Money-wise: Financial independence is the key to true freedom

73 years after Independence what is one of the biggest struggles we still face? Being financially independent! Learning and understanding the basics of personal finance is not yet an integral part of our mainstream education, nor has it formed an imperative part of our dinner table conversations.

What are the consequences of ignorance?

Due to a lack of basic knowledge of personal finance, the foundation is shaky, and we start off on the wrong foot. We are either too scared to invest because we don’t understand the world of finance, or we get into traditional assets like Gold, Real Estate and FDs. Employees tend to invest purely for tax saving purposes and many people are guided nowadays by tips and easy access to new age, low cost, app-based platforms to make a quick buck.

As for women, despite topping in many fields and in spite of having all the strengths required for personal finance like saving for a rainy day, low risk taking, plan ahead, etc. they are still oblivious to the importance of their role in the family’s financial decisions.

They still leave the responsibility of not just the family finances, but even their own financial freedom, to the man. When the cracks appear in relationships, women are the first ones to bear the brunt of the situation.

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Pandemic woes

In the current scenario, most of us have money woes due to Covid throwing our lives totally out of gear. There is an urgent need for us to take a hard relook at our financial health (similar to doing a regular health checkup).

Rising uncertainties, job losses, pay cuts, health worries and other reasons have left us extremely worried about our future. It is of paramount importance for the family to have a serious money chat, to consolidate all their assets and liabilities and have a robust plan to be better prepared (a good time for women to break the stereotypes and men to understand the importance of including women in the discussions). It’s never too late to start.

The path to financial independence

Look around you. Nothing moves properly without a plan. Be it the country, post-independence, struggling to rebuild a once glorious nation, now devastated due to 200 years of colonialism, be it a successful strategy in international trade to ensure a balance of world economies, be it a successful company or even to organise a nice surprise party for a friend – each one of these goals requires a well thought out plan. Each one requires a little time and effort. It’s as easy as that!

First, make a plan based on a structured vs the present haphazard approach, based on one’s goals and not tips and tricks. It has to be all encompassing, instead of the present piecemeal approach and more importantly based on understanding rather than some hearsay and misinformation.

Secondly, remember the two crucial aspects of personal finance: Inflation (erodes the value of your money) and Power of Compounding (best way to create wealth). These have to be borne in mind throughout your planning.

Lastly, take a little time off, say an hour a week, to read up on understanding some basics before speaking to even an advisor. You need to know the right questions to ask, remember?

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Planning for success

Divide your plan into 2 parts:

Protection: This is the very first step: Have an Emergency Fund and the right kind of Insurance (Life Insurance, if you have dependents but Health Insurance, for all). Write a Will to ensure your assets will be distributed the way you wish, when you are no more.

Wealth creation: To create wealth put down your goals, divide them into short, medium and long term, work out the future cost keeping inflation in mind and do the appropriate asset allocation to meet that particular goal. Not every asset is for every goal (e.g. FDs are OK for a short-term goal but definitely not for long term wealth creation)

While this may sound overwhelming or oversimplified at first, remember this is the beginning. As you go along and make it a habit, you will be subconsciously doing the right thing to create your path to financial wellness and freedom. This is the shortest cut!

(Images: Shutterstock)