Browse Category: Financial Independence

8 Tested Ways to Help You Become Financially Independent

Financial independence is not rocket science, after years of trial and error (and some embarrassing money mistakes), I’ve figured out what works. Let’s cut through the noise and get real about this.

8 Tested Ways to Help You Become Financially Independent

Make Friends with Your Money (AKA Budgeting)

Notice how your money tends to vanish into thin air? I’ve Been there. I used to think budgeting meant living on ramen noodles until I realized it’s just telling your money where to go instead of wondering where it went. Grab your bank statements, a cup of coffee, and let’s get honest about those “small” Amazon purchases.

Build an Emergency Fund

Remember when your car decided to die in the middle of nowhere? That’s why you need an emergency fund. But let’s be real – saving feels about as fun as watching paint dry. Start tucking away whatever you can, even if it’s just $20 from your takeout budget. Future you will be doing happy dances when life throws its next curveball.

Eliminate High-Interest Debt

High-interest debt is like that toxic friend who keeps dragging you down. Time to break up with it. Each debt you knock out gives you more ammo for the next one.

Think of high-interest debt as a hole in your money bucket – no matter how much you earn, it keeps draining away. Start by listing all your debts (scary, I know, but face them). Target the one with the highest interest rate first while making minimum payments on others. Each payment takes a bite out of what you owe, and once that first debt is gone? Roll those payments into tackling the next one.

Invest Early and Consistently

You don’t need to rock a power suit or understand cryptocurrency to start investing. The truth is: most successful investors keep it simple. Set up automatic investments in low-cost index funds and let time do its thing. Seriously, your money can make babies while you Netflix and chill.

Remember time is your greatest ally in investing. Starting early lets your money grow through magic of compound interest, even with modest contributions. By investing consistently, you can weather market ups and downs while building long-term wealth without stressing about perfect timing.

Live Below Your Means

We all have that one guy who’s always broke but rocks the latest iPhone. Don’t be that guy. Living below your means doesn’t mean living under a bridge – it means being smart about what makes you happy versus what you’re buying to impress people on Instagram.

5 Realistic Ways to Live Below Your Means

  • Track Your Spending
  • Avoid Lifestyle Inflation
  • Differentiate Wants from Needs
  • Use Cash for Purchases
  • Set Savings Goals First

Diversify Your Income Sources (Because One Job Is So 2010)

Let’s explore how spreading your income streams can transform your financial future. Beyond your day job, consider diving into freelancing, where your skills could unlock new opportunities. 

Maybe that hobby of yours – photography, writing, or crafting – could become a profitable side business. While the stock market might seem daunting, starting small with index funds could build your wealth over time. 

Even that spare room in your house could generate rental income through platforms like Airbnb. Remember, you’re not just chasing money; you’re building financial resilience against life’s uncertainties.

Never Stop Learning (But Actually Use What You Learn)

I’m not talking about hoarding personal finance books like a squirrel before winter. Pick one good resource, actually use it, and then move on to the next. Your bank account will thank you more for one strategy you use than the fifty you just read about.

Learn subjects that can improve your financial habits, like budgeting, investing, or building passive income. Keep reading, listening to podcasts, or talking to experts. Because when you commit to lifelong learning, you’re always one step closer to success.

Get Real With Your Goals

“Getting rich” isn’t a goal – it’s a daydream. How much do you actually need? By when? For what? Get specific. Write it down. Make it real. Then break it down into bite-sized pieces that don’t make you want to curl up in a ball and cry.

Calculating your FIRE number can help you get a clearer picture of what financial freedom will be like for you.

Look, financial independence isn’t about living on beans and rice or checking your investment app every five minutes. It’s about making smart choices that your future self will high-five you for.

What’s your biggest money headache right now? Start there. Pick one thing from this list and actually do it. Not tomorrow. Not next week. Now.

Because honestly, the best time to start was yesterday. The second best time is right now. Your move.

Frequently Asked Questions

How do you become financially independent?

Financial independence starts with creating a solid budget, eliminating high-interest debt, and saving consistently. Invest early to leverage compound interest and build multiple income streams. Live below your means, set clear financial goals, and stay disciplined. Over time, these habits empower you to rely on your wealth, not your job.

What are the 7 steps to financial freedom?

  1. Track your spending and income.
  2. Create a sustainable budget.
  3. Pay off high-interest debts.
  4. Save for emergencies.
  5. Invest in assets that grow wealth.
  6. Build multiple income streams.
  7. Plan for long-term goals like retirement.

How can I get my financial freedom?

Achieving financial freedom requires a clear strategy: live below your means, save consistently, and avoid debt traps. Invest early in diverse assets and build passive income streams. Regularly review your finances, stay disciplined, and prioritize long-term goals over short-term indulgences. Consistency is key to gaining true financial independence.

