3 workable steps to financial freedom
Updated: Jun 8
Everyone talks about investing for the future; saving for retirement; creating an emergency fund. Why don’t people talk about investing to live? When experts talk about ‘financial freedom’ why do they limit their plans to creating a corpus that ensures a good retired life? Why can’t we contemporise financial freedom to mean something more than planning for our old age?
In my dictionary financial freedom is:
a) Not having to worry about paying my bills if my next paycheque does not come in.
b) Having enough money to be able to quit my job and follow my passion.
b) All about creating funds that will give you the freedom to live the life you want; without having to “work”.
Getting there is not easy, but it is not difficult either. Dipika Jaikishan, Chief Investment Officer at Basis, has broken it down for you. She takes you through a three-step process that will ensure that you have your financial freedom in 15 years. So work hard for the next decade and a half and after that, let your money work for you.
Step 1 – Identify your goal
Figure out how much money you will need each month to be able to live the life you want. You can take a clue from your current expenditure and factor in inflation to get a rough idea of how much money you will need 15 years down the line.
Step 2 – Explore your options
You now need to take stock of your options. Take a good look at your present level of savings and investments. Investing in SIPs will help you get to your goal amount.
Step 3 – Attaining the goal of a recurring income
To be able to maintain the lifestyle you want, you need to fix your target monthly income from your investments after factoring in inflation. Once you have this figure, you can work backwards to how much you will need to save every month for the next 15 years to be able to get there.
Here is the math:
Let’s assume you are spending ₹ 40k a month now and you think you will need that or a similar amount 15 years down the line. The value of 40k now will be ₹ 1.06L in 2034 and at a current life expectancy, you may be in this fully-funded financial freedom for 35 years after that. You will need a corpus of ₹ 5.8Cr 15 years from now to give you that monthly amount of ₹1.06L.
To get to the same, you should be investing at least ₹ 1.5L every month in investments giving you at least an 8% return. I know it sounds large, however, do note, that you might already have some investments made and even if you are in a position to quit your job, you would still find a way to monetise your hobbies or find a more fulfilling way of earning some money to supplement your income from investments.
The corpus amount quoted, factors in an estimated inflation rate and standard life expectancy. As you can expect a change in the variables will change the corpus amount as well. The framework should help you get started for figuring out the amount that you will require.
To get started on your journey to financial freedom download the Basis app now.