For example, India’s GDP per capita at $2000 per annum is woefully below the standards of even Central Asia and Latin America. Social security is elusive for vast swathes of the population. Not just the vulnerable classes, even the vast middle class has hardly anything by way of a long term financial plan. The bad news is that these issues are holding India from growing much faster. The good news is that all these issues can be addressed, only if we put in a little extra effort. On the 74thIndependence Day, let us look at 5 specific ways of attaining meaningful financial freedom.
Freedom from financial uncertainty
People often remonstrate that they do not have enough money to start financial planning. That is a myth becauseintent is more important than funds. Financial planning begins with setting long term and medium term goals like retirement, child’s education, margin for home loan etc. You will be surprised how a small SIP of even Rs.2000 per month can help you create meaningful wealth over the long term. Similarly, getting your life and health insured are not luxuries but necessities today. These are built into your financial plan. For freedom from financial uncertainty, you need to consciously build predictability via financial planning. Talk to your advisor today and start the process. The earlier, the better!
Freedom from high-cost debt
One reason most rural folks have problems with their financials is the unsustainable levels of debt. They borrow at usurious rates of 30-40% from moneylenders and spend most of their income paying interest on loans. This limits their spending power and savings capacity. For real financial freedom, get freedom from high cost debt. If you are rolling your credit card debt at 35% or have personal loans at 21%, you are never going to be free from debt. Use periodic inflows to cut down on high cost debt. That is a priority.
Freedom from mediocre wealth creation
This is about the difference between savings and investments. By putting your money in a bank SB account or even in an FD, you will never creating anything worthwhile. A savings account gives you 3% return post-taxes. That means your money will double in 24 years. How can you even imagine creating wealth with that kind of compounding?The answer lies in investing in equities. If direct equities are not your cup of tea, you are better off investing in equity mutual funds.
Equity can be unpredictable over the short run. However,over 7-8 years, it has been empirically proven that equity funds yield more than 12-14% returns on an annualized basis. This is more so if you adopt a SIP approach. This is how much wealth you can create with equity funds over the long term.
|Particulars||Holding – 15 years||Holding – 20 years||Holding – 25 years|
|Rs5000 SIP @ 12% pa||Rs25.20 lakhs||Rs49.96 lakhs||Rs94.88 lakhs|
|Rs5000 SIP @ 13% pa||Rs27.80 lakhs||Rs57.28 lakhs||Rs1.14cr|
|Rs5000 SIP @ 14% pa||Rs30.65 lakhs||Rs65.82 lakhs||Rs1.36cr|
The key to be freedom from mediocre wealth creation is investing in equity funds for the long term. That is the power of compounding!
Freedom from dis-savings
Dis-saving is the opposite of savings. When you spend less than you earn, you save. But, if you spend more than you earn, then you dis-save. Your dis-savingsare met via borrowings or through sale of investments. With most young urban professionals, there is a tendency to live beyond their means. “Cut your coat according to your cloth”, is very relevant even today. Once your goals are set, you must define your savings target and then plan your expenses accordingly. Your intent to save and your discipline matter more than your income. Target seriously for this freedom from dis-savings.
Freedom from financial ignorance
You cannot complain that you don’t understand finances. You have to make a serious effort. Today, financial knowledge is available all over the internet. Instead of wasting time watching pointless debates and confused analysts, spend time on the internet reading about financial planning, equity investing, debt management etc. Don’t spend too much time on trading tips and short term wealth ideas. As the great mathematician Euclid once said, “There is no royal route to geometry”. So also, there is no royal route to wealth. It only comes when you are free from financial ignorance.
On the 74th Independence Day, let us strive to be financially free in the real sense of the term. Here is wishing you a happy and prosperous “Swatantrata Divas”