Anil Rego
We all have listened to the tremendous freedom struggle of our beloved country. The bloodshed, the sacrifices and the sheer focus that ultimately led to 33 crore people becoming independent from the clutches of foreign masters inspires us even today. On the contrary, achieving financial freedom is actually quite simple. It doesn't involve any of the legendary efforts that made India free on August 15, 1947. In fact, being financially independent is so easy that anybody will be able to do this with just a bit of effort.
Save 30% of net income
The first rule in being truly free in terms of finance is saving and investing your money. Since most of you are salaried, take out 30% of the net income and invest that first at the month beginning. The balance is left, so that you can spend according to your needs. This 30% small pie every month will become extremely big as compounding comes into play.
To buy, always save
Many of us become dependent on outside financing when it comes to purchases. This is where we lose financial independence. Whatever you may want to buy, should be bought with savings. If that is your thumb-rule, you will never fall for high cost credit cards or personal loans. Be it a smart fridge, smartphone or a car, if you buy them with savings, you can never lose your independence when it comes to money.
Credit card is last option
Use credit cards prudently: this is a statement that has oft been repeated. What does prudent usage mean? Number one, you should never use more than 25% of your credit card limit. Two, always pay your credit card bill at the end of the cycle and avoid paying interest. Three, remember rules number 1 and number 2. There is nothing fashionable about flashing your credit card. Treat it like a money-lender!
Avoid dates with debt
It may seem strange, but the biggest difference between two people who saved the same amount of money is often the returns they got. A 15% return every year can double your purchasing power in 7 years, but a 7.5% return will take 70 years to do the same. A large allocation to debt and fixed income at an early age needs to be avoided, because that asset gives low returns in exchange for safety. This is why Albert Einstein probably said compound interest is the eighth wonder of the world, he who understands it, earns it and he who doesn't pays it.
Track expenses like Sherlock
In their youth, our senior citizens didn't have the help of technology to track expenses. They had to jot down everything in notepads and constantly calculate to know what and where are they spending. Fortunately, you have the opportunity to use apps to track expenses. Banks and financial service providers also have automatic systems with which you can know where you are going with your money.
Be smart with surplus
In the yesteryears, zamindars and kings used to have treasure troves where they saved surpluses. This was vulnerable to enemy attacks and even theft by their own servants. In 2017, you dont have to repeat such mistakes. At the end of every month, if you have managed to garner some surplus saving, quickly move them to a short-term debt fund. Keep minimal amount in savings bank account, and instead utilize the liquidity and tax comfort in a debt fund for better money management.
The writer is founder of Right Horizones.
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