How can we reach Financial Independence?
Shahrukh Khan once said, “Don’t be a philosopher or a teacher without being rich. Money is significant — earn it when you can.”
There have been contrasting opinions on how important is money, finances and everything that comes with it.
Some people are into this belief that money cannot buy you happiness whereas other believe that money is a vital factor.
In my opinion, money is a driving force in our lives. It is like fuel in the car, not more nor less.
We need money to buy anything and everything. In this article, I will share some aspects of money and how can we reach financial independence at an early age.
Disclaimer: I am not a finance expert. I am sharing all the information based on my knowledge, research and experience.
We all need money for all the basic things as well as luxuries. But due to our poor and old education system we are not taught anything about money, managing finances.
Talking about money is considered a taboo in our society. People shy away from talking about money but today people are opening to get knowledge about money and how to manage finances, investing in stock markets etc.
Let’s learn how we can become financially independent?
1. Setting and working towards a desired corpus by investing!
One you define what financial independence means to you then you need to set a timeline to it.
How will you know how much money do you need to be financially free?
Here, I will talk about the 4% rule given by William Bengen. The 4% rule says that you need to save 25 times of your yearly salary. Once you have that then you can withdraw 4% of the corpus for your expenses.
There is a simple calculation to that. I am assuming that your monthly expenditure is 25K for calculation. You can do your calculation based on your monthly expenditure.
This means you need 3,00,000 rupees in an year for your expenditure. Now multiply this by 25.
3,00,000 * 25 = 75,00,000
This will be your retired corpus. But this does not work in our country India due to the high inflation rate. India has an average inflation rate of 7%.
I will tell you about the 8% rule in accordance with India.
According to 8% rule, you need to save just 12.5 times of your annual income.
12.5 times of 3,00,000 will be 3,75,000. Let’s take it 40,00,000 as a round figure.
Once you are able to save 40 Lakhs in a span of 10–15 years depending upon your financial situation then you can invest that 40 lakhs in a Mutual Fund. You can invest the amount in Index Funds as they are the safest Mutual Funds.
You get an average of 12–13% return in Index Funds over a long period of time. Let me take an average of 8% for short term and as per 8% rule calculation.
8% return on 40 Lakhs will be 3,20,000. You can withdraw 3 Lakh and leave the rest amount invested. Now you will again get an 8% return on 40 Lakhs 20 Thousand Rupees.
You can again withdraw 3 Lakhs for your expenditure. This cycle can go on and your amount will stay invested as well as you will reap the benefits of returns as well because on average you get 12–13% returns yearly.
Imp Note:– You should withdraw the money monthly so it will average out the market fluctuations. If you withdraw all the yearly expenditure in one time and the market is all-time low then you will lose out a lot on your investment.
Nowadays there are various applications that will help you to start your investment journey! I am sharing links to those apps. If you download this app through my link then it will be your small indirect contribution towards this blog for which you need not pay anything extra.
Groww: — https://groww.app.link/refe/sahil5759850
Upstox:- https://bv7np.app.goo.gl/SpFm
Smallcase:- https://link.smallcase.com/QwjoiHbCChb
One of the most important aspects of investing in Mutual Funds is your must invest in direct mutual funds which will save you a lot of money in the long run!
2. Clear all your loans and liabilities!
A majority of people feel that their inability to save efficiently as well as existing loans and liabilities are a big reason behind them not being able to contribute towards building a retirement fund.
Identify all your loans, liabilities and categorize them into short term, medium-term and long term. It’s important to know that the first step towards accumulating wealth is to plug the financial leakages.
You can divide them on the basis on the rate of interest you are paying. If you have credit card loans, then pay them as soon as possible because they are unsecured loans and highest interest loans.
Then plan and pay off your loans first before investing.
3. Create an emergency fund!
I have written about creating an emergency fund in another article as well so I will write in brief about this.
You can check the 3rd point in this article.
An emergency fund is a fund on which you fall for your emergencies such as losing a job, medical or any type of emergency for which you need money on an urgent basis.
An emergency fund is money equivalent to 6–12 months of your expenditure.
You will not need money for medical expenses if you follow what I will discuss in the next point.
Checkout the full article on:- https://wandererbeast.com/https-wandererbeast-com-financial-independence/