7 Biggest Myths About Financial Freedom (And What It Really Takes)

Financial freedom is that elusive state everyone seems to be chasing but few really understand. Between social media “finance gurus” selling courses and your relatives giving outdated advice, it’s hard to know what’s true. Let’s bust some myths and get real about what financial freedom actually looks like.

biggest myths about financial freedom

Myth 1: You Need a Six-Figure Income to Achieve Financial Freedom

This is literally everyone’s favorite excuse for not starting their financial journey. “I don’t make enough money.” Sure, a bigger paycheck helps, but financial freedom has less to do with how much you make and more with how you manage it.

The real secret is, it’s about your savings rate, not your salary. Someone saving 40% of a $50,000 income is building more long-term wealth than someone saving 5% of a $200,000 income. The math doesn’t lie, even if Instagram influencers do.

Myth 2: Financial Freedom Means Never Working Again

This myth is particularly dangerous because it sets an impossibly high bar. The truth is that financial freedom isn’t about never working again but about having the choice to work on your terms.

Maybe it means having enough savings to switch to a lower-paying but more fulfilling career. Or perhaps it’s about building a side business that could eventually replace your main income. For others, it might mean working part-time or seasonally.

The goal isn’t to sit on a beach forever (that gets boring pretty fast). The goal is to have enough financial security to make decisions based on what you want, not what you need to survive.

Myth 3: You Need to Know Everything About Investing

You don’t have to be a financial expert to invest, most financially free people aren’t financial experts. They just understand and follow basic principles consistently.

Warren Buffett, arguably the world’s most successful investor, advocates for simple index fund investing for most people. No complex strategies. No day trading. No crypto speculation. Just regular, boring investments in broad market funds.

The key here is starting early and staying consistent. You might have that neighbor who seems to have it all figured out. They probably just started investing in their company’s 401(k) 20 years ago and never stopped.

Myth 4: Financial Freedom Requires Extreme Frugality

Thanks to some popular finance blogs, many people think financial freedom means living on rice and beans and never taking vacations. But that’s not true at all!

Sustainable financial freedom comes from building reasonable habits you can maintain long-term, not from extreme deprivation. It’s about being intentional with your spending, not eliminating it entirely.

The key is identifying what truly brings you joy and cutting back on everything else. If you love traveling but don’t care about fancy cars? Drive that reliable older model and put the savings toward adventures. Passionate about food but rarely watch TV? Cancel the streaming services and invest in quality ingredients.

Myth 5: You Need to Time the Market Perfectly

Ask yourself, how many people have stayed out of the market waiting for the “perfect time” to invest, missing years of potential growth?

Time in the market beats timing the market. Those who achieved financial freedom typically got there through consistent investing regardless of market conditions. They understand that regular investments over decades matter more than perfectly timing each buy and sell.

Remember this saying: The best time to start investing was 20 years ago. The second best time is today. Period. Start now friend!

Myth 6: Once You Reach Financial Freedom, All Your Problems Disappear

This is the sneakiest myth because it’s not about money at all – it’s about happiness. Financial freedom won’t fix your relationships, won’t make you love your job (if you didn’t already), and won’t automatically give your life meaning.

What it does provide is options and reduced stress about money. But you still need to build a fulfilling life, maintain relationships, and take care of your physical and mental health.

Think of financial freedom as removing a major life stressor, not as a solution to all of life’s challenges. It’s a tool for building the life you want, not the end goal itself.

Myth 7: You Need to Follow Someone Else’s Path to Freedom

I’ve seen many people looking for that one “right” way to achieve financial freedom. Whether it’s real estate investing, starting a business, or climbing the corporate ladder, people love to present their path as the only path.

But in reality, financial freedom looks different for everyone. Your journey depends on your:

  • Starting point and available resources
  • Personal values and priorities
  • Risk tolerance and interests
  • Local economic conditions
  • Family situation and responsibilities

The best path to financial freedom is the one you’ll actually follow consistently. Maybe that’s building a side hustle, maybe it’s advancing in your career, or living simply and investing steadily. There’s no one-size-fits-all solution.

The Truth About Financial Freedom

Financial freedom isn’t about having an infinite amount of money or never working again. It’s about building enough resources and income streams to make choices based on what you value rather than what you need to survive.

It’s about:

  • Having enough emergency savings to sleep well at night
  • Building sustainable income streams (whether through work, investments, or both)
  • Living below your means without feeling deprived
  • Having the flexibility to make life changes without financial panic
  • Understanding and accepting your own definition of “enough”

All of the above points can be summarised into 5 pillars of financial freedom, make sure you know it, as it will help a lot to clear your fundamentals.

The path to financial freedom isn’t about following someone else’s blueprint perfectly. It’s about understanding basic financial principles, applying them consistently, and adjusting them to fit your life and values.

Remember, financial freedom is a journey, not a destination. It’s about progress, not perfection. And contrary to what social media might tell you, it’s usually boring, slow, and unsexy. But the peace of mind it brings is worth every unglamorous step along the way.

