Financial freedom is the
- freedom to be who you are & to do what you want in life,
- freedom achieved on the basis of wealth that is more than sufficient to support the desired lifestyle,
- freedom to map out one’s growth (work / social) without being limited by monetary considerations.
A plan for financial freedom projects
- Minimum Corpus that would make it possible for one to live the desired lifestyle without the compulsion of having to work for a living &
- Minimum Savings that could accumulate into the desired wealth size – subject to assumed post-tax return on investment of such savings.
Financial Freedom – Why?
Happiness is the central purpose of life & a goal in itself.
- It comes from following one’s heart & maximizing experiences that make living special. Money is pre-requisite for such a life. Right?
- There is little correlation between money & happiness. Right?
These two apparently opposing facts of life get reconciled, only when one appreciates the distinction between ‘trappings of wealth’ & ‘power of wealth’. Key to freedom is in knowing ‘why’ wealth is being pursued. Is it to own expensive things or is it to avail choices that only wealth permits? Happiness is made possible by a productive life & is not a natural outcome of owning money. Such awareness limits the scope of one’s pursuit of wealth.
Financial freedom – When?
True freedom is not in accumulating assets & living off them because then, one is always in race against inflation, market fluctuations & time. These investment challenges could over time become so potent that they challenge the veneer of financial freedom & then it may be too late to course correct! It is akin to looking over your shoulders all the time.
The core wealth should remain unexposed to elements of investment climate for the financial freedom to remain secure. So, when lifestyle expenses are more than adequately met through returns on assets, does one achieve true freedom.
Financial Freedom – How?
The strategic course to achieving financial freedom depends heavily on the circumstances & personality of the investor. However, the main reason why the majority finds this goal elusive, is the fact often some key element remains missing from their effort, making it a lost cause from the start itself. Even if you have the God of luck smiling on you, financial freedom would be an impossible dream without the following –
COMMITMENT – Stephen Covey has so truly observed that “To know and not do, is to not know at all” Translating knowledge into actionable rules, leading to wealth creation & financial freedom, is the easy part. Actually, living such rules presents the toughest challenge. Financial freedom is a lifelong project & only a compelling personal commitment can generate the motivation to acquire necessary skills to create wealth, take appropriate risks & overcome challenges of wealth management. A half-hearted approach would derail the project very quickly.
LIFESTYLE CHOICES – Relationship with money & lifestyle expectations form a crucial psychological element in the pursuit of financial freedom.
- Is such a state possible with an indulgent lifestyle, wherein every temptation is catered to? Or
- Is extreme frugality, wherein all desires are crushed at the altar of some financial perfection, the only possible recourse?
The answer lies somewhere between the two extremes. Habits & Attitudes of the wealthy hold the key to this ultimate goal since principles of success do not change. It is amazing how similar are the traits of the truly wealthy, even if they differ on counts of age, geography or source of wealth.
BUILDING BLOCKS – Financial Freedom needs a certain support structure to become achievable.
- Career & lifestyle need to be so planned out that the progress towards financial freedom can be made with least effort & maximum persistence.
- Wealth is a function of financial intelligence. The longer one waits to learn prudent investing, more is the cost in form of missed opportunities, given that compounding grows wealth geometrically. Mistakes made with big investment decisions later in life, can’t then be offset by normal savings.
- Leverage makes key difference to the momentum of progress towards financial freedom. Leveraging of knowledge, time & technology accelerates the compensation exponentially, thereby shortening the time required to achieve this goal.
WEALTH MANAGEMENT – A reality check of desired net worth at regular intervals, would reveal where one stands & what milestones need to be crossed, to achieve financial freedom. It needs a Wealth Plan uniquely designed to fit your skills, resources & financial needs to prevent a lot of wasted effort & inefficient resource use. When daily actions are strategically arranged for a particular financial outcome, the risk of failure over years is drastically reduced.
A Wealth Plan details processes for
- Wealth Creation – efficiency in processes for income, expense & debt
- Wealth Conversion – income into assets & compounding of values
- Wealth Growth –risk management, tax efficiency, asset allocation, asset class rebalancing, inflation targeting, positive cash flows.