Financial Freedom – India at 78

As India celebrates 78 years of freedom, it’s a perfect time to reflect on another kind of liberation - Financial Freedom.

Just as our nation’s journey towards independence was long and purposeful, the path to personal financial independence requires vision, discipline, and persistence. While the terms financial independence and financial freedom are often used interchangeably, they have distinct meanings that are crucial to understand for long-term stability and security.

Here’s my interpretation in financial parlance:

Financial Independence (FI)

FI is when an individual has the education, skill set, and expertise to earn a monthly income that exceeds their living expenses. This ensures they are not financially dependent on parents, spouse, or children, and can live life on their own terms.

Basically, as long as the person is able to actively work, the expenses are well taken care of. A financially independent person can cover current expenses comfortably while also saving for future goals - buying a house or car, going on vacations, funding children’s education and weddings, and building a retirement corpus.

This is why we increasingly see women taking charge of their well-being, decision-making, and financial security. Because they are ‘FI’, they do not have to necessarily be dependent on their parents or spouse. Money does give a lot of power! Importantly, FI is the stepping stone to achieving Financial Freedom.

Financial Freedom (FF)

While incomes can be temporary, expenses are permanent. Here, income refers to active income - money earned by actively working (devoting time, effort and resources). A financially independent person, as a virtue of consistently saving, investing, and staying invested, can build assets making him financially free.

Financial Freedom is when a person has built enough wealth or income-generating assets to cover their expenses for life, without relying on a job or external support. It’s the stage where your investments pay your bills. Such a person is not dependent on their children to cover after-retirement expenses.

Key examples of such income streams:

·  Mutual Funds: Systematic Withdrawal Plan (SWP)

·  Stocks: Dividends

·  Bank Fixed Deposits: Interest Income

·  Insurance Pension Plans: Pension Income

·  Real Estate: Rental Income

Achieving financial freedom allows an individual to break free from the need for a regular paycheck, enabling them to pursue passions, travel, start a business, retire early, or devote time to social causes and legacy-building.

Take Help from Financial Advisors

Consult a well-educated, full-time advisor who will guide and handhold you. Remember, it takes years of education, experience, expertise and wisdom to write a prescription - so don’t self-medicate when it comes to money.

To Conclude

As India continues its march towards growth and self-reliance, the concepts of FI and FF have never been more relevant. Both demand careful planning, disciplined saving, and smart investing. The reward? A life of stability, choice, and abundance.

(The writer is a Chartered Accountant and CFA (USA). Financial Advisor.  Views personal. He could be reached on 9833133605.)