Financial independence can mean different things to different people. For some, it could be something as simple as not having any debt. For others, it could be spending their money without thinking too much about it. But financial freedom means having enough money to maintain your lifestyle while achieving all your long-term financial goals at the same time.
All this requires strong financial discipline and the cultivation of some habits that will make you financially independent in the long run. Determine your financial goals and then decide how you can allocate your money to fulfilling each of them. Here are some steps that can help you with that and more.
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If you have long-term financial goals, it’s better to start early. In fact, the earlier you start the better. This ensures that you’re saving smaller sums of money for a longer period, making the process easier. With the help of compounding, your money grows exponentially over time.
Developing a financial discipline is among the first steps towards achieving financial independence. Monthly investments, like an SIP (Systematic Investment Plan) or a PPF (Private Provident Fund), instil financial discipline and you develop a habit of saving and investing. Moreover, you are exempt from having to continuously monitor the markets and invest only when the time is right.
Before you even think of attaining financial independence, it’s essential to acquire as much knowledge as you can about finances. This includes having adequate information about various financial practices like taxes, debts, investments, personal finances and budgeting. You will need to understand how to make the money you earn work for you so that you reap the maximum benefits.
It’s essential to follow the money market trends from time to time — gaining a thorough understanding of the stock market, tax laws, the annual budget, and any other financial news. In money matters, being ignorant is not bliss.
Our emotional triggers can lead us to spend more. You may buy things you don’t actually need, because retail therapy gives you temporary joy. This is part of the consumer mindset and something that can be detrimental when it comes to your savings and achieving financial independence.
When you start saving early, you need to curb this mindset and only focus on spending on essentials. Withdraw cash before going shopping and make a list of the items you need; leave your credit card at home. Make sure you buy only what you need. Having a credit card on you while shopping will feed the urge to buy what you like but don’t necessarily need.
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Having an emergency fund is an important aspect of financial freedom. It is an amount that’s saved in case of financial emergencies like an accident or prolonged illness. This financial cushion includes all expenses that you normally incur over a six-month period, including all utility bills, rent, loan EMIs, credit card bills, children’s school fees, or any insurance premiums.
Including all these expenses in the emergency fund is important because it helps you to avoid late payment fees or pay those hefty interest rates in case you default. You don’t end up spending more than needed and that’s always a great personal finance strategy.
Perhaps the biggest step you can take toward achieving financial freedom is to not misuse your credit cards. Adding all expenses to the card is definitely not a good idea, especially if you end up spending more than you have. Be aware of how much you can afford to spend after deducting all your necessary expenses. Only then, and if you can afford to, indulge yourself and swipe your card.
It’s also essential that you automate your payments and pay off the outstanding amount. This way you don’t incur heavy interest rates and accumulate debt. Your credit score determines a lot of future financial decisions and it’s something that should be taken seriously.
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Understanding how to make your money work for you is imperative to attaining financial freedom. You don’t need to have a hefty salary to achieve it. Cultivate a lifestyle that suits your income and keep increasing your savings and investments with your salary. As you grow older and come closer to your long-term financial goals, you can rest assured that you have done enough and on time.
Do you have any other hacks to become financially independent? Tell us in the comments below.
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