Five tips to hack your way through financial freedom

Summary

• Compulsive buying is one of the most common habits that can easily eat up your corpus.
• It is always recommended to invest in yourself before you invest elsewhere.
• It is imperative to pay your debt as soon as possible to avoid your savings or income get eaten up consistently.

Financial freedom in its basic essence is having enough residual income or passive income to cover the living expenditure of an individual. Going by the definition, it is not same as being rich. Amassing huge fortune is not necessary mean one has become financially free but they have just enough to cover their expenses.

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However, one thing is to be noted that the income we are talking about is passive and not active. The difference is, for an active income an individual needs to work as long as they want to maintain that income stream such as a job. But for the passive income, there’s no active labour involved such as a dividend income, rental income, and interest income, etc. 

With that being said, let’s focus on how one can work his way up to achieve financial freedom.

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1. Ramp up your savings

Increasing the savings is probably the most common yet highly ignored tip to increase your financial health. As discussed earlier, to buy assets like stocks, bonds or real estate, there has to be some surplus to spend on these.

Savings is a great way to kick-start your buying spree of assets, which would start generating a regular and consistent cash flow.

2. Live below your means

The fastest way to blow up your savings or ruin your financial stability in life is to start spending extravagantly. Compulsive buying is one of the most common habits that can easily eat up into your corpus saved for buying productive assets.

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Also, one needs to be conscious of what he is buying. More often than not, a little bit of excess cash is unconsciously spent towards things that are actually not needed.  

3. Start as early as possible

Starting as early as possible, whether it is for buying appreciating assets or income producing assets, is always recommended. A very few individuals understand that delaying investing costs them way more if the concept of compounding is looked into. Time is needed to be given to any investment to grow, just as a seed doesn’t grow into a tree overnight.

Also, to cope with your living expenditure with passive income takes a lot of time and should be a good enough reason to start early.

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4. Invest in yourself

So far one thing is clear that investments is the only way to financial freedom, be it in any asset class. However, to invest, one needs the knowledge pertaining to that asset class and the relevant skillset to cater to the required decision-making.

Also, investing without the knowledge is akin to gambling, which could be devastating for your financial health. Therefore, it is always recommended to invest in yourself before you invest elsewhere.

5. Pay off your debt

A lot of people have some kind of debt, be it a personal loan, education loan and the likes. It is imperative to pay your debt as soon as possible to avoid your savings or income get eaten up consistently. After the debt is out of your way, you can use that surplus (which otherwise would have gone to paying off debt) to focus on your financial goals.

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Also, if possible, it is a no-brainer to avoid the debt in the first place.    

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