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Jul 15, 2014, 03.04 PM IST | Source: Moneycontrol.com

9 Simple steps to achieve financial freedom

The first step to take is setting your goals efficiently. Discuss clearly with your spouse, about the mutual expectations and set workable goals for the desired lifestyle. Setting up highly ambitious goals can only wreck your financial life.

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Achieving financial freedom requires much foresight and smart planning. It requires not only clever planning and management of income and expenses, but also a bold and frank approach to various situations. However to act prudently in various situations, primarily you have to consider the advice of your family members. Here are some very simple tips to keep in mind to achieve financial freedom.

1.    Set your goals

The first step to take is setting your goals efficiently. Discuss clearly with your spouse, about the mutual expectations and set workable goals for the desired lifestyle. Setting up highly ambitious goals can only wreck your financial life. List out your goals like having a house, car, child’s education, marriage, retirement plans, and provision for family’s security in case of   any untoward incident, etc.

2.    Assess where you stand at present

Before planning, have a clear assessment of present financial position- what your assets and liabilities are. Be careful in including all present, expected and unexpected contingent liabilities also that may have to be met in future. If the assets are more, it means your economic background is good. But, if liabilities are more than the assets, then it is a matter of concern. If your income level is not up to your plans, plan out alternate ways like creating a double income or opting for passive sources of income or taking up extra assignments in your free time, etc.

3.    Review your past spending track

For better planning of monthly budgets, it is advisable to go through your spending history of the last five years or whatever figures that may be available to have a clear picture of the spending track. By taking a hard look into the past spending habits, you can get an insight of the needed and needless monthly expenses enabling you to plan efficiently for the future.

4.    Prepare monthly budgets

The next step is to prepare monthly budgets before each month according to the priorities and income. Try to cover all expenses within your monthly income including the monthly instalments of loans and credit cards. If possible, try and make some provision for savings also to meet any unexpected emergencies. Simply preparing a budget will not suffice. It should be strictly followed to achieve success.

5.    Cut expenses and do it yourself

 Identify unwanted spending and avoid frequent eat outs or extravaganza on birthday celebrations, marriage anniversaries, etc. Try to differentiate between a need and a want. Needs are mostly unavoidable, whereas a want or liking can always be postponed.

6.    Buying in bulk and during seasons

Develop the habit of buying clothes, gadgets and electronic during times of rebates and seasons. Further, try to buy seasonal items in their respective seasons as they are cheaper  

7.    Save from Tax Payments

If you are an Income Tax payee, minimize your tax payments by investing some money in tax saving bonds and schemes. Purchasing life insurance and health insurance policies can also help you save tax and heavy medical expenses. One can also smartly invest the tax refunds, which can be an unexpected source of funds.

8.    Lead a debt free life

Get habituated towards a debt-free life. Avoid personal loans and credit card over dues as far as possible.  If already in debt, try to clear the costly debts as early as possible. Consolidating all loans into one lesser interest bearing account can be helpful in getting out from debts easily. Use credit cards only when you are sure of making immediate payments into the account.

9.    Develop the habit of Investment

Always try to save some money from monthly incomes. Invest that in bonds or shares. Bonds give fixed return whereas shares may yield better profits but involve a risk element. If you can afford to bear the risk factor, then investing in shares can be a very good option if prudently done over the long term.

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