If you ask children, what they want to do when they grow up. Some would say I want to be a Pilot, some might say I want to be a doctor. Some might want to be an astronaut. Somewhere inside, everyone wants to do what they really love doing. I am sure many of you would want to become a singer, or a cricketer, or chef.
Unfortunately, most of the people give up their dreams and end up working 9-5 or rather 9-7 just to earn some money. But what can you do to break this cycle? Either do what you really love doing and make sure that you earn money to sustain your lifestyle or make enough money to achieve financial freedom at a young age so that you don’t have to wait until retirement to enjoy our life.
What is financial freedom?
A state where you don’t work anymore to earn money. You may still work but not with the intention to make money. You would work because you really like doing that work. You might pursue your hobby.
I have created a framework to achieve financial freedom. I call it IOIM framework:
1. Increase income
2. Optimize expenses
3. Invest Money
4. Risk Management
Please note that you have to follow all 4 points. If you miss any of the 4, you can’t achieve financial freedom. For example, if you follow point 1 and work hard to increase your income and do not follow point 2 and also increase our expenses, you can’t achieve financial freedom. Alternatively, if you follow point 2 and lower down your expenses but do not follow point 1 to increase income then also you can’t achieve financial freedom. If you follow points 1, 2, and 3 but do not manage the risk (point 4) then it will cost you a lot.
1. How to increase income?
i. Understand supply vs demand:
Learn skills that are high in demand but low in supply. If you are someone looking for a job, then learn new skills which are in demand. If you are someone looking to start a business then identify areas where there is high demand and low supply or try to solve problems.
For example, some of the hot skills are:
ii. Increase the income
Upgrade your existing skillset: Learn the skills which can complement your existing skillset
Example 1: If you have a business, you can learn the basics of digital marketing like photo editing, video editing, and use social media to promote your business.
Example 2: If you are a coder, upgrade your coding skills by learning the most relevant and in-demand skills.
Example 3: Get the top certification in your existing skills
iii. Generate more than a single source of income
Do not depend upon a single income. Generate multiple sources of income.
Example 1: Investment in commercial property can generate fixed rental income.
Example 2: Investment in stocks, mutual fund, FD, PF, etc. can increase the wealth
Example 3: If you have an existing skill, you can take classes. For example, if you are good at Yoga then you can become a Yoga trainer. If you are good in English, you can take English speaking classes.
Example 4: Identify digital avenues of income. Identify ways to use WhatsApp, Facebook, Youtube, etc as a digital channel to generate more business.
2) How can you reduce your expenses?
i. Be frugal! Make the best use of discounts. Purchase only if you really need it. Wait for some time before finally buying it because most of the expense is the result of instant gratification and we don’t really need it.
ii. Avoid lifestyle inflation. Live a simple life. Do not upgrade your car just because you got promoted.
iii. Avoid debt trap: Do not buy things on EMI or do not make too much purchase from credit card. Avoid social media which is a big culprit in influencing our decision. Invest money in assets and earn interest rather than taking loan and paying interest.
3) How to invest money?
i. Invest as per financial goal: Do not randomly invest your money. Your investment should be linked to the financial goal. A short term financial goal requires investment with low volatility. A long term financial goal can be fulfilled by investment in equity funds. A corpus of 2 lakh to build an emergency fund is an example of a short term financial goal. A corpus of 1 crore in the next 15 years for retirement is an example of a long term financial goal.
ii. Diversify investment: Most people are either conservative where they keep money in FD or Gold while others are aggressive where they invest in high-risk stocks or futures and options. Both approaches are wrong. You must take a diversified approach to invest with the right balance of risk vs return. Diversify the investment.
iii. Avoid investment based on tips: A lot of people end up losing money because they end up investing based on tips. If you don’t know anything, take help from an expert and meanwhile keep learning.
iv. Keep patience: Even a tree takes 4-5 years before it starts giving fruits. How can you expect to get a return in a few months? Keep investing with a goal in mind and have the patience for your wealth to grow. You can only grow your wealth by investing for the long term with patience.
v. Be disciplined: Make sure to invest with a disciplined approach. Discipline to avoid looking at your portfolio too often. Discipline to stay invested for a long period.
vi. Track your expenses: Always keep track of your expenses. Even after earning a lot of money, many people end up saving nothing. At the end of the month, they have no idea where the money has gone. Hence, it is important to track expenses. You can create a simple tracker using google sheet. I have shown how to create a simple expenses tracker in my YouTube video.
vii. Control your emotions: Most of the people become too greedy or too fearful. When the market is rising, they get too greedy. And when the market starts falling, they get too fearful. This is the wrong approach. Always control your emotions and invest patiently.
viii. Invest now: Start as early as possible to make use of the power of compounding.
ix. Avoid financial traps: Do not fall for Ponzi schemes. There will be a lot of people who would show you big dreams. But always remember that high returns come at high risk. Always invest with trusted sources.
4) How to manage risk?
i. Always take a term plan: Ensure that you protect your family in case of an unexpected event.
ii. Always take a medical plan: Ensure that the entire family is covered with a medical plan.
iii. Build an emergency budget: This is very important. You should build an emergency budget of 6-9 months of your monthly expenses. This money should be invested in safer instruments with high liquidity so that you can take out money whenever you want.
iv. Diversify the investment: Never invest all the money in a single instrument. For example, never invest all the money in a single stock. As a thumb rule, do not invest more than 10% in a single stock. Never invest all the money in a single mutual fund. Diversify the investment in equity ve debt mutual fund. Within equity, the investment should be diversified into various subcategories.
v. Invest systematically: Do not invest all the money as a lump sum unless the market is undervalued. If you are a salaried employee, invest via the SIP route. If you want to invest in the stock, invest in chunks.
vi. EMI payment on time: Do not delay the EMI payment. In fact, avoid EMIs in the first place. If you still take the EMI, ensure timely payment to avoid high-interest charges.
A lot of people have realized that it is really not worth spending the entire life earning money. They have also realized that it doesn’t make sense to buy those fancy branded products of Gucci and Armani of the world because there is no end to our desire.
People have started following minimalism. They are taking early retirement. Some have retired as early as in their 30th and 40’s. If you really want to enjoy your life then either do what you love or achieve financial freedom at an early age.
You can enroll for the video course to achieve financial freedom at an early age. Wish you all the best in your financial journey!