Achieving Financial Freedom

 

Financial freedom is a term to describe the state of having sufficient wealth to live indefinitely without having to work actively for basic needs. Basically, one should have enough earning assets which would give an income that would be sufficient to meet the expenses on basic needs.

Every one wants to achieve such freedom. The following are two approaches in achieving financial independence.

1.       Accumulate income generating assets until such income surpasses living/liability expenses.

2.       Accumulate enough liquid assets which would sustain all future living/liability expenses.

To achieve the above goals, it is important to practice certain basics of wealth building principles.

1.      Maximize the earnings

This can be either through employment or through a business. It goes without saying that if we do not make any effort to earn as much as we can, we will never attain the financial freedom that we desire. While we may earn what we think is small in the beginning, we should make effort to excel at work, go back to school to increase our knowledge and actively manage our career so that our earnings increase steadily over time.

2.      Spend Less Than the Earnings

This is the best principle to achieve true financial freedom. Our expenses also grew along with the earnings. What is required is to increase the earning faster than the increase in expenses.

3.      Control the Debt

In this era of credit cards and easily accessible loans, it is easy to succumb to the allure of an easy life financed by debt. Borrowing to spend should be the last option, once should indulge in. Not all debt is bad, but uncontrolled high interest loans should be avoided.

4.      Invest regularly

We should cultivate the habit of investing a portion of the earnings regularly in stocks, unit trusts, bonds, etc. This should commence at an early stage of one’s carrier. The amount available for investment in the beginning may be small but important thing is to make a beginning and then slowly increase the level of one’s investments as their earnings grow. Set a goal for investment. The goal should be realistic and in sync with the earning potential.

5.      Make your money works for you

This is the outcome of principle 4. A regular saving would accumulate good amount of corpus. What is required is a wise way of investment in various financial products. At some point, these investments would start earning itself. Over a period, the earnings from these investments by way of interest, dividends and capital appreciation will grow faster and faster.

To conclude, if one follows the above golden principles of wealth creation, one can surely achieve the financial freedom.