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5 smart investment steps to financial freedom

There are many levels of financial independence. The ultimate level is not having to work for the rest of one's life

August 13, 2021 / 09:59 AM IST

Zen, like millions of other individuals his age (48), wanted to get away from the corporate rat race and spend his time traveling and pursuing his hobbies. Financial independence may be a long project, but Zen’s plans were backed by numbers and grounded in reality. He had investments in various asset classes – ETFs, direct equity, PPF, and NPS – and plans to continue with these till he retires at 50.

Now, Zen had to save for his children's higher education and marriage, in addition to his retirement. An early start, prudent asset allocation, sticking to the financial goals, and being disciplined with his investments has helped Zen achieve financial independence at the age he desires and also save enough for other long-term goals.

There are many levels of financial independence. The ultimate level is not having to work for the rest of one's life. But if you save and invest with a proper financial plan and with discipline, lesser degrees of financial independence can be achieved earlier in life and can be just as beneficial and liberating.

Start early

Financial goal planning must be based on an expected returns from investments. You can avoid taking more risky bets if you start saving early in life. The magic of compounding teaches us that saving a reasonable amount of money does not require a large sum of money. What you'll need is the discipline of saving regularly. The longer the time, returns will be more fruitful.


However, this should not discourage anyone who has started to invest in later periods of life. Investing has no age limit, but the earlier you start you will have more time to accumulate the wealth.

Emergency fund is a must

Unexpected events in life, such as job loss or medical emergencies, can be addressed with the help of an emergency fund. An emergency fund is important for unwelcome rainy days such as the COVID-19 pandemic.

You should always have access to funds during an emergency. One of the most important characteristics of emergency funds is that they must be easily convertible to cash (liquid). When selecting investment options for an emergency fund, make sure that you don't sacrifice liquidity in exchange for a good return.

Have financial goals 

Having clear goals is the first step toward financial independence. You should know where you want to be in the future. You should note down the reasons as to why you need money. Is it going to be for retirement or higher education or marriage of children or buying a house or going on a world tour? It is possible to grow wealth only when you have clear goals and continue to invest as per the plan.

Avoid debt traps

Debt traps are the most common cause of people losing their financial independence. If you have debt that can be paid off, make sure you do so as soon as possible.

Make sure you've paid off all of your debts before you start your journey towards financial independence. Creating a financial plan and sticking to it is the best way to avoid debt. Some debts like student loans might be the need of the hour and it is ok to consider it based on your budget.

Seek advice from financial planners

You should not get carried away with false recommendations and invest in the wrong asset classes which are not based on your risk profile.

It might get difficult to analyse which investment avenues to pursue or whether your financial goals are on track. Getting financial advice from a Registered Investment Advisor can help you get on the road to financial independence. If you do not want to take the traditional route, you can try  new-age advisors.

Consider your financial well-being to be just as important as how much you exercise and also what you eat to stay healthy.

Many of us don’t get started with investments for years after we start earning and overlook the importance of time. It is important to start with investments at the earliest to gain financial independence at the desired age. Individual freedom will be enabled by mastering financial freedom.
Nitin Mathur is CEO, Tavaga Advisory Services
first published: Aug 13, 2021 09:59 am

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