Do you want to be Financially Free ? No shortcuts please !

Many times Financial Planners got such cases where clients were in such a hurry to change their existing messed up financial life into most comfortable one within a month. Is it really possible? In my opinion it requires continuous efforts. We can make changes in our financial life with disciplined approach. We need to keep on working towards it continuously. It’s a life long process.

One day I got a call from a person who is a friend of one of my clients. That person was broke. His finances were in bad shape, and he wanted to fix that mess as early as possible. He asked me only one question “ What can I do in one month that will change my financial life forever”, I asked him to cool down. We fixed an appointment next day to meet in person. I assured him that I would try my best to help him out.

You must have heard the saying Rome wasn’t built in a day. Same theory is applicable to habits : Deeds are not turned into habits in one night or one month. It’s a continuous process. In my opinion what can we do in one month is Planning and making ourselves determined for the financial freedom. Building wealth doesn’t happen by accident. We need to plan things meticulously and implement those systematically. Financial Freedom is available to those who learn about it and work for it.

What is Financial Freedom?

Financial Freedom is that state of mind which can be felt when you are totally worry free about your finances. You stop thinking frequently about money matters in back of your mind.

What is benefit of Financial Freedom?

Every one’s dream is to have high paid but stress free job. In reality, it is next to rare. But if you make yourself financially free by following proper financial plan your dependency on job will be minimal, and you can achieve FIRE (Financial Independence Retire Early) stage early in your life .

If we want to change our financial life, we only need to make a few small changes. This idea is called kaizen. And it’s incredibly powerful.

Kaizen is a Japanese word that means “continual improvement”. It refers to the process of making positive change and improvement through small, steady steps. It’s based on the wisdom of Tao Te Ching, a Chinese text famous for the proverb: “A journey of a thousand miles begins with a single step”. Ask anyone who’s conquered Everest, built a billion-dollar business from scratch, or achieved the seemingly impossible, and they’ll tell you the same thing… they did it a day at a time, step by step.

What steps you needs to take today for changing your Financial Life?

  • Set your goals: This step is the starting point of Financial planning. You should know what are your long term goals as well as your short term goal. Long term goal may include retirement planning and buying a house. Short term goals may include foreign/domestic vacation, buying a car, setting aside some money for higher education, etc.
  • Save before you spend. Create a separate account where you can transfer stipulated saving amount on the first day of the month from your salary account.
  • Before starting investing fix these 3 things
    • Set aside 3 to 6 months expenses including EMIs as an emergency fund in liquid funds, bank FD or bank RD. Always keep it updated as your expenses increases. Consider Emergency fund as your expense, not your Investment.
    • Buy online term insurance plan with maximum cover possible till you retire or you have dependents. Buy disability rider and accident benefit raider of equal sum assured along with the term plan or separately.
    • Go for standalone (for you and spouse) or family floater health insurance plan as your base plan and buy a top up health plan apart from the one your employer provides. This arrangement will save your premium outgo.
  • Decide your saving rate and be firm in implementing it every month. One should invest at least 40% of his/her salary. According to your age and risk profile you can have an asset allocation of 80% equity and 20% debt if you are young or 60% equity and 40% debt if you are in the mid-40s.
  • Expenses can also be categorized as Needs and Wants. But for a healthy financial life, one must understand how to segregate needs and wants. Learning and understanding the difference between Need and Want makes things simple. We can easily come to know where we spend unnecessarily. This exercise helps us to alter our spending pattern and ultimately increases our saving.
  • Make your monthly budget. Once you have an idea of what you spend in a month, you can begin to organized your recorded expenses into a workable budget. The budget will help you to plan your spending and limit overspending.
  • Start investing for your retirement since your first pay cheque. Then allocate your investible surplus to your other goals.
  • Never get into the debt trap. Please never take any expensive loans to fulfill your aspiration. The debt will hamper your saving.
  • Understand that wealth is a state of mind much more than a physical condition. To become wealthy you must first have a wealthy state of mind. “If you always think in abundance you will eventually have wealth but if you think always in scarcity you will remain poor”-Think and Grow Rich
  • If you don’t have enough fundamental and technical knowledge of direct equity stock please refrain from investing in direct equity blindly. Instead, take the Mutual fund route. Systematic Investment Plan (SIP) is the best vehicle to invest in Mutual Funds. Map each SIP in equity or debt mutual fund for each short and long term goal. If you are new in the market start investing in Nifty ETFs, Index funds or balanced funds.
  • Create multiple steams of income. NEVER rely on only one source of income. You must find ways to create income while you’re not even there
  • Tax planning needs to be done wisely. Try to invest 70% of 150000 in equity ELSS and remaining in PPF. Never invest for the sake of saving tax in unproductive financial products.
  • Keep reviewing your portfolio once in a year and alter your asset allocation as per major changes in your life. Wealth creation is a long term phenomenon.
  • Last but not least, GRATITUDE. You must be grateful in every state that you’re in. Always focus on what you do have not what you lack. Give back to others, whether through money, time, or service.

Please keep in mind : Wealth creation is a long term phenomenon. Stick to your asset allocation for the long term. Don’t get panic about the short term volatility in equity markets. Stick to our SIP.

On their own, none of these small, steady steps are life-changing. But together, thanks to the power of kaizen, they can change your life.

Oh ! You are curious to know what was my answer of his Question:

Sir, in one month’s time train your mind to walk towards Financial Freedom which is just like a marathon not a sprint !!!

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