Monday, August 16, 2010

Financial Independence - Post Independence Day Thought


Independence is defined as "Freedom from control or influence of another or others" and it is applicable to almost all aspects of our life. One such area of our lives where independence is of utmost importance, but is often neglected, is financial independence. If you think of it you will realize that financial independence is essential to ensure that all other aspects of independence can be achieved. So what does it take to achieve and maintain financials independence.

Achieving independence should be an important goal in our life and we should start working on it as early as possible. There are some simple things which we all can do to help us achieve financials independence.

Account Your Real Earning
Sit down and calculate what do you really earn on a monthly basis. By real earning, I don't mean the inflation adjusted monthly income you are getting. Instead it is the amount of money that is left behind after you have accounted for all your basic needs like food, clothing (designer ware don't count), travel, rainy day allowance, debt/EMI payments etc.

i.e real earning = total income - essential expense

Knowing your real earning will help you in setting achieving plan for reaching financial independence.

Watch Your Expense
After you have calculated your real earning, see how you are spending it now. You might be spending it on cloths, expensive hobbies, boozing, parting etc. The avenues for burning your cash that this list would be endless. Look at your monthly electricity, water and mobile bills and see how much it is coming to. The idea here is to see how you are spending real earning now and determine if there are something that you can forgo without being miserable. Reducing the cost of living will help you reach financial independence in less time. Identifying your avoidable expense will help you in cutting down those expenses and increasing your savings.

Cultivate the Habit of Saving
The need for saving money should be cultivated as a habit much like reading habit or daily exercise. You should always think about ways to save money, keep an eye out for that bargain. People who are financially independent or wealthy know the importance of saving money when they could.

Invest often and Invest regularly
Investing the money you have saved is as important as saving the money. Parking your saving in a savings account or keeping them in safe at home is not a smart thing to do. Inflation will eat into the value of you savings. So you need to identify an investment product that will suit you and make sure you invest as often as you could. Also make sure that you invest in regular intervals.

In short, having proper understanding on what you earn, track how you spent, and save regularly are the key factors to Financial Independence.