By Anil Rego
August 15, a day which every Indian rejoices as it reminds us that we had attained freedom from colonial rule. Imagine a day in the life of each one of us which is marked as Financial Independence. Financial Freedom doesn't mean having more money, rather its being who you are, what you really want to do in your life.
Financial world today is far more complicated than it used to be a decade ago. A decade ago, cellphones never existed, not all carried credit cards. Though life has been complicated, yet the road to Financial Freedom remains simple as it has always been.
The formula to be financially free is based on three pillars - Save, Invest and Grow.
Save: It is said a penny saved is a penny earned. Make a monthly budget and determine to save a certain proportion of your savings, say 20%. However, a decision to save should come first before doing all the expenses, as it will help to cut down on unwanted expenses. Try to save on taxes as much as possible.
Invest: Imagine a situation where you have planted a few seeds but left them unattended: The result? They won't grow. Same is the case with money. Money saved but not invested will remain idle; every penny saved should be invested further into different avenues which will help to earn returns/interest. Money works on a compounding principle, that is, returns earning returns, it's a scenario where your money works for you rather than you working for it.
Investment should be done based on one's risk appetite. It is ideal to consider investing in equity mutual funds through a Systematic Investment Plan (SIP). SIPs help to clock in Higher Risk Adjusted Returns in the long term by reducing the average purchase price. Also, higher returns from equity mutual funds will help to create wealth in the long term. Long-term equity returns are tax-free, which further enhances returns.
Grow: Growing your money/wealth is not a one-time exercise. Rather, it's a continuous effort. In order to make your money grow, you need to follow step 1 and 2 regularly, that is Save and Invest. One needs to adopt a disciplined approach in order to achieve Financial Freedom.
Also, one should look for aspects like portfolio review and rebalancing at regular intervals. Markets are volatile and in order to safeguard one's portfolio from downfall, one should regularly monitor one's investments.
Key Takeaways:-
1) Be disciplined and save a certain component of your income every month 2) Start investing as early as possible to benefit from compounding 3) Review you portfolio at regular intervals 4) SIPs are one of the best ways to consider investments
(The author is CEO & Founder, Right Horizons. Views and recommendations expressed in this section are the analyst's own and do not represent those of EconomicTimes.com.)
