The country is soon going to usher in celebrations to mark its 70th Independence Day. This day could become your best chance to assess your own financial independence as well. The meaning of financial independence may vary from person to person, but largely it signifies the freedom to live comfortably, buy and spend the way you want and utilise your money for things beyond financial objectives. For some, financial independence also means freedom from debt and a good corpus for a smooth retirement life.

The meaning of financial independence may vary from person to person, but largely it signifies the freedom to live comfortably, buy and spend the way you want and utilise your money for things beyond financial objectives. For some, financial independence also means freedom from debt and a good corpus for a smooth retirement life.

For some, financial independence also means freedom from debt and a good corpus for a smooth retirement life.

Meaning Of Financial Independence

If you are able to purchase things you want without disturbing your normal lifestyle, then probably you are financially independent. When you no longer depend on money borrowed from others and live free from the tension of earning money, then you become a financially independent person.

Being financially independent doesn’t mean that you take retirement from your work life. You may still work, but you no more worry about earning money because you already own a lot of it.

Let’s check out the ways that can help you to become financially independent.

Start Investing Early In The Career

It is important to understand the power of investing early in your career. By investing at an early age, you give more time for compounding the return and build a big corpus over a period of time. For example, if you start investing Rs. 5,000 per month in a Mutual Fund SIP at an age of 20 years and the fund returns at 18% p.a., then you’ll get around Rs. 1.17 crore when you turn 40. Imagine the power of compounding, by investing just Rs. 12 lakh in 20 years, you can build a corpus of Rs. 1.17 crore.

So, you must take investment as a continuous process and not a one-time event. Always invest as per your short, medium and long-term goal and review your investments regularly.

Follow The Budget

If you strictly follow the budget that you have set for yourself, then you could control useless expenditures and save money. If you spend more than you earn, then you may land up into huge debt as well that may become a burden for you in the long-run. Saving money by controlling your unnecessary expenditures will make you financially independent.

Maintain Healthy Contingency Fund

It is important to maintain an emergency fund to bail you out from high-interest rate debt traps and other tricky situation. Maintaining a healthy contingency fund could help you easily come out of a difficult situation. You should also take appropriate insurance cover such as Health and Life policy, to get financial protection from respective risks.

Do Not Borrow Above Your Financial Capacity

Use debt instruments very carefully. Ideally, you should borrow only that much money, which you are capable of repaying without disturbing your regular financial needs. For example, taking a Home Loan which translates to an EMI of Rs. 25,000 may not make sense if you are earning Rs. 50,000 and have a monthly expense of Rs. 30,000. In such a situation, either you’ll cut your monthly expenses or borrow money in order to meet your expenses. Some people take a loan and spend that borrowed money in unnecessary things only to regret it later. Borrowed funds should not be misunderstood as your own money and should be repaid at the earliest. So, before taking a loan, always check your readiness to pay EMIs and assess its impact on your personal finance.

In such a situation, either you’ll cut your monthly expenses or borrow money in order to meet them. Some people take a loan and spend that borrowed money on unnecessary things only to regret it later. Borrowed funds should not be misunderstood as your own money and should be repaid at the earliest. So, before taking a loan, always check your readiness to pay EMIs and assess its impact on your personal finance.

Take Calculated Risks

Some people think that taking risk is bad for personal finances. But sometimes taking a calculated risk can prove profitable. A risk taken at an early stage in your career will maximise the return on your investment and increase your income. Taking risk is good for your financial health till you can handle its repercussions and have the capacity to recover if things go adversely. At a later stage in your life, you may opt to take a lower risk and maintain your accumulated fund.

Do Not Depend On The Sole Source Of Income

You never know how the future will unfold. If you are dependent on a sole source of earning, then adding another income source can help you to achieve financial independence. You may take more risk and grow faster if you have multiple income sources.

Apart from above-mentioned points, if you maintain strict financial discipline and practice the habit of saving first and spending the money later, then you can be financially independent very soon in your career.

(The writer is CEO, BankBazaar.com)