• Sunil Renukaiah

What is Financial freedom

All of us work hard, burn those extra hours, miss those family events just to achieve one simple dream, TO SETTLE IN LIFE. So what do you mean by settling down? Are you settled if you buy a home ? Are you settled if you become rich ? NO. To "settle in life" you need to plan properly to achieve something called Financial freedom.

COVID just exposed our vulnerabilities and showed how is our financial health and it gave us enough time to retrospect on how much hit we can absorb financially. So this is the best time to plan our finance properly and funnel it in right direction. What is financial freedom ? Financial freedom doesn't mean you become filthy rich, it means you have enough money to settled your debts and to survive without a regular income. Etmoney defines financial freedom as "Financial freedom is having enough residual income to cover your living expenses. It is not about being rich and having tons of money, but having enough to cover your expenses so that you can spend your precious time doing what you like rather than doing things just to earn money."

We have a glaring gap in our educational system as we dont teach youngsters and students on how they can become financially free. All of us are of an opinion that we can only settle after retirement or after 50 years. If we plan properly, and have some basic discipline in the way we spend and save, we can be financially independent in our 30s itself. One discipline which I liked is from Warren Buffet where he says " You should spend after you save and not save after you spend". I recommend everyone to follow 60-40 rule (80-20 would be best !!) i.e., save 60% of your income and spend 40%. Plan your expenses with a budget of 40% of your total income.

One simple way I propose is to divide income into buckets of 6 accounts and make sure to stick to the purpose of those accounts :

  1. Necessity Account - This should not be more than 30-35% of your total income and this account should take care of your basic monthly expenses like your rent, internet/electricity bills and your travel expenses

  2. Long term expense Account - This should be for your high expense dreams like a costly vacation or any big purchases. Funds should be minimum 10% of your income.

  3. Emergency Account - This should be 10% of your income and should be used ONLY in case of emergency

  4. Play Account - This should not be more than 10% of your income and this is to spoil and pamper you and your family :) This is a fun account which you can spend every month

  5. Education Account - This is VERY VERY important and I suggest it should be minimum 15% of your income. Its very important to upgrade yourself every day. Use the fund in this account to plan to upgrade your skills. You have to stay relevant in the market to be valued

  6. Financial Freedom Account - This is account is to plan your investment and make yourselves future safe. Invest 15% of your income here and diversify your funds in different options like stock markets, Fixed deposits, insurance or recurring deposits. You should have a 3-6 months runway, that means you should be able to survive and feed your family comfortably atleast for 3-6 months if your source of income stops any reason.

  7. Give Account - Its very important to care for society. We dont have to be an Ambani or Gates to give, put aside as small 5% of your income to donate to an NGO or to take care of an elderly person. This is to confirm yourselves that you are still a human being and not a machine

I said 6 but listed 7, 7th one, I believe should be default. Dont target to be reach. Define or re-define richness as Financial freedom. There is no use if you just pile up money and dont have time to spend or if you just spend money and dont have a future safe plan. Work hard, Earn more and spend wisely. Let me know what you think of this article and provide feedback below.

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