11 Points To Achieve Financial Freedom - Part I

Being independent is wonderful feeling. We got our independence from British after long struggle. Same is applicable to financial freedom. Let’s understand what financial freedom is:

 “Financial independence is a term generally used to describe the state of having sufficient personal wealth to live, without having to work actively for basic necessities”

Things which prevent people from being financial independent are debts, no savings only spending, no plan for future goals, choosing wrong investment products etc.

We lost financial freedom due to our bad spending habits, easy available loans, emergency situations, not saving enough etc. Some of us are in deep debt and it looks like that we will never be debt free but it is not impossible to be debt free though it is not an easy task.

Understand that you cannot achieve financial freedom overnight. It requires time, patience and effort to be financial independent. Here I am listing 5 points which can be followed to achieve the financial freedom. Remaining 6 points will cover in second part of this post.    

1. Payoff home loan

Home loan is the biggest debt most of the people have since it is almost impossible for middle class people to purchase/construct the house without taking a home loan. Normally home loan tenure is 15 years to 25 years. So it is very important to pay off the home loan to achieve the financial freedom. Please read my past post “How to Payoff home loan early”.

2. Payoff high interest loan first

Payoff your high interest loan first irrespective of the tenure of the loan. By doing so you could save some interest money which you can use for investment or to pay off your other loans after closing the high interest loan.

3. Don’t be in EMI trap

EMI is the biggest obstacle in the path of financial freedom. One of the reasons why people have debt is that they fall in EMI trap mostly on 0% EMI. Please understand that if something is available on EMI that doesn’t mean that it is cheap. Sometime we purchase unnecessary things because it is available in EMI.

People forgot to consider the other expenses which will occur due to the purchase. For example:

• People forgot about fuel expenses while purchasing car on EMI. So if your car EMI is 15k and your fuel expense is 5k than your effective EMI is 20k not 15k.
• People forgot about Data Charges which will occur if you use smartphone which you have purchased on EMI. So if you phone EMI is 4k and data charges are 200 than your effective EMI is 4.2k not 4k.

If you want to purchase anything do a SIP (in RD or somewhere else) and when you have full amount than purchase.

4. Use credit card carefully

Interest rates on credit card dues are around 36%-50% annually and improper use of credit card can put you in long struggle to achieve your financial freedom. Use credit card only to pay your utility bill and for groceries and pay the total billed amount on the same date you receive the credit card bill. Do not use your card for big purchases if you cannot pay the total bill on time. If you are not able to manage your credit card properly it’s better to stop using credit cards and start using debit cards.

5. Understand the difference between ‘want’ and ‘necessity’

We often purchase the things which are unnecessary, so when Apple launches new iPhone or iPad we simply upgrade our old smartphones without thinking about the necessity because we want to have the latest smartphone. This attitude is also one obstacle in the path of financial freedom.

To be continued........