Financial independence is more a matter of planning than good luck. We list ways in which you can live independently.
Every person wishes to have sufficient money in the bank so that they can live worry-free. But this corpus does not appear magically – it must be worked for with a good plan. If you want to be financially independent, start by creating –
* A financial roadmap. If you live through a cycle of ‘Earn, Spend, Save’ then this plan is bound to come a cropper at some point. Nothing is ever achieved without a plan, and using your income on autopilot is not going to help! Plan for the year – if you wish to save, if you want to invest, which goals you wish to fulfil this year, and so on. Put numbers against each, and start working backwards from each goal so that you get an idea of how to allocate resources.
* The right mix of investments. Start thinking about compounding your income so that your money works overtime even when you don’t. You can look up market-linked options like mutual funds to create wealth. Explore liquid mutual funds for the short term, ELSS for the mid-term and ULIPs for the long term, to get traction at the markets and realise many goals both for the present and the future.
* A good savings account. Ask your bank to explain its range of saving accounts so that you can pick the one that best meets your needs. A zero-balance savings account is best when you want a checking account, while a minimum balance account is better if you wish to deposit savings regularly. The savings account pays a quarterly interest on the funds, so the more you save, the more interest it will earn. Sufficient savings will hold you in good stead during the times you wish to take a break from work, or travel for a long time, or buy an expensive item.
* Money set aside for bills and other expenses for the next six months. There are times in life when you realise that you are stuck in a dead-end job. Or that you want to start your own business full time. But you worry about how you will make the rent, or pay your bills, or finance other essentials. A financially independent individual pre-empts future uncertainty by setting aside a sum of money that can pay the rent and bills for a few months while they explore their options.
* Start a mix of fixed deposits. Fixed deposits offer a stable way of generating wealth. But instead of starting one fixed deposit account with a large sum of money, you can split it into smaller parts with varying tenures. This is how it works: Split a sum of Rs 5 lakh into five deposits of Rs 1 lakh each. Let one deposit have a tenure of 1 year, the next of 2 years, the next of 3 years, and so on. This way, each successive deposit earns more money, and you have regular income every year.