5 ways young investors can achieve financial freedom

To create a financial plan, start by setting long-term financial goals and determining the amount needed to achieve them.

Financial freedom is the goal when many youngsters start their investment journey, which can be both exciting and overwhelming.

Here are some tips that can help young investors achieve financial independence and also make their investment journey smooth:

Invest wisely

Investing in equities is a powerful strategy for long-term wealth creation. When you're young, allocating a significant portion of your savings to equities can be beneficial, as this asset class has historically outperformed inflation. Consider investing up to 60-80 percent of your savings in equities, especially if you are planning long term. This approach allows you to harness the power of compounding, where returns generate additional earnings over time.

Equity investments offer several benefits that make them an attractive option. One of the primary advantages is the potential for higher returns compared to other investment options such as fixed deposits or bonds. Historically, equities have delivered significant returns over the long term, making them a popular choice for investors seeking to grow their wealth.

Another benefit of equity investments is their ability to act as a hedge against inflation. As companies can adjust their prices and costs in response to inflationary pressures, equities can help protect the purchasing power of your money. This makes them a suitable option for investors looking to preserve their wealth over time. Equity investments also offer an opportunity to divresify, allowing you to spread your investments across different sectors. By investing in equity mutual funds, you can create a diversified portfolio.

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Spend wisely

Managing your expenses wisely is crucial. Prioritise needs over wants and adopt a budget that allocates your income effectively. The 50/30/20 rule is a helpful guideline — 50 percent of your income should go towards necessary expenses such as like housing, utilities, and groceries; 30 percent towards discretionary spending like dining out and entertainment; and 20 percent towards savings and investments.

Build an emergency fund

An emergency fund is crucial for achieving financial freedom. It acts as a safety net during unexpected times such as medical emergencies, job loss or sudden repairs. Aim to save three-six months' worth of living expenses in an easily accessible account. This will help you cover unexpected expenses, avoiding the need to dip into your investments or accumulate debt. Consider opening a separate savings account or high-yield savings account specifically for your emergency fund to keep it separate from your everyday spending money.

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Invest in health insurance

Health insurance plays a crucial role in financial planning. It shields you from unforeseen medical expenses that can deplete your savings. Even if your employer provides coverage, having a personal health insurance plan ensures comprehensive protection tailored to your needs. It helps in managing rising healthcare costs, including hospitalisation, surgeries, and medications. Health insurance also offers tax benefits under Section 80D of the Income Tax Act, further enhancing financial security.

Make a financial plan

To create a financial plan, start by setting long-term financial goals and determining the amount needed to achieve them. Then, work backward to calculate how much to save each month. It's essential to think long-term and avoid shortcuts. Allocate at least 10 percent of your take-home salary towards long-term goals, gradually increasing it to 30 percent or more if possible. Consider consulting a mutual fund distributor or a registered investment adviser. There are online investment platforms offering tailored portfolios which can be a good starting point to make a basic financial plan.