5 Pillars of Financial Freedom Every Family Should Follow

Let’s talk about money in a real way that actually makes sense for families juggling soccer practice, grocery runs, and those last-minute school projects. Following are 5 simple steps I followed for my family:

pillars of financial freedom

The Family Emergency Fund

You know that sinking feeling when the washing machine breaks down or your kid needs unexpected dental work right? That’s why we’re starting here. Having a cushion of cash isn’t just about peace of mind but about breaking free from that paycheck-to-paycheck stress that keeps you up at night.

Start small. Even $500 stashed away can stop a minor emergency from becoming a major crisis. Once achieved that, push it to $1,000. Then keep going until you’ve got a few months of expenses saved. And no, you don’t need to eat ramen noodles to get there. Just start somewhere.

Dealing with Debt (Smartly)

I’m not saying all debts are bad, that mortgage helping you build a home for your family. That’s okay. The credit card debt from trying to give your kids a magical Christmas? That’s the stuff we need to tackle.

I want you to list your debts from highest interest rate to lowest. Are those store cards charging criminal interest rates? They’re your enemy number one. But don’t go crazy throwing every spare penny at them. Life still needs to happen. Your kids won’t remember that you paid off the credit card six months faster, but they’ll remember missing out on every family movie night.

Start slow, but be steady and focus on eliminating high-interest debts which are making holes in your wallet.

Protecting What Matters (Insurance and Estate Planning)

Nobody likes thinking about life insurance or wills. But if you’ve got people depending on your income, this stuff matters more than that new iPhone. Get yourself some basic term life insurance – it’s way cheaper than you think.

Add health insurance that actually makes sense for your family’s needs. Then get those basic legal documents sorted out. Is it fun? Nope. But neither is cleaning the bathroom, and you do that because it needs to be done.

Growing Your Money (Without Becoming a Wall Street Expert)

You don’t need to understand cryptocurrency or day trading to build wealth. Seriously. Some of the wealthiest families I know got there by being boring and consistent. Regular contributions to retirement accounts. College savings when possible. Maybe a side gig that brings in extra cash.

Make it a family thing. Let the kids see you making smart money moves. Talk about why you’re saving and investing. Show them what compound interest looks like using their own savings. Money doesn’t have to be a taboo topic.

While following these 5 pillars, it is equally important to understand myths about financial independence.

Teaching Your Kids About Money

This is the game-changer right here. Your kids are watching how you handle money, whether you realize it or not. They notice when you stress about bills or splurge on impulse buys.

I need you to make money talks normal. Let them make mistakes with their allowance, it’s better to learn about buyer’s remorse with a $10 toy than a $10,000 car later. Show them how you budget for family fun and necessities. Be honest about your own money mistakes – they’ll learn more from your real experiences than any lecture.

Here’s the thing about these pillars – they’re not rigid rules that’ll make you feel guilty if you’re not perfect. They’re more like guidelines to help your family build a better financial future. Some months you’ll rock it, others you’ll barely keep your head above water.

The goal isn’t to become some perfect money-managing machine. It’s about building enough financial strength to handle life’s curveballs while still enjoying the journey. Maybe that means saying no to some things so you can say yes to what really matters. Maybe it means teaching your kids that wealth isn’t about having the fanciest stuff – it’s about having choices.

Remember, every family’s version of financial freedom looks different. Find what works for yours and stick with it. 

7 Baby Steps to Financial Freedom: Your Path to a Wealthier Tomorrow

7 baby steps towards financial freedom

Have you ever noticed how some people seem to have their money life all figured out? They’re not different, I did the same for my wealth planning, you can also follow these seven manageable baby steps to achieve your financial freedom.

All of the below points can be summarised into 5 pillars of financial freedom, make sure you know it, as it will help a lot to clear your fundamentals.

1. Track and Budget Your Monthly Expenses

Let’s be honest – most of us have no clue where our money vanishes each month. That coffee runs, those random Amazon purchases, and the “I deserve this” add up faster than you’d like to admit. 

Start by playing detective with your spending for a month. Grab your bank statements, and credit card bills, or just jot down every penny you spend in your phone’s notes.

Create a budget that works for your life – Just make sure the purchases you make fit into your bigger financial picture. The goal isn’t to become a miser; it’s about spending mindfully on what truly matters to you.

2. Avoid Lifestyle Inflation as Your Income Grows

Remember when you got your first raise and thought, “Finally, I can upgrade my life!” Next thing you knew, that extra money vanished into a fancier apartment, a newer car, or a pricier wardrobe. That is lifestyle inflation, when your spending rises to match (or exceed) your growing income.

Here’s a smarter way I used to overcome it: whenever your income jumps, pretend it didn’t. Keep living like you did before, and funnel that extra cash into savings or investments. Sure, treat yourself to something nice – you’ve earned it! But don’t let every raise become an excuse to upgrade your complete lifestyle.

3. Build an Emergency Fund

Building an emergency fund is important, as life can be unpredictable. Your car can die right after you pay for a vacation, or your pet needs emergency surgery the same month your rent goes up. 

Start small if you need to – even $1,000 can save you from a minor crisis. Eventually, work your way up to 3-6 months of living expenses. Keep this money somewhere boring but accessible, like a regular savings account. 

