Plan To Be Financially Independent

Each of us aspires to be financially independent as it ensures having enough resources to be self-sufficient and control our finances. In reality, many people struggle to achieve financial independence due to a lack of financial discipline, not prioritising their goals, and ignoring the need to plan for financial emergencies. Simply put, if you are looking to be financially independent, you must prioritise saving and investing. 

Unfortunately, many of us don’t consider it necessary to save, thinking that there will always be enough money available to take care of our future needs. In other words, our ability to save depends upon how financially responsible we are. To put it in perspective, being financially responsible doesn’t mean living below your means. It just requires you to avoid buying things that you don’t really need. Remember, if you spend 100 per cent of your income, financial independence will remain a distant dream. 

One of the common mistakes made by investors is not understanding the difference between saving and investing. Saving is what you keep aside from your income and investing is when you put your money to work in a manner that your real rate of return i.e. gross returns minus capital gains, taxes and inflation is positive. Therefore, the more you invest, the faster you become financially independent. 

As is evident, the process of earning, saving and investing plays an important role in making you financially independent. While it is important to understand the need to have a process in place, it is equally important to know how to go about it to achieve investment success consistently over the longer term. Here is what you need to do. 

Avoid Random Investment Decisions
An important step in achieving financial independence is to have an investment plan in place. Don’t make the mistake of initiating your investment process without establishing your investment objectives, asset allocation, and having an investment strategy in place. Your focus should be on developing a long-term investment policy that will guide you over your defined time horizon. You can either do it yourself or take the help of a professional. 

Remember, there will always be bull and bear markets during your defined time horizon. Besides, it is nearly impossible to predict the economic scenario just around the corner as well as its impact on the stock market. It can, therefore, be challenging to develop a strategy that not only withstands the turmoil but also helps you achieve varied goals over a defined time horizon. 

An investment strategy that can keep your investment process on track amidst the vagaries of the market and bring order to an uncertain investment environment is asset allocation. The principles behind asset allocation are simple and they can help you control the risk, match your portfolio with specific financial goals, and increase the predictability of returns. As is evident, your risk tolerance, time horizon and investment objectives should be the dominant factors while deciding what percentage of your investments should be put into each of the asset classes i.e. debt, equity, gold and silver.

Make a Constant Effort to Learn about Investing
While working with a professional can help you navigate the maze of investing in market-linked products, don’t make the mistake of taking a back seat in the decision-making process. Active participation in your investment process can help you understand the nuances of investing and have a better understanding of the ever-expanding investment universe. Last but not least, it will allow you to play a big role in defining the parameters of how your investments should be managed.