Financial Freedom is one of the most sought after luxuries of today by millions of people. Everybody wants to be happy without debt and follow their passion without being suffocated within their financial space. And yet, the sad truth is not many people even know what Financial Freedom is. Most of the people today are so busy with their lives that they don’t plan ahead. They haven’t even heard of the term but have a vague idea that is in the back of their heads which never comes to fruition. The disappointing reality is most people even consider it a myth. At smallcase, we’d like to change that. We’d like to bring awareness so that everyone can spend their money without breaking a sweat or being held up in a tight spot.
To bring the spotlight on this we approached two of our top Fund Managers at smallcase to shed some light on the 5 Rules to Achieve Financial Freedom.
“Money can’t buy happiness”, says every wise man. But certainly, not having money is a source of various troubles and these problems only pile up to lead someone into financial distress and debt traps. The way to get out of this conundrum is to achieve financial freedom.” Arvind Kothari, CEO and Founder of Niveshaay explains.
“But when do we say that a person has achieved financial freedom? Financial freedom does not mean being super-wealthy or having tons of money. It simply means having enough money to cover your expenses and you aren’t worrying about how you’ll pay your bills or emergency expenses so that you can spend your precious time doing what you like rather than doing things just to earn money.”
Arvind went on to make it simple by putting some rules to achieve financial freedom which seems to be easy but it’s not going to happen overnight. So let’s begin to understand these simple rules from Arvind -Rule of Relevancy: Set your FINANCIAL GOALS Today which remains relevant Tomorrow-
- Rule of Relevancy: Set your FINANCIAL GOALS Today which remains relevant Tomorrow-
Financial goals are savings, investment, or spending targets you hope to achieve over a set period of time. The Stage of life you’re in usually determines what type of goals you wish to achieve as the 10 year goal of a college going student will sharply differ from the 10 year goal of a responsible father. Further it’s not just about time, but also about Time Value of money as Rs. 5 crore of net worth today is not the same as Rs. 5 crore of net worth after 10 years. Thus, you should always consider your current stage of life and inflation while setting your financial goals, right from the very beginning.
- The Secret Rule: Start Early, Allocate Right
The earlier you start, the better returns you can generate. Let’s understand this with a simple thumb rule of allocation: “100 – Your Age”. For example, if your age is 30, 70% (100-30) of your portfolio can be allocated to risky assets like equity and the remaining 30% to safer assets like Bonds.
- The Rule of Growth: Growth of Income > Growth of expenditure
Saving a portion of your income ensures conserving your wealth and secures your financial future. To bring in real savings, you should remember one very simple calculation, when your income doubles, your expenditure should not double.
You can find Niveshaay’s Mid and Small Cap Focused Portfolio – https://bit.ly/3Awar4m
- Remember the Rule of 72 while Investing
Wait, saving alone is a halfway exercise to financial freedom, you must also invest a portion of your savings. During this step, remember the Rule of 72! If you want to double your wealth in say 6 years, then you will require roughly a 12% annual compounding rate of return (72 divided by no. of year i.e. 6= 12%).
- Beyond the rules- An Emergency fund
Who could have predicted COVID-19? Obviously, none of us. So you always need a separate fund to pay your bills when lady luck is not with you. So here comes the best protectors- Insurance. Even before starting your investment journey, make sure your health and life is secured with appropriate Insurance.
At the end of the day, Financial Freedom is NOT A MYTH. It is a goal that requires a lot of patience, hard work and due diligence to achieve. And without a doubt it is something that is definitely worth all your sweat and tears. Save your hard earned money and start investing today!