Now the hard part here is to pretend this money doesn’t exist unless there’s a real emergency.

4. Stay Debt-Free by Avoiding Unnecessary Loans

Trust me credit cards and loans can make it feel like you’re living the dream until the bills start piling up. The truth is, most of us fall into debt buying stuff we don’t need, with money we don’t have, to impress people we don’t even like. 

Before you swipe that credit card or sign up for another loan, I need you to ask yourself: “Do I really need this, or do I just want it right now?” If it’s not essential (like groceries or medicine), wait 24 hours before buying. You’d be surprised how many “must-haves” become “maybe laters” in 24hrs. 

And if you already have debt? Make a plan to knock it out, starting with your highest-interest loans first. Freedom from debt payments feels better than any purchase ever could.

5. Automate Your Savings and Investments

Let’s face it – we’re all busy, and sometimes saving money falls to the bottom of our to-do list. That’s where automation comes in play. Think of it as putting your savings on autopilot. Set up automatic transfers that move money to your savings account the day after your paycheck hits. When you never see that money in your checking account, you won’t be tempted to spend it.

The key is consistency. As you get used to living on less, gradually increase the amount. Before you know it, you’ll have a nice chunk of savings without feeling like you’re sacrificing your daily lifestyle. Remember, it’s not about how much you start with – it’s about making it a habit.

6. Start Investing for Retirement

I know I know – retirement feels like a lifetime away, especially when you’re juggling current expenses. But here’s the thing: time is money when it comes to investing. The earlier you start, the harder your money works for you, thanks to the magic of compound interest.

If you have a low income like I did, you can start with 1% of your paycheck and increase it by 1% every few months or quarters. You’ll barely notice the difference in your take-home pay, but your future self will have a much bigger nest egg to enjoy.

7. Create Multiple Income Streams

Relying on just your day job for income is like putting all your eggs in one basket. It’s risky, but don’t worry as creating additional income streams doesn’t mean you need to launch the next big startup or become a social media influencer overnight.

Start small and play to your strengths. Maybe you’re great at graphic design and could pick up some freelance work on weekends. Or perhaps you’ve got a spare room you could rent out occasionally. 

Even selling stuff you no longer need can become a decent side hustle. The goal is to have money coming in from different sources, so if one stream dries up, you have a backup. Plus, there’s something incredibly satisfying about making money from something you enjoy doing.

Remember, financial freedom isn’t about getting rich quickly, instead it’s about making smart choices consistently over time. Take these steps one at a time, and don’t be discouraged if you slip up occasionally. What matters is getting back on track and being consistent.

Stay Financially Aware Stay Financially Secured!

FIRE Explained: How to Build Wealth and Retire Sooner

What if you could quit your job decades before your hair turns gray? That’s the dream behind FIRE – Financial Independence, Retire Early. Picture breaking free from your desk while you’re still young enough to truly enjoy life.

FIRE followers save most of their paycheck, often 50-70%. But don’t worry, they’re not living on bread and water! Instead, they’re just super smart with their money, putting it into simple investments like index funds and cutting out the stuff that doesn’t really make them happy.

Think of it like building a freedom fund. While others are buying the latest gadgets or fancy cars, these folks are quietly building a nest egg that’ll let them wave goodbye to their boss years – maybe even decades before everyone else.

Financial Independence, Retire Early (FIRE): Explained

How FIRE Movement Work

It’s pretty straightforward: live on less than you earn (way less) and invest the difference like it’s your job. Most FIRE followers save up to 50-70% of their income and stash it in low-cost investments.

In fact, this is what I did in my early 20s, living below my expenses helped me to save and invest more and achieve early retirement from my full-time job. Now I can do the things I love and the money I make is a bonus.

The thumb rule is when your investments hit about 25 times your yearly expenses, You are safe and free to say goodbye to mandatory work forever. Before we move to types of fire movements, I need you to understand some proven ways to become financially independent.

Types of FIRE Movement

Fat FIRE

Living the dream without squeezing money – that’s Fat FIRE for you. We’re talking plush retirement with fancy vacations, a nice house, and zero money stress. You’ll probably need $4-5 million stashed away, which sounds crazy, right? But if you’re crushing it in tech or banking and love the finer things in life, this path lets you retire early without giving up your deluxe brunch of habits.

Lean FIRE

Picture living in a cozy apartment, cooking most meals at home, and finding joy in simple pleasures. Lean FIRE folks aim to save around $1 million and live on $25-40k yearly. I am one of them. It’s important to understand that lean fire is not about being cheap – it’s about realizing you don’t need designer labels to be happy. If minimalism speaks to your soul, this could be your ticket to freedom.

Coast FIRE

My friend Siddharth nailed this one,  he saved like crazy in his 20s, then switched to teaching guitar (his passion!) in his 30s. Now his investments grow quietly in the background while he works because he wants to, not because he has to. It’s perfect if you want to ditch the corporate ladder but aren’t ready to stop working entirely.

