Whatever your dream of being financially independent, this Independence Day take a step in the right direction by following these steps.
Being financially independent is a dream for everyone and in current scenario of nuclear family setups it is almost a necessity for everyone to be financially independent. So be it young people, retired citizens or married women, each and everyone should strive and aim for financial independence. However, for each individual the meaning of financial independence will be different; but having said that the basic steps to get there will essentially remain same.
Understand the meaning of financial independence
Before working towards your goal of financial independence it is important that one understands what they mean by financial independence. For some it could mean just being able to meet their day to day needs, for some it could mean owning a home and a specific lifestyle too. Again financial independence is also strongly related to the age and also the social ties of a person.
For a fresh graduate the definition of financial independence will be different, while for someone who is retired it will have a completely different meaning.
Plan and budget
Once you have understood what you need to achieve you can set to attain it by careful planning and budgeting. Of course the first step is to have a source of income as that is a must for anybody to have financial independence. If one is aiming at being financially independent post her/his working years then they need to plan accordingly and of course for someone who is just looking at starting her/his career the planning will be different. Make a plan as per your understanding of financial independence and then budget your expenses accordingly.
Manage debt well
All kinds of loans are a strain on the finances as they have to be repaid. Though it might not be possible to be absolutely loan free but one can aim at reducing debt if they want to be financially independent. Any kind of debt means that one is completely not independent as they still owe some amount to an outsider. If the aim is to be independent post retirement then of course all debt should be paid by then.
However, having said that, sometimes debt could offer a way to financial independence too. If one wants to start their own venture then taking a business loan could help them in achieving their goal of financial independence; similarly an education loan can also pave way to financial independence. So depending on your situation it is important that one manages debt and is never over leveraged but is not hesitant to take a loan if required.
Have a safety net in place
Despite the best laid plans things can sometime go awry so it is important that one has a safety net in place. Without adequate preparation the planning of being financially independent will face hurdles if one does not have a contingency plan to deal with an eventuality like job loss, medical exigency etc. They best way to deal with such situations is to have adequate insurance cover and also have an adequate contingency fund.
Evaluate and modify your plan from time to time
Since we live in an environment that changes constantly it is important that one makes sure that their planning is also dynamic to match the changing situations. One need to keep evaluating their plan for two reasons; the first to understand if things are moving as per plan and two to see if any course correction is required to keep in line with changing macro, micro or personal circumstances.
So regardless of what your age or gender is, you can start planning your financial independence; this 15th August take the first step in the right direction.
Photograph: Sowmya's Photography/Wikimedia Commons
The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.