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On 15th August 2021, India will celebrate its 75th Independence Day. Millions of freedom fighters lost their lives in this endeavour of unshackling India from British rule. As the country prepares to celebrate this milestone, it could also be an excellent opportunity for us to focus on independence on a more personal level, especially for matters related to our financial life.
Financial independence means a lot of different things to a lot of people. For some, it is about being able to purchase anything they want or having zero debt. In contrast, it means building a financially secure future, retiring early, or just being rich for many others.
But no matter what financial independence means to you, it will take a lot of dedication and planning to achieve it successfully. Here are eight steps that can help you get closer to this objective and retire early-
Know Where You Are
The first step in the journey to achieve financial independence is to take stock of your existing investments and debts. This can also allow you to review the current investment portfolio and customise it as per the changing financial preferences and goals.
Know Where You Want To Be
You should also be clear about what you want to achieve after knowing where you are. In simpler words, it means that you should be clear about your financial goals. This provides you with a clear destination for your investment journey and to design a suitable roadmap to reach that destination.
Set a Timeline
Even when you may have clearly defined your financial goals, it is also essential to set a timeline. This helps the investors clearly define the investment horizon for different financial goals, as different asset classes tend to be suited for different time horizons and economic conditions.
Repay Debt
Debt is a vicious circle, whereby the interest burden may persist and increase further if it is not handled prudently. While investments help increase the net worth with growth, debt tends to eat into the returns of the existing investment portfolio. As such, staying debt-free is helpful in the investment journey to financial independence.
Purchase Insurance
A prudent financial plan is complete without a sufficient life insurance cover, as staying insured helps you stay prepared for any life contingencies and provide a financial cushion to your family and dependents in case of any unexpected happenings in life.
Create an Emergency Fund
It is recommended that you should hold an emergency fund corpus of at least six months' expenses, which prepares you for all the financial contingencies and any cash flow disruptions one may experience. Such emergency funds can be invested in overnight and liquid funds instead of parking them in regular savings bank account.
Start Investing
While it is important to save, investing such savings and putting them into work is equally important. Further, several investment options are available for the investors, such as bank deposits, mutual funds, physical assets, etc. One should choose the investment option to best suit their financial goals, risk-bearing abilities and investment horizon.
