How to Become Financially Independent?
Life is full of uncertainties however unlike what we would like to believe, most of the financial success is not about pure luck but is based on prudent financial plan and skillful execution. Financial plan is a requirement for all, irrespective of your situation whether you have limited income and huge expense or you may have plenty of money with no immediate use.
What is Financial Independence?
Financial independence is a result of wealth creation and putting your hard-earned money to productive use. Financial plan is all about your journey of creating wealth and accelerating the process to financial independence. Whatever be your financial needs, practically all the needs are significantly met if you have created enough wealth. Hence, there can be only one financial plan and that is – identifying surplus and investing them in an asset class that can maximize the returns.
What is surplus?
This is the amount that one is left with at the end of a pre-defined time period (typically at the end of the month), without having to compromise on lifestyle that one is used to. Small or big, each penny that you are left with can greatly contribute to your wealth creation. It may not be a fixed amount and can vary from one month to the next. It may take a while for a trend to emerge of a fixed amount of surplus that you can set aside for your wealth creation, hence, one should not take unnecessary pressure or stress right from the word go to decide on the fixed surplus amount.
How does one invest for maximizing returns?
Traditionally and for times immemorial, it has always been business and trade that has yielded the maximum returns to investors. Understandably, not all of us are cut out to run businesses, which is why, several avenues have been created for investing into businesses without having to actually run the business. A simple way to participate is to invest into listed equity shares of some well known large business which have the potential to grow purely based on the demand for their products. But, how does one go about identifying these businesses? To make it simpler, there are professionally managed collective investment vehicles such as equity mutual funds which provide you the necessary platform to invest into these businesses and are sufficiently regulated to ensure that the investor’s interest is on the top. Equity mutual funds are managed by professionals who have several years of investment experience and have proven track record of managing portfolio. These funds are regulated by SEBI to ensure that the money collected in the fund is deployed as per the fund’s stated objective.
All this may seem very simple. Right? Not really. There are risks to any financial plan and hence it is important to list out the risks and ensure one puts enough checks and balances to curtail the risks. However that is a matter of separate discussion. Do watch this space for more.
Also published on Medium.