Financial Independence or Financial Freedom has emerged as one of the key topics of discussion among many financially learned persons and is rapidly making headway to other strata of society.
Earlier, Financial Independence was linked mostly with early retirement plans, but with changing industry dynamics and lifestyle, people with no plans of early retirement are also considering to be financially independent.
What is Financial Independence?
By definition, Financial Independence means able to generate enough wealth to meet all your expenses comfortably, coming in from personal resources without working.
In a more simplified term, leading a comfortable life with much financial abundance so as not to work anymore.
Why it Matters?
Time is not linear and has its part of surprises and snubs in everyone’s life. And, the work which is meaningful now to the world should be meaningful in the next decade to come is purely uncertain.
For example, with the advent of digital banking, branch banking has become totally outmoded, forcing banks to look at the roles of personnel serving at the branch level.
It has been predicted that the current industrial revolution could wipe out as much as 40 per cent of the known jobs in the next decade starting now.
And, god forbids, if you lose your job because your skills don’t make a worth, it will be a very frustrating situation and if you are dependent on the paycheque for your living, it’s gonna wreck your life hard.
Another example, despite your skills, being worthful and you lose your job due to company closure, just like the case of Jet Airways, where all of its employees suddenly became jobless with huge salary backlogs.
Surely, you don’t want to be in either of the above situations, but if it comes, your resolve to become a Financial Independent individual will help you out from the crisis and again start fresh.
Achieving Financial Independence
Achieving financial independence is not an overnight and easy process, it takes years of disciplined investing, planning and visualization.
The process to achieve financial independence starts from visualization and asses your own current position.
Financial Independence doesn’t mean cutting down your long term goals or delaying the necessities of life. You need to start looking at your long term goals as well as how efficiently you manage your current financial responsibilities.
One of the main aspects of achieving early financial independence is adopting to practice LEAN methodology, meaning cutting back and eliminating all wasteful expenses. You need to save more than 50 per cent of your income and invest in a prudent manner.
Here, you need to ensure building enough corpus for yourself, so as to meet all your basic future needs while maintaining the standard of living as well as have enough financial room to fund your additional goals.
What Should be Your Ideal Financial Independence Number?
Life has different stages, in which your responsibilities tend to rise as age advances, but a point comes when the burden of responsibilities starts falling. Its almost like a bell curve on the graph.
For example, when you start your professional career, your responsibilities are few, but as you move forward, the responsibilities on your shoulder increase, from getting married, becoming a parent to securing post-retirement life. Only after or before the retirement period, your responsibilities decrease.
So, taking a view of all such factors and as per FIRE (Financial Independence Retiring Early) thumb rule, you should consider 25 times your current expenses as your ideal financial independence number. But, to remain in a safe position, you should increase it by 30-35 times.
Next important aspect is, have to undertake aggressive and efficient investing methodology to capture the highest market return. Investing in a well-diversified portfolio consisting of equity and real estate will help in lowering the downside risk as well as will provide a long term income source.
With Financial Independence, you can experience the freedom and peace of mind. You can continue working but its not a requirement anymore as you are able to generate enough passive income to take care of all your needs.
You can start working on your long cherished dream project or plan your long vacation. As the financial part of your life is now sorted, you are actually free from the stress and worries that come with the shortage of money.
The journey to financial independence might not be easy, but the spirit and confidence you earn will make you stand apart from the crowd. At last, I want to quote Edmund Burke, a well known Anglo-Irish statesman, author, orator, political theorist and philosopher,
“If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed.”