This Independence Day, prioritise financial freedom!

It is the power of compounding that works in our favour when we regularly save and invest.

Aug 14, 2019 08:08 IST India Infoline News Service

independence day
On August 15, 2019, India completes 72 years of independence. When we look back at the last seven decades, there have definitely been quantum leaps we have made as a nation.

Despite all the variety in caste, religion, creed, and color, India has survived as a vibrant democracy.

Nevertheless, there have been serious ground-level challenges, despite which India has achieved a real GDP of $2.97tn and is among the largest and also one of the fastest growing economies.

The GDP of $2.9tn, however, hides an important fact that the per capita GDP of India is just about $2,000, placing the nation below most of Eastern Europe, Latin America, and Central Asia.

A logical inference of this fact is that the concept of social security and future planning is absent in our country.

Regardless, investing can empower us and make us secure. It is the power of compounding that works in our favor when we regularly save and invest. Investing regularly in risk-bearing equities works if you want to create wealth in the long run. This will help you achieve financial freedom.

Here are five ways to economic freedom this Independence Day

Squeeze the maximum savings out of your income
Let us not say that we will give up all the pleasures of a good life and just focus on saving. That is not the point. But let us pledge to extract value for money at each and every stage. For starters, cut down on unnecessary expenses. Review your budget thoroughly and do a zero-based budgeting if required. Every rupee spent should be followed by the question, “Does it add value?"  See how much you can save by opting for online purchases, basement sales, bargain discounts, etc. You will be surprised when you realize how sub-optimally you were utilizing your money all these years. This is the starting point.

Invest in risk-bearing equities for the future
The biggest risk that we all take in our investments is not taking any risk. When you have 35 years of working life ahead of you and still if you put all your money in bonds, then it is a colossal waste of your risk-taking capacity. In the long run, only equities can generate wealth for you. You have surely heard of the story of how Rs10,000 invested in Wipro in 1980 is worth Rs550 crore today. You don’t need to worry about finding the next Wipro, but you can at least relax in the security of equity funds.

Set goals and move towards them
You have squeezed your savings out of income and you are sold on to equities as an asset class to create wealth. The question is, why are you taking all this effort? That is why you must have your goals clear in your mind. Unless you are clear about where you want to reach, it does not matter how fast you run. Set your goals first and then use the power of equities to move towards these goals. That is the right way to do it.

Regularly monitor and rejig your mutual fund portfolio
Investing has changed drastically in the last few years. It is not about buying physical share certificates and leaving it in your locker for your children to enjoy. Today, investing is a lot more about constant monitoring and rebalancing if necessary. You need to measure your investment performance against your goals and your intermediate goal posts. Only then will your investments really serve the purpose. Above all, what is the outcome of monitoring? It has to be actionable, which means you must look to tweak your portfolio based on the underperformance of the fund, outperformance of an asset class, your changing goals, etc. That is what is all about actionable.

Use the phased approach (SIP route) to investing
Make a pledge that you will start an equity mutual fund SIP on this Independence Day. A systematic investment plan (SIP) is a phased approach to investing in equity funds which gives you the added advantage of rupee cost averaging (RCA). That means when the market goes up you get more value and when the market goes down you get more units. It is a case of “Heads: I win; Tails: I don’t lose”. There is one more aspect about SIPs; they must be tagged to specific goals. Only then can these SIPs be monitored and only then will they be truly meaningful.

This Independence Day, choose to be financially free! Happy Independence Day!

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