3 ways you are holding back your financial freedom

Introduction

Imagine a life where you can get whatever you want, whenever you want! Sounds pretty amazing, doesn't it? Who doesn’t want financial freedom? But each one's definition of financial freedom differs. For some, it is driving luxury cars, travelling to exotic destinations, and having a bunch of branded stuff. Still, if you really think about it, the actual definition of financial freedom is way above all this.

Financial freedom is the state of being debt-free, having sizeable savings, and having the power to direct your finances rather than allowing your debts to rule your life. You need to focus on living a life on ROI to meet your requirements. 

So, what's holding you back from financial freedom?

Not taking the first step

If you don't start planning your finances, it may be challenging to accomplish your financial goals. The most significant step in improving finances is to devise a plan, even though it might frequently feel overwhelming. The fundamental principle of personal finance is to live within your means and invest the surplus. You must begin your journey to financial freedom with simple steps like budgeting, cutting unnecessary expenses and building an emergency fund.

Poorly-Defined Priorities

Poor prioritisation can be another barrier to financial independence. If you don't correctly prioritise your finances, you'll spend time and effort on things that aren't as necessary. For instance, if you want financial freedom, you must pay off debt ahead of saving for a vacation to Italy.

Inadequate Knowledge

Seeking financial freedom can be tricky if you don't grasp personal finance and how the financial system operates. A thorough understanding of money can work wonders for you.

Many other factors, such as following run-of-the-mill financial advice, inconsistency with investments, reckless spending, and so on can rob you of your financial freedom.

How to Work Towards Financial Freedom?

• Identify Your Current Situation

You cannot achieve financial freedom without knowing where you are starting from. Knowing how much money you need and the debt you need to pay off are essential considerations to start planning accordingly.

• Spend Appropriately

There are rich leaders who would dress simple, drive an average car or use the public transport. You must have wondered why these people with an abundance of money would not buy bigger or better things in life or although they can afford the extra affluence. The truth is that a lot of wealthy people don't appear rich. You can genuinely become more prosperous by making fewer purchases. The goal is not to look rich but to be one.

• Start with Goal-Based Investing

Invest early, even if it's just a tiny amount, and watch compounding work its magic. When making your monthly budget, determining how much money should go toward each investment is made more accessible using a goal-based approach. This can save you money and relieve unnecessary financial worry.

• Let's understand this with an example.

Khushi is a 22-year-old professional who works as a CMA and loves to bake. She hopes to have a clear roadmap, retire by the age of 45, and change careers. But first, she wants to ensure she has the financial security she needs to start changing gears at the age of 45. She must now determine her retirement corpus, taking into account the inflation rate, the number of years she expects to live after retiring, and her monthly costs (both now and then). Next, she must figure out how much money she must set aside each month to build that corpus within the specified time frame.

Let's assume she estimates she will require Rs 2 crore to make a move. Considering a 12% average yearly return (assumed), this is how much she will need to invest if she starts now compared to if she waits for a few years.

*The above calculation is for illustration purposes only

As you can see, starting early requires little effort to accomplish a goal, making it simpler to get going.

Takeaway

You can take charge of your life when you have financial freedom. This is about budgeting, being thrifty, and spending money on vitally important things like food, essentials, and the much-needed vacations. It’s not about NOT spending. It’s about spending WISELY.

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