Ultimate Guide to Financial Independence

Ultimate Guide to Financial Independence

16 August, 2023

Financial freedom is generally assumed to be ‘a state in which an individual or household has sufficient wealth to live on without having to depend on income from some form of employment’. But as Robert Kiyosaki states - 'Financial freedom is available to those who learn about it and work for it'

If you asked your grandparents, your parents, and your peers for their views on financial freedom, their responses would be completely different from what we think today. For older generations, financial independence tends to be synonymous with retirement. But for millennials, financial freedom doesn't involve working 45 hours a week for 40 years. They want to be financially independent early so they can enjoy the latter half of life in the company of their loved ones.

Here’s a guide to making your dream of retiring early – and being financially independent – come true:

First do the math

You can draw up a retirement plan only after you figure how much wealth you will need to maintain your current standard of living after your steady income comes to a halt. Start by calculating your current monthly expenditure and extrapolate this over the next 20-30 years (depending on your target retirement age). Don’t forget to take inflation into account.

Once you’ve arrived at a figure that you feel is reasonable, it’s time to analyze your current savings and investments and figure out how much more money you will need to generate. Once you are aware of the corpus you must aim for, you can easily decide on the best savings and investment avenues open to you.

The best day to start saving was yesterday

And the next best day is today!

As a millennial, building a retirement corpus is probably the last thing on your mind when you begin your career. However, consider this: today you are young, independent. and free from responsibilities. Over time this will change; your responsibilities will increase and so will your expenses. So, it’s easier to save a part of your salary today than it will ever be in the future. Moreover, as the years pass and you edge closer to retirement, the stress of establishing a financially secure retired life will weigh heavily on you.

If you wish to gain financial freedom early in life, you need to ditch the conventional approach and start planning today.

Leverage the power of compounding

While it may sound complex, the power of compounding (or, as we like to call it, ‘the golden rule of financial planning’) simply refers to growing your wealth by earning on your previous earnings. But what people fail to understand is that a small amount compounded over a long period can generate more than a large amount compounded over a smaller period.

Let’s understand this with an example: Ravi and Ashok both graduated with a degree in mass communication in the same year. Both of them began their careers working for the same firm in Bangalore. While they had similar preferences regarding many things in life, their financial choices were vastly different.

Ravi wanted to retire by 45 and spend the rest of his life in a cottage in the woods. Ashok must have had some dreams too, but he never made an effort to turn them into reality. While Ravi began investing Rs 2000 every month from the age of 25, Ashok realized the importance of investments only later on in life and started with Rs 5000 a month after he turned 35.

Let’s look at how much they both earned from their investments. Going with a 12% interest rate, Ravi’s savings now amount to Rs 20 lakh while Ashok’s is only about Rs 9 lakh. Even though Ashok had invested much more than Ravi, his earnings now are far lower. The point is that if you start early, you can make your money grow faster to achieve your financial goals that much earlier.

Starting today, you can consider these recommendations, plan ahead, and redefine the idea of retirement. HDFC Bank helps you accelerate the returns on your disposable funds with its finance and investment assistance. Log on to the website today and get started!

​​​​​​​*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.