Barista FIRE

Ever thought about working just enough to snag health insurance? That’s the genius of Barista FIRE. You work part-time at places like Starbucks for the benefits, while your savings handle the bills. I know someone who does this – she bakes cakes three mornings a week and spends the rest of her time painting. It’s like having the best of both worlds!

Key Steps to Achieve Financial Independence and Retire Early

  • Track your spending ruthlessly
  • Reduce expenses that don’t bring joy
  • Boost your income (hustle)
  • Feed your investments regularly
  • Pay off high-interest debt in Full
  • Stash away 3-6 months of expenses

The 4% Rule in FIRE

The 4% rule is a game-changer for financial independence. It suggests that you can safely withdraw 4% of your investment portfolio annually in retirement without running out of money. By aggressively saving and investing wisely, you build a wealth tree that generates passive income as fruits. 

This rule helped me escape my 9-to-5 grind earlier, giving me the freedom to pursue traveling, or simply enjoy life without financial stress. It’s a key strategy in the FIRE (Financial Independence, Retire Early) movement.

Pro’s and Con’s of FIRE

ProsCons
Financial freedomRequires extreme frugality
Early retirementHard for low-income earners
Strong saving habitsHealthcare coverage challenges
Lower financial stressVulnerable to market fluctuations

Frequently Asked Questions

What is the Financial Independence, Retire Early strategy?

FIRE empowers individuals to strategically save and invest aggressively, cutting expenses dramatically while maximizing income. Practitioners aim to accumulate substantial wealth, enabling them to quit traditional jobs and live off investment returns before reaching standard retirement age.

What is the Financial Independence, Retire Early number?

The FIRE number represents the total investment portfolio needed to sustain living expenses through passive income. Typically calculated by multiplying annual expenses by 25, this benchmark helps individuals determine when they can financially support themselves without traditional employment.

What does it mean when you retire early?

Early retirement means leaving full-time work well before traditional retirement age, often in your 30s or 40s. It involves transitioning from mandatory employment to a lifestyle powered by investments, passive income streams, and carefully managed finances.

What is the 4 rule for early retirement?

The 4% rule suggests withdrawing 4% of your investment portfolio annually, adjusted for inflation. This strategy aims to provide sustainable income throughout retirement without depleting your principal investment, based on historical market performance and investment growth rates.

How to achieve Financial Independence? Explained in simple language

How to achieve Financial Independence? Explained in simple language

Almost everyone in today’s era wish to have financial independence. At least most of the people I have met wish so. Isn’t it?

However most of them have no idea how to become financially independent?

financial independence

 

Oh yes, I have heard this term many times in TV talk shows and have also read about it in the newspapers. It sounds too complicated to me. Can you explain to me what is Financial Independence in a simple language?


Financial Independence is a state which is achieved when you have earned and saved enough money so that you do not have to work anymore to support your lifestyle for the rest of your life. In short, you do not have to work to earn money. Don’t get confused. You still can work even after achieving financial independence. You can do whatever work you like, you can work just for pleasure. Financial Independence means you no longer have to slog that 9-10 hour shift everyday in order to pay your monthly payments, credit cards etc.

 

Wow, this sounds great. Can you throw some light on how can I be Financially Independent?

There is a simple time trusted formula with few set of rules for achieving Financial Independence.

  1. Your spending should always be less than your earnings
  2. Increase the GAP between your income and savings – Earn more
  3. You must invest what you save judiciously

If you follow the above 3 step formula, none can stop you from achieving financial independence.

high-income-1

 

Hmm… looks simple per say but how to implement this into practical life?

Ok, let’s take each step one by one

 

  • You must always spend less than what you earn:
      1. It’s quite possible to spend less than what you earn. If you are able to control your spending habits, you will be able to achieve this equation. First tool to achieve this is Budget. A simple budget can save you from many things. It will tell you where your money is going without you making a note.
      2. Don’t splurge in buying that big house just because you can afford it. Buy the right size house. Home ownership can be a quite expensive affair.
      3. Don’t buy big automobiles. Remember, your car is not your asset. Monthly payments on big cars will never let you move towards financial independence.
      4. Be little frugal in your living. Cook at home, eat out less frequently. This will not only save you money but also save your health in the long run. Stay fit and be WEALTHY.

 

  • You must strive to Increase your earnings:

 

      1. Importance of education can never be denied. If you are well qualified academically, you have a better chance to land a high paying job. Keep working towards increasing your income by augmenting your qualifications, certifications. This will boost your ability to save and invest more towards your main objective, which is financial independence.
      2. If you are good at something, try to earn some income from it. For example if you are good at graphics designing, use your spare time to take up some freelance projects which can earn some side income for you.

