Achieve Financial Freedom

Hemant Rustagi
Chief Executive Officer, Wiseinvest Pvt Ltd.

Financial independence can be defined as having enough resources at every stage of your life. Earning, saving and investing are the three main components to becoming financially independent.  Although each one of these has an important role to play in this process, the order of importance will change depending on what stage of life you are. We all understand the importance of earning and working hard to improve our ability to earn more. However, many of those doing well in their career often don’t consider it necessary to save, assuming that there will always be enough money available to take care of their future needs.

The ability to save depends upon how financially responsible you are. To put it in perspective, being financially responsible doesn’t mean living below your means. It requires you to avoid buying things that you don’t really need. You must learn to avoid impulsive buying. You must make an effort to save as much as you can. Remember, if you spend 100 per cent of your income, financial independence will remain a distant dream. If you save 25 per cent of your income, it will take you around 32 years to retire and maintain your current lifestyle. If you save 50 per cent of your income, it will take you around 17 years to get there.

Many of us often fail to understand the difference between saving and investing. Saving is what you keep aside out of your income and investing is when you put your money to work in a manner that your real rate of return i.e. gross returns minus capital gain taxes and inflation is positive. Remember, the more you invest, the faster you become financially independent. Now that we know the role of earning, saving and investing in making us financially independent, it is equally important to understand the process that can allow us to do these in an efficient manner. Here is what you need to do.

Have an Investment Plan in Place
An important step in achieving financial independence is to have an investment plan in place. Many investors start the process of investment without determining their investment objectives, asset allocation, and having an investment strategy in place. Remember, there will always be bull and bear markets. More importantly, it is nearly impossible to predict the economic scenario just around the corner as well as its impact on the stock market. It can, therefore, be challenging to develop a strategy that not only withstands the turmoil but also helps in achieving varied goals over a defined time horizon. The right way to move forward is by having an investment strategy that is built around the right asset allocation.

In simple terms, setting and maintaining an appropriate asset allocation is a critical component of implementing any investment strategy. The principles behind asset allocation are simple and they can help you control the risk, match your portfolio with specific financial goals, and increase the predictability of returns. Therefore, your risk tolerance and investment objectives should be the dominant factors while deciding what percentage of your investments should be put into each of the asset classes i.e. debt, equity, or gold. The asset allocation strategy can help you achieve realistic financial goals within the defined timeframe and that too without losing sleep. In other words, it can bring order to a permanently uncertain investment environment. The focus, however, has to be on developing a long-term investment policy that will guide you over your defined time horizon.

Retain Control over your Money
While it is necessary to take help of professionals, it is equally important to know that you still would have an important role to play in the decision-making process. You will always have a better understanding of your objectives, needs and risk profile than anyone else. While an advisor can help you in terms of determining the course of action and selection of funds, you have a big role to play in defining the parameters. Remember, being financially independent is not only about having enough money but also being in control of your hard-earned money.