How to Be Financially Free: Steps to Achieve Your Goals

Financial freedom is an ideal many Indians dream about – having enough money to cover expenses without working. But it requires diligent planning and discipline. Be financially free, as it enables you to live on your terms, pursue passions, and spend time with family.  Read on to understand the steps you must follow to achieve financial independence.

Step 1: Evaluate Your Current Financial Status

The first step is assessing your current financial situation thoroughly. List all your assets – savings accounts, fixed deposits, property, gold, mutual funds, stocks, etc. Next, document liabilities like loans, credit card debt, car loans, home loans, etc. Deduct total liabilities from total assets to determine your current net worth.

Step 2: Make a Budget and Clear Debt

Make a realistic monthly budget aligned with savings goals. Follow the 50/30/20 budgeting approach:

• 50% for needs like house, bills, EMIs
• 30% for wants like shopping, dining out
• 20% for debt repayment and savings

Stick to the budget by cutting unnecessary spending. Prioritise clearing high-interest debt first. Consolidate debts through lower-interest loans. Keep repaying education, home, car and personal loans steadily—Cap EMIs at 50% of income.

Step 3: Build an Emergency Corpus

Having an emergency corpus helps tide over unexpected expenses without taking on debt. Target saving about six months’ living expenses in readily accessible investments like liquid funds or fixed deposits.

Step 4: Invest for Retirement

Though retirement may seem far away, starting early is critical to harnessing compounding. To save for retirement in a disciplined manner, make the most of Employee Provident Fund and Public Provident Fund accounts.

Invest consistently in Equity Linked Savings Scheme (ELSS) mutual funds to save taxes under Section 80C and build a retirement corpus. Use SWPs closer to retirement for regular income. Consider the Senior Citizen Savings Scheme and annuities to generate income post-retirement.

Step 5: Build an Investment Portfolio

Build a diversified portfolio beyond retirement accounts. Invest in stocks, bonds, gold, and real estate focused on wealth generation. Grow money in fixed deposits, debt funds, equities, and gold to balance risk and returns.

Invest surplus income monthly for long-term growth. Reinvest gains to benefit from compounding. Substantial assets generating dividends, interest, and rental income will accelerate you to be financially free.

Step 6: Move Closer to Financial Independence

Use these signals to indicate you’re progressing towards financial freedom:

• Your total assets exceed your annual household expenses
• Passive income from investments covers over 50% of your costs
• You can cover living costs for six months without active income

Step 7: Review and Realign Annually 

Revisit your financial independence goals yearly. Assess net worth and passive income versus expenses. Account for life changes requiring realignment.

Big windfalls like inheritances or bonuses can accelerate your path. Adjust monthly savings, debt repayment, and investments to keep progressing steadily.

Step 8: Pursue Financial Freedom on Your Terms

Clarify what financial independence means to you personally. Is it about pursuing hobbies, spending time with family, or leaving a legacy? Define your ideal financially liberated life.

Choose a path aligned with your priorities and values. Pursuing financial freedom on your terms makes the journey more rewarding beyond just money. You get to live more fully today while building wealth for tomorrow.

Conclusion

Pursuing financial freedom requires diligence, consistency, and a long-term outlook. However, with proper knowledge and discipline, it is achievable for Indians. Start with small steps like budgeting, saving, and wise investments. Stay focused on your goals while enjoying the journey, too.