 

  • You must invest wisely:

 

    1. Savings are important but savings alone will not make you financially independent. Invest wisely so that your money grows at a healthy rate
    2. Use a mix of equity, debt and use diversification so that your investments remain recession proof.
    3. Invest from day 1 of deciding that you want to achieve financial independence. Do not wait for the right time to invest.
    4. Avail tax exemptions to minimise the loss of money to taxes.
    5. Structure your investments properly and practice goal based investing

 

If you are able to achieve a healthy saving and investment rate month on month and manage your investments properly, you can be financially independent sooner than you expect.


We at WealthSamurai always believe in a healthy savings rate and proper investments as the best tool to take control of your financial life.

That’s really a helpful. But how do I know the details like where to invest, which stock, which fund to buy?

 

Once you start tackling the three points mentioned above you will get more insight into the micro equations like where to invest, what amount to invest, what percentage of diversification is required etc. But important is to take the first step towards financial independence and keep going.

 

Happy Investing !!!

 

Seven Baby steps towards financial freedom

Seven Baby steps towards financial freedom

Do you know how marathon runners are trained?

If someone thinks he should run a marathon, and goes for the run very next morning what will happen? It will be a disaster for him. Right?

baby steps to financial freedom

 

A marathon runner must start small initially with 1 kilometer, 2 kilometers run and so on. He has to gradually attain the 42 kilometers mark. He has to gradually build stamina, develop endurance, have many practice sessions before he hits any competitive race.

All this happens over a period of time. This can not happen overnight. Hope you all agree with me on this. A runner has to set small milestones first like a 5 kilometer run, 10 kilometer run, a 25 kilometer run and so on. Once all small milestones are reached, a runner can confidently go for a full length 42 kilometer marathon.

Same is with financial planning. If you are at ZERO level or you have just started journey towards setting finances in order, thinking about financial freedom will look impossible to you. Journey towards financial freedom is a long journey. You have to create numerous milestones which will make the journey also interesting and you will always be motivated throughout the journey. Achieving these small milestones will also give you a sense of accomplishment in the course of the journey. Not to forget, these milestones will also keep you away from backtracking.

Below are some important milestones you can create in order to stay focused and not to lose interest while journeying towards financial freedom. The order is important as you can not run a full marathon without conditioning yourself for a half marathon. Isn’t it?

 

climb to financial success


Step 1
Start making a budget. Write down all expenses month on month. It is important. It will help you in knowing your spending  pattern.This will also give you an idea about your investable surplus – the money which you can utilize for investments moving forward. (How to make a simple budget)

Step 2
Save about 6 months of expenses in cash or liquid funds. This amount should be easily accessible to you. This is your emergency fund. This is meant only for emergencies like some medical attention or in case you lose your job. This will keep you afloat when you do not have any income to take care of expenses and will help you in not falling in debt trap during any personal emergency.

Step 3
Gradually but steadily pay off all your consumer debt. Consumer debt is considered as a bad debt for an individual. Debt for TV, appliances, vehicles, furniture etc falls under consumer debt. One these debts are tackled, you free up a large monthly investable surplus.

Step 4
Start saving for retirement. Most of us will not receive any pension or annuity. Keep somewhere around 25%-30% of your monthly salary as your investment for retirement. Make a good balanced folio and start investing. Your folio can be a combo of Debt, mutual funds, PPF etc.

Step 5
Start investing for your kid’s education. You can dedicate an equity linked mutual fund for this. Also you can open a PPF account when your kid is born and maximize investment into it every year. A combo of PPF and an equity linked mutual funds can do wonders for your kid’s future.

Step 6
Pay off your mortgage/home loan. This will remove a big burden from your head. It is good to feel debt free. But this is little tough as usually the amount is quite high. But I strongly recommend you to do this as paying off mortgage will free up a huge chunk of money for you as an investable surplus.

Step 7
Keep re-adjusting your portfolio once in a couple of years and enjoy life. Keep reading, pursue your hobby, keep traveling but remember that your money has to outlive you.

These are small steps. You can start any time, at any age. Important is you make a START.

Happy investing !!!

Are you an impulsive buyer?

Do you often drag yourself into impulsive buying?

 

“An impulse purchase or impulse buying is an unplanned decision to buy a product or service, made just before a purchase.One who tends to make such purchases is referred to as an impulse purchaser or impulse buyer. Research findings suggest that emotions and feelings play a decisive role in purchasing, triggered by seeing the product or upon exposure to a well crafted promotional message.”

impulsive-purchase

 

In your day to day life, knowingly or unknowingly you go through instances where you succumb yourself to the lure of impulsive buying. The product companies are out there in every shop, every mall, every online marketplace – blaring adverts, offers, packaged deals to you. We have seen earlier that Supermarkets do extensive research on how to push their products and how to compel buyers to spend more in their stores.


Can you give me some example so that I can relate whether I am buying stuff impulsively? As far as I know i am not into impulsive buying

  • When you go to supermarket to buy monthly grocery, you pick up few ready to eat meals as they are packaged beautifully and kept in the front area of supermarket. They always have “buy one get one free” offer

  • You go to shopping mall to purchase refrigerator and you end up buying that 75inch LED TV also just because there was an offer going on that. You , being a sincere shopper, got charged emotionally and purchased the big TV just because your conscious felt that you are saving substantially on this purchase. You didn’t even give a  thought to what you will do with the TV set adorning your living room which you bought last year in similar fashion

  • How many times you have noticed that you enter mall for grocery shopping with a budget of INR5000 and end up spending INR 1500 on grocery + “something else” which had a GREAT offer?

