financial Freedom
We know what financial freedom is and why it is worth trying. Let’s look at the steps on how to achieve financial freedom at a high level.
First, we will divide it into 4 steps and then go a level deeper to understand action plans.
#1. Term Insurance
Get your term insurance once you have a family or dependents who will be directly affected once you are not around.
Some of you might say term insurance does not provide any returns on maturity but please understand term insurance is life insurance and not an investment.
It is needed to make sure that your family is financially independent when you are not with them and term insurance is available at a very reasonable cost.
Ideally, you should have term insurance to around 10 times your annual income.
Most employers in India provide health insurance of around 2-3 lakhs which is not enough for the family of husband, wife, and 2 children.
Also sometimes you might switch between jobs and have a gap before joining the next company then you are not covered under any health insurance during this period.
Take health insurance of at least 5 lakhs of family coverage.
And if you are self-employed or running then it becomes mandatory because otherwise you are not covered anywhere for any emergency health issues.
#3. Emergency fund
Covid-19 has taught us one thing that emergencies can arise from anywhere anytime. Lots of people lost their jobs and many had shut down their businesses for months.
It’s always better to maintain some emergency funds parked in banks or at some safe investment options where you can access it anytime needed.
If you are doing a job have at least 6 months of salary or if you are running a business then 1 year of expenses is maintained as an emergency fund.
#4. Investment/ Opportunity fund
Now, this is not a mandatory fund but a good to have fund.
Like last year in March – April 2020 the market went down drastically for some time and all great stocks and mutual funds were available at cheap prices.
I learned that if I had some savings at the side I could have made the best use of this opportunity by investing in the market at this time but I fell short of money at that point in time and missed the train, we all know how the market recovered after that.
So to avoid missing opportunities like this you should have savings parked so that you can use these funds in situations when the market is very cheap and everything is available at wholesale price.
To increase income or saving you should first know what your expenses are. Create your budget on excel or pen-paper as we discussed earlier.
Once you create a budget you will know you will find different loopholes where you can save money to increase savings.
#2. Save More
How much time is required to achieve financial freedom depends on how much you save.
The more you save and invest earlier you will achieve.
#3. Passive Income
You should not depend on only one income but have multiple streams. So start building other passive income.
As it is said
If you don’t make money while sleeping, you will have to work your entire life for money.
Some sources of passive income could be
- Rental Income
- Stock Dividend
- Create Course etc.
You cannot be financially free unless you are debt-free. Once you increase income and start saving more, put that money into reducing debt.
#1. Pay off your credit card bills on time
Never pay just the minimum amount on a credit card but pay off the entire balance as credit cards are the costliest loans and they will keep you poor.
#2. Pay off personal loans
Pay off any personal loans from friends, relatives, or banks, reduce the baggage of loans from your mind.
Make a resolution to not purchase anything new for yourself unless you pay off all pending loans and you will be surprised to see end results.
#3. Pay off Home Loans
Most of us take out a home loan as soon as we get a job and that is very long-term loans for 25-30 years and then keep on paying just the EMI’s for years.
Instead, the right approach should be to always prepay some amount so that you could pay off the entire loan well before the loan tenure.
Financial freedom also means 0 debt life.
Once your income and savings increase and you have started reducing loans then you are left with a surplus amount to invest.
There are many options available in investments, some are low risk – low return options others are high risk – high return options and you have to use both to maintain a balanced portfolio.
Some of the options are
- RD/ FD
- Real Estate
- Mutual Funds
- Stocks etc.
Nowadays investing has become really easy due to digitization and online platforms like Groww, Zerodha, Kuvera, and many others. You can register and start investing any time from anywhere at your fingertips.
Key To Financial Freedom
We have seen step-by-step approaches to financial freedom but you may want to make sure that after doing all this you achieve finally it.
For this, there are some key points to follow in this entire process.
You will reach your goal of financial freedom as early as you start. Money grows through compounding and compounding needs time.
If you are in your 20-30s start now no matter how small it is.
Since financial freedom is a long-term approach and not a short-term game it’s better to start as early as possible.
Investing more early on
At an early stage of your career, you have fewer responsibilities and low expenses that the point to save more.
Now you would at an early stage of career salary income itself is low so how to save more.
By more, I mean in terms of percentage of salary, not in terms of money.
If you are really passionate about financial freedom and want to achieve it as early as possible then start living a frugal lifestyle.
Continuously keep on learning new skills or about money management to leverage them and make extra income.
Or learn about different investment options to grow your money.
There are different ways to learn as
These are some of the best books for financial freedom, I would recommend starting reading and learn more about financial freedom and money management.
- Rich Dad Poor Dad
- Think and Grow Rich
- The Millionaire Next Door
- The Richest Man In Babylon
- The 4 Hour Workweek
- The Simple Path to Wealth
- Financial Freedom
There are many YouTube channels nowadays that provide a lot of good content on finances and passive income.
You should not shy away from buying courses if it has quality content and provides value. Make sure to research the person and his experience in the field for which he is making the course and then only enroll.
Frequently Asked Questions
What is the meaning of financial freedom?
Having enough money or a fixed income to support one’s living expenses for the rest of life without having to be employed or dependent on others is called financial freedom.
Why financial freedom is important?
Financial freedom gives you more control over your time, leads to more family time, and freedom to learn different skills without worrying about day-to-day monthly expenses.
How to get financial freedom fast?
If you want to speed up your financial freedom journey then start working on below
-Multiple passive income sources
-Invest 70% of income
Now you have an idea of what is financial freedom and how to achieve financial freedom in brief.
It’s going to be a long-term process, so prepare yourself and I am definitely very sure that following these steps I will achieve and anybody can achieve financial freedom in 10-15 years of time it’s just that we start our first step.
So best of luck and let me know if you have any doubts or queries regarding the same.