Financial Freedom
A century ago, most Indians worked in farms or family trades. We produced and consumed for domestic needs (within 5-50kms) and lived well with all products that were available natively - we never had broccoli or oats, but we had several varieties of millets and keerais. Neither did we have fiat currency (printed paper that states the value of money held / currency that is not backed by gold or silver). All that we used were produced locally and perhaps bartered from nearby locations. Wealth was real and tanglible - in essence, we were free of finance & financial needs. Through the British rule, we imported several things ranging from the english language to western culture to modern industries, a 9-to-6 job, marks-based education, rank-based-selection, a nice designation, fat pay, retirement, insurance, credit, stock market, speculative trading, wealth accumulation and capitalism. The most recent addition to this list is "Financial Freedom". From being financially free a 100 years ago, we are now trying to attain "Financial Freedom".
What exactly is Financial Freedom?
In a very simplistic form, financial freedom is replacement of one's current income - it could also be considered as taking care of one's expenses. Depending on one's financial goals and lifestyle choices, financial freedom is attained upon realizing this replacement income. Such a replacement income could arise from a source other than your full time job such as rental income, dividends, annuities or business income - it is at this point that you have attained financial freedom. Your salary is no longer required to sustain your expenses and financial needs. You have the luxury to stop working for money and pursue your personal interests. For some people generating further income from such pursuits is important but for others this is immaterial (gives rise to the classic question - "how much is enough?").
How do you plan for your Financial Freedom?
The first and the foremost thing to do is to set reasonable expectations about income targets when you stop working and to stick to the chosen lifestyle. Any deviations in lifestyle choices could hurt your financial position and deplete savings quicker than you had planned. Some people would pick a random number and say they need Rs.70k or Rs.1Lac per month when they retire. What they fail to realize is once they stop working several expenses would drastically reduce or vanish - eg. your fuel bill may no longer be Rs.10k, you might need just Rs.4k. Such realistic adjustments could bring down your retirement corpus by Rs.1-1.5 crore and opens up the opportunity to retire early. Next is to talk to your financial planner to understand the right investment products to choose that could grow at the required rate of return and provide you with inflation-adjusted income to meet your expenses from the time you choose to become financially independent. You could also do an asset review with your planner to see if any re-org or consolidation is required to derive tax-optimal income stream to support your financially free years.
What exactly is Financial Freedom?
In a very simplistic form, financial freedom is replacement of one's current income - it could also be considered as taking care of one's expenses. Depending on one's financial goals and lifestyle choices, financial freedom is attained upon realizing this replacement income. Such a replacement income could arise from a source other than your full time job such as rental income, dividends, annuities or business income - it is at this point that you have attained financial freedom. Your salary is no longer required to sustain your expenses and financial needs. You have the luxury to stop working for money and pursue your personal interests. For some people generating further income from such pursuits is important but for others this is immaterial (gives rise to the classic question - "how much is enough?").
How do you plan for your Financial Freedom?
The first and the foremost thing to do is to set reasonable expectations about income targets when you stop working and to stick to the chosen lifestyle. Any deviations in lifestyle choices could hurt your financial position and deplete savings quicker than you had planned. Some people would pick a random number and say they need Rs.70k or Rs.1Lac per month when they retire. What they fail to realize is once they stop working several expenses would drastically reduce or vanish - eg. your fuel bill may no longer be Rs.10k, you might need just Rs.4k. Such realistic adjustments could bring down your retirement corpus by Rs.1-1.5 crore and opens up the opportunity to retire early. Next is to talk to your financial planner to understand the right investment products to choose that could grow at the required rate of return and provide you with inflation-adjusted income to meet your expenses from the time you choose to become financially independent. You could also do an asset review with your planner to see if any re-org or consolidation is required to derive tax-optimal income stream to support your financially free years.
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