how to be financially independent
How to Become Financially Independent
If you want to become financially independent as fast as possible you should set realistic goals.
You should know
- Avoid loans
- Spend less invest more
- Track your spending
But I post 5 points that will help you to become financially independent and free.
Important Note:- Do not tress too much about money, enjoy your life but keep a balance between spending and investing.
1.Purchase a House or Rent it
At a young age, everyone wants a house before marriage because a house is a need but do you think you should purchase a house at an early young age.
Let us know two scenarios
Purchase House Vs Rent a house
2 BHK Flat cost almost 1 Crore Plus
- Cost of house : 1 Crore
- Down Payment : 20 Lakhs
- Loan from bank : 80 Lakhs
- Interest Rate : 6.7%
- Tenure of Loan : 20 Years
Monthly EMI Rs 60,592 for 20 years
- Loan Amount : 80 Lakhs
- Interest Amount : 65,41,971
- Total amount payable : 1,45,41,971
Rent a house
Rent a house Rs 30,000 Per month
Save EMI Rs 30,000
If you saved Rs 30,000 Per month and Invest for 20 years
- Monthly Investment : Rs 30,000
- Expected Return : 12% Per Annum
- Time Period : 20 years
In 20 Years You Investment will be
- Invested Amount : Rs 72,00,000
- Estimated Amount : Rs 2,27,74,438
- Total Value : Rs 2,99,74,438
Why this is important because In this digital world people keep changing their jobs and work in different companies and if they quit jobs and start own business, then you need to move to some another city or change place.
Your job in pune city but you got another better job in mumbai then how you shift your house from pune to mumbai if you rent house in pune then its quit simple but you already own a house in pune on EMI then its hard to sell.
You are capable for buying a house if you earn Rs 1 Lakh per month in metro city but you feel pressure of EMI every month but you invest more than you spend then after some years you wil become financially free and that time you can purchase a big house in cash.
2. Never Borrow to Consume
In the united states almost everyone uses credit card and loans.
They purchase things today from their future income.
This is fine in US because the interest rate in US is 2 to 3% and in India Interest is 12 to 18%.
Therefore you should not borrow for consumption.
You should consume from your own money without borrowing.
If you are borrowing then it should be profitable.
Example : If you borrow Rs 1 lakh at 12% P.A and you have to pay interest of Rs 12,000, but you earn Profit of Rs 24,000 then you can pay Rs12k interest this profitable for you.
Note : You always keep in mind never borrow for consume.
Borrow for start business or investment.
Borrow for consume but always use No COST EMI
3.Learn New Skills
You should learn new skills at any age of your life, then you can start a business using that skill.
Example : You can learn Digital Marketing and then you can start your own business or you can start your own website and then you can publish blog post or if you build e commerce site then you sell your products on it anything you want to start digital. learn technology, investment planning and finanace whatever you like. from blogging you can earn passive income from Google Adsense or Affiliate.
4.Power of Compounding
Power of compunding is eighth wonder by Warren Buffet.
Money will compund with the help of SIP ( Systematic Investment Plan ) you can start SIP in Mutual Fund or Stocks.
Example : You make an investment of Rs 30,000 per month for next 20 years.
You will make investment of Rs 72 Lakhs
If this money grow by 12% only, but stock index in our country is grow by 14 to 16%
After 20 years your money will become more than Rs 3 Crores.
This is the power of compounding – earn interest on inerest.
So you can plan your life properly through SIP and grow your money
5.Refurbished Products and Shared Economy
You want purchase a new car at big budget but in refurbished car you can buy same car at half of your budget.
Example : Purchase a new Toyota Fortuner Price Rs 50 Lakhs but you purchased refurbished fortuner 4 to 5 years old then you can get a fortuner at Price of Rs 25 Lakhs. you can save Rs 25 Lakhs.
You get a second hand car at depreciated value.
See how you can reduce your cost by purchasing refurbished car.
Previsously catching taxi, cabs or auto was difficult because sometime they did not treat you well and charged higher prices
Ola and Uber have changed entirely the experince of the taxi services.
In Todays world its not compulstion to keep the car insted you can use public transport and utilize the benefit of the shared economy. ex :- ola, uber, metro, etc.
In India today if you want purchase new car is to costly because almost 30 to 50% is a tax on single car.
New car cost – EMI, insurance, maintence, depreciation and driver then per month cost will be Rs 60 to 70 thousand.
You should not buy any depreciating vechile on loan because its value also keep on decreasing.
Note :- I am not a financial advisor, always consult your financial advisor before you buy house or car.
Thanks for Reading.
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