All of us want to have enough money to live comfortably, but only a few of us are actually able to achieve that goal. The rest of us just look for the secret ingredient which would take us far away from our financial worries.
To be honest, we tend to focus a lot on the problem, when we should actually focus on the solution. Believe it or not, the solution to a stress-free life is quite simple and one that is achievable. It’s called financial planning!
By planning your finances actively, you can easily fulfill your dreams in a timely manner.
Let’s look at five very important steps that can help you navigate your path to financial freedom.
Goals are a crucial part of our lives and they play an important role when it comes to achieving our financial freedom. Setting clear-cut goals will help you to stay focused. You can start by taking a piece of paper and jotting down your goals. Keep in mind that a goal without a timeline is simply a wish, so, assess how much time you will require to achieve your goal. For instance, going on that long-awaited vacation could be a short term goal while buying a house could be your long-term goal.
Prioritize your goals based on their urgency and importance and accordingly, proceed towards achieving them. In this way, you not only train yourself to be serious about your finances but also become financially independent.
Investing can be a smart way to grow your wealth and become financially independent. But for that to happen, you need to start investing at the earliest. The good news is that today is always a better day to invest than tomorrow. The more you delay the decision to invest, the further you extend your retirement date. This means you not only would have to make bigger contributions but will also lose precious returns on investment. Besides, looking at the ever-rising inflation, your retirement corpus may not be adequate enough to cover your post-retirement expenses.
Starting early allows you to invest small amounts now to eventually receive a larger corpus for your goals.
Stock markets are subject to fluctuations every now and then. Often, investors are guided by two prominent emotions of greed and fear while investing. They may suddenly exit an investment or make unplanned adjustments to their portfolio. Such impulsive behaviour may result in earning lower returns than expected.
While planning your finances, you need to keep your emotions in check. Your actions need to be goal-oriented and sticking to an investment horizon should be a priority. When you invest in equities, ensure that you stay invested for at least 5 years. This way you can realise their maximum potential. With regard to short-term investments, you may stay invested from 1 to 3 years, depending on your needs. Avoid getting distracted by the market swings, and never take decisions in haste.
Life is full of risks - some that you can measure and then those that you can’t. You cannot avoid risks, but what you can do is make provisions for some of them. Purchasing adequate insurance is a smart way to get a cover against some risks. Also, this will keep you from having to divert resources set aside for other goals towards paying hefty medical bills. You may want to buy term insurance and health insurance as part of your overall financial planning.
Health insurance will make sure that you and your family get the best medical assistance at reasonable prices. Similarly, term insurance will take care of the day-to-day expenses of your dependents when you are not around.
Enrich yourself with financial awareness - it never goes out of fashion. Read books on personal finance to know how things work and how you can benefit from them. In this way, you develop the necessary skills to handle your finances wisely for major life transitions like marriage, raising children, entering old age, and likes.
In addition to this, stay updated with the financial news and stock market developments. This will equip you to adjust your investment portfolio when needed, to earn optimum returns. This will also ensure that you refrain from taking any wrong decision money-wise.
The important point to note in your journey towards attaining financial freedom is to understand that it is a process and not a point. It is through the practice of doing that you will learn how to form good money-habits and how to instill discipline in the way you manage your money. Like any other activity, you will only get better at it with time.
The author is a Whole Time Director, Paytm Money