7 Steps To Your Financial freedom

If you quit your work today, will you be able to survive for the rest of your life on your savings?

Finacial freedom

Financial freedom is a dream for many. Millennials and gen Z want financial security so that they can spend their money on the things they enjoy the most without having to think twice and/or retire at a young age.

In any case, it’s important to understand what exactly is financial freedom and what are the financial habits that will ultimately help you attain financial freedom.

In this article, let’s decode financial freedom and steps to achieve it.

What is financial freedom?

Is it a certain amount of money? $100k? $1 million? $10,000,000? Is it the choice of working where & when you want? Or is it to have the choice of not working at all?

To ensure we’re on the same page, let’s understand what do I mean when I say financial freedom. It is either of the following two things:

  • Passive income> Active income

You can call yourself financially free when you’ve reached the point where your passive income is more than what you earn by actively working.

This passive income can be from business, investment, blogs, YouTube, or literally anything legal.

  • Enough funds to survive without work

If you quit your work today, will you be able to survive for the rest of your life on your savings? If yes, then you can say you have attained financial freedom.

So now that we have a clear idea of what financial freedom means, let’s hop onto the 7 steps that will lead you to your financial freedom.

Here we go!

1) Become aware of YOUR finances.

The very first step towards financial freedom is becoming aware of your finances.

No one’s asking you to become a finance expert. But you’ll have to become financially aware. That means you have to be aware of your own finances, i.e. your income, your expenses, your bank details, how many accounts do you have, whether your bank account has a nominee, and all things related to your own finances

2) Follow the 50/30/20 rule

The famous 50/30/20 rule is a thumb rule for how you should be spending your hard-earned money. The rule is simple:

50% of your income should go to fulfilling your basic needs, i.e. food, shelter, clothing, internet.

30% should go to fulfilling your wants, say dinner at a 5-star restaurant, branded shoes, etc.

20% should go to your savings, and ultimately investment.

This is the ideal ratio, this can differ in the sense that you can save(& invest) more than 20% too. If you want to be financially independent in your 20s, then ideally 50% or more of your income should straight away go to your savings.

Tip: Savings should be the first thing you set aside from your salary and not the last.

3) Create an Emergency fund

It’s crucial to create an emergency fund for yourself.

To determine the amount of this emergency fund, consider your monthly expenses. Your emergency fund should have an amount equal to 6 months of your expenses. In simple words, your emergency fund should be enough to sustain you for at least 6 months.

4) DON’T buy a house

Here’s the warning, what you believe as an asset can very much be a liability for you.

Understand that with buying things like houses/ big cars, there are a lot of maintenance charges involved. So technically a house or car is not putting something in your pocket but rather taking it out of your pocket every week/month.

To be financially independent, saving + investing should be your priority.

Don’t buy a house till you have enough funds and investment and can practically afford to upgrade your lifestyle.

5) Insure yourself

This is super important. Your insurance saves you against any medical emergency that might happen. You need to have an accident cover. This doesn't mean you being pessimistic, but being prudent and taking an important step towards your financial freedom.

6) Diversify your portfolio

Your investment portfolio should be optimally diversified to minimize the risk. As they say, never put all your eggs in one basket.

But then, you also don’t have to buy 100 baskets for 100 eggs. Overdiversification is as bad as under diversification. Always strike a balance.

7) Invest in Learning

“An investment in knowledge pays the best interest.”

-Benjamin Franklin

Invest in courses, webinars, books, and things that help you learn about finances. Don’t stop this journey of learning as there is always something which we don’t know.

The best investment you’ll ever make is in yourself!

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