Indeed, everyone seeks to achieve financial freedom at some point in their life. It could be to do something closer to heart like to write a book, pursue a hobby, travel, etc. But what is financial freedom? It is nothing but generating enough wealth to take care of your expenses over your balance lifetime, once you stop working or earning. In short, your asset and investments ought to make enough to meet your current and any future expenses. The returns must also take into account the impact of inflation over the years.
Who comes to your mind when you consider financial freedom? Indeed it must be some famous personality like those in the Fortune 500 list or even some Bollywood or Hollywood stars. These individuals have earned enough wealth to last their lifetime even if they stop working today.
So how does one plan to attain financial freedom? The process is not easy and requires careful financial planning and implementation, especially if one is starting from scratch. There are three main rules to be followed. Rule No.1 is to begin saving early and if possible from the first pay-cheque. Rule No.2 is to be consistent and regular with your investments. Rule No.3 is to stay invested for the long term, i.e., ten years and more. Remember, the longer the investment period, the better the wealth creation potential, chiefly due to the power of compounding.
The task, however, is to achieve financial freedom much before retirement, say by the age of 50 or so. However, there are some obstacles. For example, if you want to retire at 50 instead of the usual 60, you get only 25 years to save than 35. Further, you need a relatively more significant corpus to sustain over 40 years vs 30 years if you retired at 60 (here we have assumed a lifespan of 90 years).
So, if you save Rs 10,000 each month for 25 years at 12% returns, you are likely to accumulate about Rs 1.9 crore. On the other hand, if you would have saved the same amount for 35 years, your wealth would have grown to Rs 6.5 crore. Thus, saving for ten additional years helps your wealth to shoot up by almost 3.5 times – all thanks to the power of compounding. However, if you wish to accumulate the same corpus by age of 50, you need to save Rs 34,250 per month for a span of 25 years instead of Rs 10,000. In short, you need to save much more violently if you want to achieve financial freedom earlier.
Mutual fund investments can help you to attain financial freedom through a simple and effortless tool called SIP (Systematic Investment Plan). An SIP investment helps you to benefit from the power of compounding in the long run besides the potential of significant returns from equity funds. In fact, SIP is like a Good EMI as it is not an instalment but an investment to achieve your goals, and ultimately attaining financial freedom!
Now that you have understood the importance of investing to attain financial freedom consider the various investment options offered to an investor. With so many different types of investments offered, an investor can choose the ones that align with their personal goals, risk appetite, and investment horizon. Happy investing!
