How Do You Achieve Financial Freedom?

obligations like mounting EMIs, fragile job security, dwindling income and financial exigencies. You can let these factors entrap you in an everlasting anxiety, or use them as springboard to bounce back and break the shackles of financial worries. Achieving financial freedom can be tremendously empowering. It can open up new opportunities to realise elusive personal and professional goals. 

This article discusses everything you must know to understand where you stand on the scale of financial freedom and how you can achieve freedom in life.     

What is financial freedom? 

Financial freedom is the power to make decisive life choices without being overly anxious or stressed about the immediate financial implications of those choices or becoming worried about losing control over finances in life. It offers flexibility to pursue any lifestyle or work-life of your choice. 
For different people, financial freedom can mean different things, like:

• Overcoming dependency on paycheck 
• Becoming debt free
• Having enough savings 
• Ability to meet regular financial obligations 
• Earning high disposable income 
• Feeling in control of financial decisions 
• Strong credit score 
• Having a full-proof future plan 
• Having another earning member in the family
• Having a source of passive income 

Example:

Mr. Kumar is a bank employee with a family of four—his wife, a daughter and a son. The daughter is in 2nd standard and the son is studying in 4th standard. Both are studying in a reputed private English medium school. In addition, Mr Kumar also pays EMIs on his home and car loan. He has a long-cherished dream of opening a business and leaving his 9 to 5 job. However, uncertain earning prospects of a business discourages him to take the final leap as he is the only earning member and needs his salary to meet regular family expenses. 

Financial freedom for Mr Kumar can imply:

• Having sufficient liquid assets to pay for regular family expenses until he succeeds in business.  
• Ability to survive financial setbacks if the business fails.  
• Having monetary protection to overcome any medical or non-medical exigencies.  
• Developing a secondary source of income. 

How to achieve financial freedom? 

People might have different perceptions about financial freedom, but the key steps to becoming financially free include:

• Being free of debt obligations 
• Having a steady flow of income 
• Building an emergency fund
• Living within your means 
• Planning for future financial obligations 

It is essential to understand that financial liberation may not be achievable overnight. One requires a long-term strategy, practical planning, and rigorous implementation. The steps to achieve financial freedom are: 

1. Establish life goals 
2. Make a budget 
3. Pay off debts 
4. Live below the means 
5. Save and invest 
6. Take care of your health 
7. Accumulate emergency fund 
8. Maintain long-term vision 

Establish life goals 

The foremost step in a journey toward financial freedom is to identify life goals. Your life goals must be unambiguous, practical, and time-bound. For example, becoming happy in life can be a goal, but it is ambiguous. Similarly, owning a bookstore can be achievable. However, it requires details related to the timeline and other specifics. So, to set a life goal, you can find answers to the following three questions: 

• What does your desired lifestyle require? 
• How much money do you need to make that lifestyle possible? 
• By what age or time do you want to realise that change in lifestyle? 

Make a budget 

Once you have clarity about life goals, it is important to calculate a monthly budget of your family expenses. This gives an idea about the minimum amount of money that you need to have in the bank account or earn every month to make the ends meet. 

Pay off debts 

Debts are obligatory. Costs of servicing debts increase if someone fails to pay EMIs and this can push anyone into a vicious cycle of further dependencies on borrowing. Paying off debts also improves creditworthiness. As a result, you can bargain low-interest debts in case of financial emergencies. 

There are two ways to pay off debts. One approach requires paying off smaller loans first, while the other approach requires paying off high-interest-rate debts first. 

 Live below the means 

This is one of the most difficult to master financial disciplines. Every person should try to live within his or her means and avoid splurging on non-productive expenses. It helps to avoid and also get rid of debt traps.  

Save and invest 

The majority of us spend first and then try to save whatever remains from our monthly earnings. This is the reason people find it difficult to save. Lack of control over spending habits and excessive debt obligations wipe out our earnings. So, follow the golden rule of saving. It says to set aside a fixed portion of your earnings at the beginning of every month and invest it. Start spending after you have saved and invested. Systematic Investment Plans (SIPs) can be a very effective tool to follow this golden rule and develop a saving and investment habit. 

Take care of health 

Physical and mental well-being is crucial for pursuing any long-term goal, like achieving financial freedom. Besides, better health also helps to cut down on medical expenses. So, it is important that you take care of your diet and do not forget to exercise daily. Tightening the purse string may cause significant mental distress, especially in today's world of consumerism. 

