{"id":219,"date":"2021-02-01T07:55:44","date_gmt":"2021-02-01T02:25:44","guid":{"rendered":"https:\/\/www.smevalueadvisors.com\/blog\/?p=219"},"modified":"2021-04-19T22:46:19","modified_gmt":"2021-04-19T17:16:19","slug":"financial-freedom","status":"publish","type":"post","link":"https:\/\/www.smevalueadvisors.com\/blog\/index.php\/financial-freedom\/","title":{"rendered":"A Simple 3-Step Formula to Achieve Financial Freedom"},"content":{"rendered":"\n
\"how<\/figure>\n\n\n\n

Everyone wants to be rich. The good news is that we all can achieve this goal. The bad news is that most of us also harbor two misconceptions that actually get in our way of achieving this goal.<\/p>\n\n\n\n

The first misconception is that we assume rich<\/em> and wealthy<\/em> mean the same thing. They don\u2019t. Being rich means having a lot of money but no time to enjoy it. Being wealthy means having money AND the time to enjoy it.<\/p>\n\n\n\n

The second misconception is that we assume being rich or wealthy is just a matter of luck. You become rich if you marry a rich person, sell your business for millions of dollars, get a sudden inheritance, or win a lottery.<\/p>\n\n\n\n

But these are not the only paths towards wealth or financial freedom. In the rest of the post, I\u2019ll discuss how you can achieve it systematically through simple ways.<\/p>\n\n\n\n

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What is Financial Freedom?<\/h3>\n\n\n\n

In simple words, financial freedom means being able to do what you want, when you want, and not having to trade your time for money. It means you have enough savings and investments to afford a comfortable lifestyle without having money worries.<\/p>\n\n\n\n

How do you know when you\u2019re financially free? When can you say, \u201cI can choose to work now?\u201d A simple metric is when you\u2019ve saved 50X your annual family expense.<\/p>\n\n\n\n

Achieving financial freedom is everyone\u2019s birthright. But as mentioned earlier, we assume it\u2019s possible only if we\u2019re born rich or get lucky. If you\u2019re none of the above, you\u2019re resigned to slogging throughout your life.<\/p>\n\n\n\n

But Bill Gates disagrees. He said<\/a>:<\/p>\n\n\n\n

\u201cIf you are born poor, it\u2019s not your fault. If you die poor, it\u2019s your fault.\u201d<\/p><\/blockquote>\n\n\n\n

What he means is that no matter where you currently are in life, you can achieve financial freedom. All it takes is a simple 1-2-3 formula: Earn-Save-Invest.<\/p>\n\n\n\n

Step 1: Expand Your Earning<\/h4>\n\n\n\n

\u201cThe best investment you can make is in yourself. The more you learn, the more you earn.\u201d \u2013 Warren Buffett<\/p><\/blockquote>\n\n\n\n

All of us work to earn. But if the pandemic has taught us one important lesson, it\u2019s that we must not just increase our earnings, but also our earnings trajectory.<\/p>\n\n\n\n

Here\u2019s what I mean.<\/p>\n\n\n\n

For most of us, work is a means to get paid so that we can pay for our bread and butter. Hence, we do what our managers instruct us to do for nine hours a day, and then go home.<\/p>\n\n\n\n

But along comes some crisis \u2013 for the company or the world \u2013 and we get stuck. We either stagnate, or we get laid off, and we have to settle for another job at a lesser pay though our expenses increase.<\/p>\n\n\n\n

A better way to expand your earnings or not let your earnings get impacted is to invest in building new skills and abilities. In the passion-to-profession economy<\/a>, you can offer your expertise to a global audience and make more money than you make from your paycheck at the workplace.<\/p>\n\n\n\n

Sharpen your skills, create more value for your stakeholders<\/a>, and work smart instead of working hard. Over time, the results will compound and you\u2019ll get rewarded with increased earnings. This won\u2019t just help you sustain in difficult times; it will also multiply to help you generate a substantial income.<\/p>\n\n\n\n

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Step 2: Save Before You Spend<\/h4>\n\n\n\n

In the age of consumerism, advertisements promise us that owning the latest phone or wearing the latest clothes and accessories will make us appear (and feel) better than the Sharmas.<\/p>\n\n\n\n

So we splurge all our hard-earned money to enjoy the present moment. But in the process, we mortgage our future, when we should actually be doing the opposite. We should be prudent with our money in the present in order to build a better future. And one of the most important yet underrated actions to do this is to save money.<\/p>\n\n\n\n

