This year on 15th August 2023, India completed 76 years of independence. We are entering into the 77th year of independence. The country has reached the peak of progress on the strength of its large population, considerable market, skilled labor, and ample geographical resources blessed by nature. In these 76 years of independence, we have seen significant changes at the political, social, and economic levels. While all this is happening, it is also important to think about how much financial freedom we have achieved on a personal level.
Although money is not everything in life, we all must accept that it is one of the crucial aspects of our life. As there is no adequate social security system in our country, it is widely accepted that we should do our financial planning for the future. When we are talking about financial freedom, first we understand, What is Financial Freedom? How and when will we be able to achieve it? Which financial product should we consider to achieve early financial freedom? We are going to consider all these things in this blog.
First, we should understand the definition of Financial Freedom. What exactly do you mean by the word financial freedom? I posed this topic to a few folks, and I received a wide range of responses. Some of them told me that financial freedom is earning lots of money, having no debt, enjoying lavish vacations, bigger bungalows, or having a big car. Is it the correct definition of financial freedom? The answer is NO. The true meaning of financial freedom is that you are independent when you work because you want to, not because you have to. Charlie Munger explained it beautifully,” being the richest man in the cemetery doesn’t matter to me. I did not intend to get rich, I just wanted to get independent.” Therefore it is different to be rich and to be independent.
The question asked me very often is how much money should I invest to achieve financial freedom. There is no definite answer to this because your current financial situation, age, financial goals, changing interest rates, inflation, all these things have to be considered. And you must invest in assets that can generate future cash flows either in the form of regular income or capital appreciation. Bank fixed deposits, postal schemes, stocks, bonds, or mutual funds are examples of investment options. They generate returns in the form of interest, dividends, and potential capital appreciation. One should always consider inflation when planning for financial freedom. Because the cost of living will consistently increase, therefore the return on your investment should be able to keep up with inflation. Mutual Funds are one of the best investment options for achieving financial freedom while considering inflation.
Why should one consider Mutual Funds as an investment option? The first and foremost reason is it helps to beat inflation. Only a few investment products are hardly able to beat the inflation. And if we consider the history of all investment products, we found that mutual funds have always beat inflation in the long run. Apart from that, according to me, there are three primary reasons for investing in mutual funds. First is Professional Management. The investment in mutual funds is managed by experienced and expert fund managers. They are extremely knowledgeable to handle various trends and keys of the market. Their work is regulated by SEBI. They have to work under the rules and regulations set by SEBI. When any investment product is professionally managed well and regulated then it gives confidence to the investors.
The second reason is diversification. Just as a healthy lifestyle requires a balanced diet, an investor also needs to have a balance of diversified investments in his portfolio. By putting your money in different investment types, we are also dividing the risk associated with it. One of the advantages of mutual funds is that it automatically divides your money into different investment categories. Investors’ money is therefore divided into different asset classes of companies in different industries, with divert market caps and operating in different geographies under the expertise of fund managers.
The third most advantageous and popular reason to invest in mutual funds is SIP, which is a Systematic Investment Plan. SIP is a mutual fund investment facility where investors can invest fixed amounts of money at regular intervals. One can start investing in mutual funds with relatively small amounts as low as Rs 100. SIPs can help you remain disciplined in your investments, investment discipline means that you invest according to your financial planning and not make impulsive decisions according to market conditions. It is very important to remain disciplined in your investments if you want to create wealth in the long term and achieve financial freedom. With SIPs, one can start investing in mutual funds from a young age to get compounding benefits over long investment tenures. The great Elbert Einstein once said, “ Compound interest is the eighth wonder of the world. One who understands it, earns it. One who doesn’t , pays it.” Mutual fund SIPs are ideal investment options from your regular savings that can potentially create wealth for you over long investment horizons with the magic of compounding.
Our Independence came after a very long period, after almost 100 years of unrelenting freedom struggle and sacrifices made by countless patriots. Financial freedom also requires hard work, planning, and maybe sometimes some small sacrifices. One important aspect of financial freedom is that you should be able to maintain your lifestyle even when you are not working or have no regular source of income and mutual funds help you to achieve financial freedom.
We wish all of you that this independence day brings more clarity about your financial planning and financial freedom. Because a strong economy creates a strong nation. And if we succeed to achieve financial freedom at a personal level then it automatically helps to build a stronger nation.
Happy Investing!
Jai Hind!