Here’s a list of tips you can use to achieve financial independence:
Set clear goals
Your financial independence journey starts by setting clear, specific, and time-bound goals. Savings are just a means to an end, the end being your financial goal. Whether you wish to create an emergency fund, clear debts, save for retirement, or plan a vacation, setting out SMART goals helps you create a roadmap for these goals. Identifying your goals helps distil the target amount, the time horizon, and the correct investments for them.
Live within your means
This is one of the best strategies to implement if you’re wondering how to achieve financial independence. Living within your means, avoiding overspending, setting limits on discretionary spends, and avoiding lifestyle bloat help you inch closer to financial independence. Try inculcating mindful spending habits into your everyday life to effectively live within your means and cut down on wasteful spends.
Invest wisely
The simple act of saving is not enough. You need to implement wise investment strategies to make your savings earn returns and accelerate your journey to financial independence. Start by investing as early as possible and as much as possible. Starting early allows you to exploit the benefits of compounding which works wonders when given time. Next, focus on gradually stepping up investments by a certain percentage every year. Spread your investments across asset classes like equities, mutual funds, FDs, ETFs, and gold to minimise risks and maximise returns. Try implementing the SIP investment mode to avoid timing the market and focus on consistent investing.
Establish multiple income streams
If you’re serious about attaining financial independence early, you must establish multiple sources of income. Try to build passive income sources where you do the work once and earn returns in an automated way. Investing in dividend funds, stocks, and non-cumulative FDs are examples of such passive income. Simply relying on one income source like a regular 9-5 job may not be enough when it comes to attaining financial freedom. You can add side hustles like freelance work to your routine to make some extra cash.
Prioritise debt repayment
While most people overlook this aspect, prioritising debt repayment plays a crucial role in attaining financial independence. Becoming debt-free means having more cash in hand to save and invest. Closing a hefty loan means no more interest expenses and a better credit score. If you’re wondering how to achieve financial independence through debt repayment, you can consider the snowball method, where you repay smaller debts first and work your way to larger debts. Or, you can choose the avalanche method where you tackle debts with the highest interest rate first and then move to other ones. Whichever method works for you, the bottom line is that you should aim to be debt-free as soon as possible to claim the reward of financial independence.
Build an emergency fund and get insured
Financial independence means being able to tackle unforeseen emergencies without worrying about your financial standing. To achieve this independence, you have to first build a comprehensive safety net. This includes setting up an emergency fund with at least 6-9 months’ worth of living expenses, purchasing health insurance, and buying a life cover. This three-pronged approach ensures that you can tackle emergencies without jeopardising your finances.
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Start retirement planning
Retirement planning is not something you can shelve until you reach the age of 45. For true financial independence, you must start retirement planning much earlier, preferably right from the time you start working. Planning for retirement ahead of time will help you invest wisely and give your corpus ample time to compound. From purchasing pension plans to investing in retirement-focused schemes like PPF and NPS, early planning is crucial to building a corpus that will help you live financially worry-free in the golden years.