 

Yeah that’s OK, but sometime you need to grab the offer that is going on else you will miss the boat and God knows when such offer will return?

A seasoned impulsive buyer always suffer with FOMO – Fear of missing out. If you add up all impulsive MISCELLANEOUS purchase over a period of time, you will be shocked to know the amount you have spent on these purchases.

 

Below I am listing few reasons – why people shop impulsively

 

  • Love of shopping – some people simply love shopping. For them shopping is like a therapy. They are always under illusion that few items here and there won’t disturb their bank balance.
  • Some shoppers are always in loss aversion mode. They fear that if they do not buy certain items which are on sale, they might end up at losing a big amount of money.
  • Some shoppers succumb themselves to twisted offer phrases. “Buy 2 get third free” , “buy this and get that free” etc. The moment they see these offers, they succumb to it without further researching about the product, service, and quality.
  • Some shoppers have genuine desire to save more. They succumb to the offers on supermarkets which says “you save INR100” , “Buy & save INR1000”. In order to feel good , they buy these items.
  • Some shoppers always feel that they should have an edge over others when it comes to latest gadgets, latest fashion , latest automobiles. They always pick up items which they feel will make them look cool among their social network.

 

 

Hmm.. Sounds right. I never knew impulsive shopping is such a bad habit and I must admit that I myself must have lost a fortune by now through impulsive shopping.

Yes, impulsive buying is harmful. By the time one realise this, he/she would have lost a huge fortune on it. This could hamper your financial planning, your early retirement, your retirement plan and can pose a big threat to your financial independence planning.

Below I am keying in few important actions through which we can avoid impulsive purchase

 

  • Always make a shopping list when you go out for shopping – AND “Stick to it”
  • Follow a mandatory waiting period if you plan to buy anything. If you see anything which you wish to purchase, wait for 7 days and see if after 7 days do you have the same urge to buy that thing? Most of the time the urge is momentary and it dies down soon.
  • If you already owe the item you wish to buy and you intend to replace it, clean it. Now see if you have the same urge? E.g. if you have a pair of shoes and you intend to replace, clean the old pair, wash it / polish it. If you still feel that you should go for the new pair, then go ahead
  • Remember – only fools rush in. All gadgets, the first edition always have some glitches and service issues. Better to wait and go for later releases. They are relatively bug free and cheaper.
  • List down your impulsive purchases – revisit the list periodically so that you do not make the same mistake again
  • Keep decluttering your house often. This will keep you in check of all the items you have and you will not end up buying them again. This is specially applicable for stationary items and tools.
  • Avoid going for shopping with RICH friends or friends who are spendthrift. Believe me, you will save a lot by doing this
  • Don’t save your credit cards at online shopping sites. If you save then it’s a matter of few clicks and online order gets executed.
  • Buy all items cash. Parting with currency notes is much more difficult compared to swiping plastic cards.

 

 

Great. Very practical points. I am sure I can implement these easily in my day to day life and I can save loads of money by doing this.


Yes, the advice given above is quite practical in nature and easy to integrate in your lifestyle. Always remember it’s your own hard earned money. By avoiding impulsive buying you can use your money in much better way.

 

Happy Investing !!!

What are money leaks? How to find out your money leaks and plug them?

“A money leak in a simple language is the money you have spent but you don’t know where you spent. “

Money leaks are just like water leaks from a container. End of the day you don’t know that water is leaking and container becomes empty.

“For example you draw INR 2000 from ATM on the way back to home from workplace. You buy grocery for INR 1000 , vegetables for INR 750, stationery items for INR 150  and have a coffee for INR 100. Somehow next day you forgot that you had coffee previous night and you still think you have INR100 with you from previous withdrawal. This FORGOTTEN INR100 is the “Money Leak” for you. So when you sit down to write expenses over the weekend, you are able to account for INR 1900 out of INR 2000 withdrawn from ATM and unable to account for INR 100 you spent on your coffee.”

 

Money leak - how to fix it

 

Ok Great. But I am good at accounts and I can remember what expenses I incur. So Money leak for me is out of question.
Good. but still as the phrase indicates “money leak” is small expense here and there which is tough to account for at a later date. You may not remember or you may not be knowing the money going out for some expense. But these small expenses can add up later and over a period of time can be a big financial disaster for you. If you compute total spend over a large period say 5 years, these leaks can set you back by a huge amount when you consider the principal amount as well as loss of investment potential of the leaked money. It can directly affect your net worth and can play a spoilsport while planning your financial independence.

 

Hmm Sounds scary. Can you list down few other money leaks so that I get more clarity on where else i am losing money to Money Leaks?

