Do you know how close you are to achieving financial freedom?
One can never give enough importance to financial freedom. An understanding of financial freedom is basically having more than what you spend so that you have what is called savings. Savings can be used during times of emergencies or unforeseen situations or even for planned expenditure. The intention here is to earn more than you spend, thereby setting money aside for savings. Financial freedom is to be able to do this consistently which therefore enables you to live a life of your choosing.
However, the sad reality is that very few people are able to achieve it. Most of us are burdened with increasing debt, cash outflow emergencies and consumer spending. Cash emergencies could mean anything from coping with a natural disaster, surviving in a pandemic to even sudden medical procedures. These sudden situations can put a lot of stress on your finances. Safeguarding yourself and your family without depending on anyone but yourself is what financial freedom is all about.
By having the correct strategy in place one can have a plan which covers all your requirements and helps you in taking care of your future. Understanding how close you are to your financial freedom helps you figure out where you are at what needs to be done. If you are not already then the following pointers will set you on a path to achieving financial freedom.
1. Know where you are at
Assess your current financial standing. Check your monthly income, savings and investments vis-a-vis your monthly expenditure. While you are at it, make a list all your debts, like housing mortgage, credit card loans, student loans, motor vehicle loans etc. Your total cash inflow versus your total cash outflow will tell you everything you need to know.
If you do not have savings or investments, now is a good time to start. Understand, one is too late for either. Taking stock of your overall financial health is the first step to creating your fiscal plan.
2. Set your goals
It is one thing spending money for your indulgences and it is a completely different thing to spend your hard earned money in a methodical manner. Wanton expenditure is not always a bad thing however it is mindful spending that will help in the long run.
It begins with introspection. Know what you want from your life. There are long term and short term goals. For example a long term goal would be planning for an early retirement. That would entail having a more savings oriented financial plan. A short term goal is the desire to go for a vacation or purchasing a new car. Your goals will help you create and navigate your plan.
3. Create Multiple Income Streams
One cannot just rely on salary or income from business. Financial intelligence means not depending upon one source of cash inflow. Investments in the stock markets, mutual funds, bonds, real estate etc. creates a new source of income which can either help in times of need or can augment your primary source of income.
4. Insurance and Gold
Insurance is probably one of the most underrated tools one has. Life and non-life insurance is a protective cover for your loved ones in case something would happen to you. The stress of a primary bread winner could lead to many lifestyle issues like stress, anxiety etc. Although there is a monthly outflow in terms of premiums when it comes to insurance, it is not considered as an expense. It is an investment which will bear fruit if the worse came true.
Gold and other precious metals are a fantastic investment option. Probably one of the most liquid asset classes there are. Upon any urgent monetary requirement, one can pawn off their gold at existing market prices in order to fulfil the need. Gold and silver have historically always been considered as an effective safety net.
The above mentioned are just a few pointers which can take you in the direction of financial intelligence and prudence. It always starts by assessing your current standing and realising what your end destination is. Only by understanding where you are and where you want to be can you devise a road map.
A deeper understanding of different asset classes is required with a risk to returns comparison apart from other important aspects like age and other related demographics in order to curate a financial plan that serves you best. We are all different and thus our needs and wants and our situations in life are different. Consequently, we all need plans tailored to our subjective requirements. Ultimately knowing how close you are to financial freedom is the perfect starting point.