Accumulate emergency fund 

Despite active planning and preventive measures, no one can entirely avoid emergencies. Uncertainties are part of life. Be ready for unforeseeable expenses and maintain an emergency fund to meet such expenses. Lack of an emergency fund may force you to borrow at higher costs. 

Maintain long-term vision

People cannot achieve financial freedom overnight. It requires having a long-term vision and sticking to the plans despite intermittent failures. For example, you planned to pay off your debts within the next 6 months. But because of medical emergencies, you failed to follow through the plan. This must not discourage you from pursuing the goal again. Rather, you should plan ahead further with more caution and optimism.   

How can you tell if you've achieved financial freedom? 

Anxiety and stress often blind us from identifying and realising our true financial capabilities. So, it is important to understand the signs that tell 'you are financially free'. 

Some of these signs are:  

• Life choices are desire-driven. You are less likely to accept a job that you dislike.  
• You have significant control over your time, like taking long vacations, pursuing hobbies and passions, and experiencing zero anxiety about delivery deadlines. 
• You are not losing sleep over unpaid EMIs and bills. 
• You are generous about philanthropic contributions. Financially liberated persons are open to volunteering for social causes.   
• You are resilient to changing market and economic conditions. You maintain more than one source of income. 
• You give priority to long-term goals over short-term gratification. The common examples could be developing a new skill or choosing to invest in pension plans. 

Myths and misconceptions about financial freedom

While it is true that anyone can choose to achieve financial freedom, only a few pursue the goal and even fewer succeed. The reason can be attributed to the myths and misconceptions around the concept of becoming financially free. So, you must know these myths and try to avoid giving too much emphasis on them. 

The common myths about financial freedom are: 

1. Financial freedom is only for rich people. 

Freedom from financial worries does not come from the amount of wealth a person possesses. It emerges from control over spending and adherence to proper financial planning. Any rich person with undisciplined financial habits can experience anxiety about money. 

2. It requires sacrificing every material comfort in life. 

Financial freedom requires living within your means. It may require sacrificing a few of the material comforts if your income does not support them. With an increase in your earnings, you can choose to enjoy them. 

3. High-paying jobs guarantee financial freedom. 

High disposable income cannot make anyone financially free if the person is not exercising control over spending. Often, people become habituated to expensive lifestyles with an increase in their income. This can compromise a person's financial freedom. 

4. People who are financially free do not need to work in life. 

You may choose to take leave from obligatory work responsibilities and retire early from jobs if you are financially free. It opens up opportunities to do what you love or pursue your passion.  

5. There is a secret formula for becoming financially independent. 

The strategy to achieve financial freedom varies with people. Among many other things, it depends on family responsibilities, financial circumstances, personal skill set and risk appetite. There exists no secret formula or one-size-fits-all technique for financial liberation. 

Final words

Everyone loves financial freedom, but only a few strive to achieve it. Becoming financially liberated can be an empowering experience for anyone, especially in today's rapidly changing economic situations. Uncertainties in job markets are increasing, and conventional skills quickly become redundant. It requires a great deal of flexibility and resilience to survive such a time. So, develop your ability to make life choices without being constrained or restricted by financial considerations. Become financially free.  

FAQs  

Ques 1. How to achieve financial freedom in 5 years?

Ans. Achieving financial freedom in 5 years will require,

1. Setting up a plan 
2. Making a monthly 
3. Living below the means 
4. Save and invest 
5. Take care of health 
6. Accumulate emergency fund 
7. Maintain long-term vision 

Ques 2. How to be financially independent without a job? 

Ans. Becoming financially free requires control over spending, ability to live within your means and develop a habit of saving and investing. If you are planning to be financially free without a job, you need to develop sources of passive income leveraging your existing skill set or acquire new skills. 

Ques 3. What are the 7 steps to achieve financial freedom? 

Ans. The 7 steps to achieve financial freedom are:

1. Setting up practical life goals 
2. Making a monthly 
3. Living below the means 
4. Save and invest 
5. Take care of health 
6. Accumulate emergency fund 
7. Maintain long-term vision 

Ques 4. What is the first step towards achieving financial freedom? 

Ans. The first step towards achieving financial freedom is to identify and recognise your life goals. Such goals must be specific, practical and time-bound. 

Ques 5. Is it possible to become financially free with debts?  

Ans. It can be significantly difficult to achieve financial freedom with debt burdens. You must try to pay off high costs debts.