Saving money enabled our parents to build secure lifestyles and pay for our education without drowning in debt. It enabled them to enjoy their post-retirement days instead of becoming liabilities for us. It\u2019s time we took a leaf out of their book.<\/p>\n\n\n\n

This sounds easy, but it\u2019s not. It requires the trait we struggle with as human beings \u2013 delayed gratification. Not just from you, but from your entire family. Like not visiting movie theaters and theme parks on weekends when the ticket prices are exorbitant. Like not taking two overseas vacations each year so that you can compete with your colleagues. Like not buying the latest smartphone if the one you use is just a year old.<\/p>\n\n\n\n

So what should you do with all the money you save? Place it in a bank account, FD, or Postal Scheme? No. You should invest it.<\/p>\n\n\n\n

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Step 3: Invest in Long-Term Assets<\/h4>\n\n\n\n

\u201cThe best thing money can buy is more money.\u201d<\/p><\/blockquote>\n\n\n\n

Being rich means having a lot of money, but always working for it. If you stop working, you can\u2019t earn it. That\u2019s not freedom, that\u2019s slavery. Being wealthy means making money work for you, which happens when it grows even when you sleep.<\/p>\n\n\n\n

You can become wealthy by investing in mutual funds, stocks, real estate, or any other avenue that offers you more returns than a savings account or Fixed Deposit scheme. And you don\u2019t have to invest it all at once. You can stagger your investment in a planned, monthly format.<\/p>\n\n\n\n

Knowing how much money you should invest is simply a matter of a few calculations. Let\u2019s assume you need \u20b95 crores to be financially free (50 times your current annual expense of \u20b910 lakhs.) Now, you can make some Excel-based calculations to determine the annual investment you should make at a nominal rate of return, to go from where you are to where you want to be.<\/p>\n\n\n\n

Based on these calculations, you can choose which avenues to invest in, and watch your funds compound over the long run to yield real freedom. (A financial advisor\u2019s help is recommended for this.)<\/p>\n\n\n\n

Appearing better than the Sharmas or owning more items than them is not being successful. Living your life on your own terms is.<\/p>\n\n\n\n

Discipline and patience remain the key here. Warren Buffett would\u2019ve been nothing even with his astute investing skills if he lacked discipline. He started investing when he was 13 but made 99 percent of his wealth after the age of 50<\/a>, and 97 percent of it after he was 70.<\/p>\n\n\n\n

The same holds true for every financially free person today. Discipline forces you to make tough choices in the short term. But in the long term, it eases your choices when everyone around you continues to struggle.<\/p>\n\n\n\n

\n\n\n\n

Summing Up<\/h3>\n\n\n\n

A single line that can sum up the lifestyles of all financially free people is: \u201cSame car, same house, same spouse.\u201d<\/p>\n\n\n\n

In effect, they live below their means, make their money work for them, and enjoy rich dividends (literally) in the long-term. If you want to achieve financial freedom, just follow three steps:<\/p>\n\n\n\n

  1. Expand your earnings.<\/strong> This doesn\u2019t just mean increasing your earnings, but also your ability to earn. Invest in learning new skills and moving up the corporate ladder, or scaling up your business. Ensure your income keeps increasing.<\/li>
  2. Save before you spend.<\/strong> Don\u2019t try to compete with your colleagues and friends on possessions. Take a leaf out of your parents\u2019 book and save more money. You don\u2019t have to deprive yourself of things you enjoy in order to do this. Just exercise some prudence.<\/li>
  3. Invest in long-term assets.<\/strong> You can only be financially free when your money works for you. Invest your savings in stocks, real estate, mutual funds, etc. Let the dividends, interest, and rent, compound over time until you finally reach the sum that lets you achieve financial freedom.<\/li><\/ol>\n\n\n\n

    Financial freedom is your birthright. No one should deprive you of it. But you must work to achieve it. The best time to have done this is 20 years ago. The next best time is today. So start today.<\/p>\n\n\n\n

    How will you set out on the journey towards financial freedom? I would love to hear your thoughts.<\/p>\n","protected":false},"excerpt":{"rendered":"

    Everyone wants to be rich. The good news is that we all can achieve this goal. The bad news is that most of us also harbor two misconceptions that actually get in our way of achieving this goal. The first misconception is that we assume rich and wealthy mean the same thing. They don\u2019t. 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