How to Become Financially Independent in 2024?

In a world where financial stability often feels like an elusive dream, pursuing true financial independence stands out as a beacon of empowerment. Picture this: the ability to make decisions based on choice, not necessity, and the freedom to sculpt your life according to your aspirations. Achieving financial independence is not about amassing unimaginable wealth or navigating complex investment strategies; it’s about fostering a mindset that aligns your money with your life goals.

In this guide, we’ll unravel the layers of financial freedom – from cultivating a healthy relationship with money to understanding the significance of income streams. We’ll explore creating assets that generate passive income, breaking free from the shackles of debt, and crafting a sustainable budget that fosters both frugality and fulfilment.

Why Is Financial Planning Important?

Financial planning plays a pivotal role in everyone’s life. The financial planning method enables you to reach your life goals in a planned and systematic manner, avoiding shocks and surprises.

It is crucial to create a financial plan to hold you accountable as you strive to achieve your financial goals. In addition, it helps you build a contingency fund for unforeseen expenses.

There is no standardised meaning of becoming financially independent as it can differ from person to person. You should start by determining what financial independence means to you. After you have clarified this, you can formulate a plan that will lead you toward financial independence.

Five Steps to Become Financially Independent

1. Establish Clear Financial Goals

Setting clear financial goals is the cornerstone of a successful journey towards financial independence. Begin by defining what you want to achieve with your money. Whether it’s buying a home, starting a business, or saving for your child’s education, having well-defined goals provides direction to your financial decisions. 

For instance, envision saving ₹20,000 for a down payment on a house in the next five years. Break down this goal into manageable monthly savings, creating a roadmap for your financial journey. Clear goals act as a compass, helping you stay focused and motivated to make the necessary financial choices to achieve them.

2. Have Multiple Income Streams

It would be best if you considered creating a second income source in addition to your primary salary or business income. A secondary source will help you achieve your financial goals and assist you with your financial planning. Some examples of creating a secondary source of income are:

• Starting a side gig

As an alternative means of creating additional income, you may also start a side business. For example, if you enjoy art, you can start an online or offline art/gifting business. You can scale up or down the business as much as your schedule permits if you provide small services on your schedule.

• Freelancing

One can add to their current income by acting as a freelancer. A freelancer, by definition, does not include any specific service. One can determine their skill sets and accordingly use them to earn extra money. For example, if you like writing or maintaining a journal, you can act as a freelance content writer.

• A fixed source of additional income

You can create a fixed source of additional income through your investments. For example, investing in fixed deposits will guarantee interest payments, buying a property can provide rental income, etc.

3. Avoid Unnecessary Expenses 

Increased spending throws individuals into more outstanding debt and more financial uncertainty, even though they may be advancing in their jobs and receiving raises regularly.

Thus, it becomes essential to know what your financial limits are. 

A simple way to find out if you need to save more to meet your financial goals is to compile a list of your salary and expenses. This process is also known as budgeting. You can allocate your budget according to three sections: necessities, wants, and savings.

It is crucial to realise there is no right way to budget, just a set of rules to assist you in creating a financially sound budget.

You must give good importance to savings. “It’s not how much money you make. It’s how much money you keep” from the book Rich Dad, Poor Dad must be kept in mind while aiming for financial independence. The importance of saving is rightly pointed out as the key to being financially independent. 

However, saving money doesn’t mean holding it in a purse and hiding it under your pillow. You can consider a good savings account at a bank that can offer a decent interest rate, and you must be able to use these funds easily during an emergency. 

4. Develop Your Investment Strategy

A combination of financial intelligence skills is needed to be successful in the pursuit of wealth. This could be through buying a property, stocks, bonds, precious metals, etc. Following are different types of assets in which you can invest:

• Equity – Ever thought about owning a slice of your favourite companies? That’s what investing in equity is all about! It’s like getting a share in businesses listed on the stock market. Learn the basics of buying and selling these shares, and you’re on your way to growing your money as companies grow.
• Mutual Funds – Mutual funds help diversify risk by investing in different companies within a scheme. You can take the help of an asset manager to understand the securities included in the fund. You can also consider investing in SIPs, which allow you to invest in small amounts at regular intervals.
• Fixed Income Securities – The most common type is bonds. When you invest in bonds, you’re promised regular interest payments and get back your invested money when the bond matures. It’s a steady and predictable way to grow your money.
• REITs/Real Estate – Real Estate includes residential or commercial property and real estate backed by debt. Real Estate Investment Trusts (REITs) let you invest in things like houses or offices. You can make an income by renting out the property. 
• Commodities – You can gain exposure to changes in commodity prices through physical commodities ownership, commodity derivatives, or equity in commodity-producing firms. This form of investment involves navigating the dynamic nature of commodity markets.
• Hedge Funds/Private Equity Funds – Hedge funds and private equity funds employ leverage to finance long and short positions. These funds predominantly invest in illiquid assets and use derivatives. They require a sophisticated understanding of financial markets.
• Fixed Deposits (FD) – Investing in fixed deposits with banks is a conservative approach suitable for investors with a lower risk appetite. Fixed deposits provide stability and security, making them an ideal choice for risk-averse investors.
• Government Investment Schemes: The Government of India offers various investment schemes, including the Public Provident Fund (PPF), National Savings Certificate (NSC), etc. These schemes cater to different financial goals and are designed to provide individuals with avenues for secure and regulated investment.

5. Clear Debts

Clearing debts is a pivotal step in financial freedom. High-interest debts can weigh you down and impede your progress. Prioritise paying off credit card balances or loans with high-interest rates. 

For example, if you have a ₹50,000 credit card debt with an interest rate of 18%, focus on paying it off systematically. Create a debt repayment plan, allocate additional funds to debt reduction, and celebrate each milestone achieved. By eliminating debts, you free up resources that can be redirected towards savings and investments, propelling you closer to financial independence.

Conclusion 

Along with these 5 steps, make sure you have an emergency fund set aside. The emergency fund can come to your rescue at the time of requirement and ensure the fund size is about 3-6 months of your monthly salary. For example, if you lose your job, your emergency fund should be able to cover your monthly expenses until you find another job. 

Embarking on the path to financial independence demands strategic planning, discipline, and continuous effort. Understand the options that can build your wealth and start working towards them. Open a Demat Account with Angel One today and explore various investment options like stocks, mutual funds, SIP, etc., and get started with your investment journey. 

Disclaimer: This article has been written for educational purposes only. The securities quoted are only examples and not recommendations.