 

  1. Paying upfront for a subscription:
    You make a resolution to stay fit on the new year eve. First day of the new year you go to the best Gym in the neighborhood and register yourself. The gym has an offer that you pay for 12 months upfront and you get 13th month free. You succumb to the offer and pay for the 12 months at on go. You are pumped up and start visiting the gym. After about a week or two, you come to know that Gym is about 10 minutes away and by the time you return from work it’s already late evening. You don’t have energy left to change and again drive for 10 minutes to the gym , work out for 30-45 mins and come back late night. Hence you gradually stop going to the gym. This is a big money leak. You have paid for 12 months to the gym upfront and you are not using it

  2.  Not switching off power appliances:
    The electrical appliances at home are always switched on like AC/Heating/Fans/Lights /modem etc and often you forget to switch them off when you leave home. This is the reason why you bang your head every month when electricity bill comes.
  3. Having low rated power appliances:
    Electrical appliances at home are not rated good for energy savings hence they drain more electricity and you end up paying more charges for electricity consumption.

  4. Having multiple bank accounts:
    You have to maintain a certain minimum balance in each of the account which makes your money sit in a low interest savings account. You are losing on investment potential with the idle money.

  5. Buying too big vehicle :
    You do not need a truck type gas guzzling SUV for a nuclear family living in city. You will not be able to use vehicle to its full potential. For a city you need a good mileage vehicle which is small so that you can squeeze it in tight parking spaces. A big car means higher monthly payments, high insurance premium, high maintenance cost and lot of inconveniences when taking it around the city which has usually tight parking spaces.

  6. Buying too big house :  
    For a nuclear or small family you do not need too big house. Bank will always try to convince you to buy the biggest lot available based on your monthly income. Their logic is monthly payments will not pinch you after few years. But what about now? A big house always has higher monthly payments, higher maintenance cost per square feet, higher property tax and not to mention, higher cost of upkeep. It also consumes higher electricity in terms of cooling, heating etc.

  7. Paying your fund manager for frequent switching of funds/stocks through Portfolio management service (PMS) :
    Fund managers will switch frequently but the cost of switching would be recovered from you as an investor. At the end of the day, the absolute returns will tell you that how much the switching has costed you.

  8. Not shopping around while taking any insurance : This can cost you dear as there is a considerable swing in the premium paid from different service providers. If you lock in higher premium, entire life you would be paying higher premium which over the years will result in huge money drain.

  9. Not doing price comparison and proper research before purchasing any expensive item :
    Here again the price can vary from store to store. Best is to compare the prices online and then hit the shop for bargaining.

  10. Having multiple internet data connection at home:
    If everyone in the family has his/her own plan for data connection, there will be money going into drain. Almost all service providers give family plan for voice and data or some group connection which can save tons of money over a period.

  11. A big sum of money sitting idle in savings account:
    This also a big money leak. You lose a good 3%-4% on earnings plus the investment potential of the money.

I can quote a 100 more examples from day to day life where there is money leak. I am sure most of the readers too would not be knowing points mentioned above to a certain extent.

Yes, even I was not knowing few things like letting money sit idle in savings account, choosing insurance premium etc. It’s scary. Now, tell me how to identify and avoid money leaks in real life?

 

Again avoiding money leaks is not a rocket science. It’s more of a common sense. You need to be vigilant about what expenses you incur, make a note of them and review the expense sheet periodically. You are home if you follow this diligently.
Below are few simple steps which you can take to find money leaks and fix them so that they don’t trouble your finances.

 

  • Save all receipts of every payment you make for the entire month and tally them at the end of the month so that you don’t miss out on any ghost expense.
  • Use a budget and STICK TO IT. Click here to know how to make a simple budget.
  • Avoid money leak places. For example when you go to multiplex to watch a movie, avoid food court during the break. The price of food items and beverages there are exorbitant. Nothing can justify the prices they have. A family can be down by a couple of thousand rupees if they snack and drink at the multiplex food court.
  • While visiting malls , do not buy anything expensive just because there is discount on the price. Always compare prices across different places, research the product well and then only buy.
  • Beginning of every year, do review all the memberships and subscriptions. Cancel anything which is not required.
  • Study a little bit on how to invest money in mutual funds, stocks, bonds etc. Trust me it is not difficult and if you know what you are doing, you can save tons of money. Plenty of FREE study material available online and plenty of tools to invest makes it easy for you if you know the basics of investing. Why to pay someone else to manage your money? Do you think they will do a fair job?

 

Again it depends on an individual to what extent he / she is able to identify and plug the money leaks. Ideally one should start with every service provider, day to day shopping, monthly grocery shopping and identify where they are leaking money.

After reading this article I am sure you should be able to identify money leaks and then take measures to plug the leaks. First cycle of identifying and fixing money leaks may take little time but once you are set, it won’t be difficult for you to identify leaks immediately and fix them. Money leak should be tackled on priority as it’s a big hindrance in wealth creation and can cause a considerable delay to your financial independence.

 

Happy Investing !!!