It has been 75 yrs since India got independence from British rule! When you look at India in the pre-independence era and now, you will see that the personal finance landscape in the country has evolved tremendously. More people are realising that financial independence is second only to good health.
This article covers:
Shift in the personal finance landscape
Over the years, many Indians have shifted or are shifting from investing heavily in fixed-income avenues and gold to other asset classes such as stocks, mutual funds, and ETFs that have a reputation of being riskier.
In fact, talking about the last year solely, according to SBI Research Report, the number of retail investors in the stock market increased by 142 lakh in FY 2021 compared to the previous fiscal. While there can be various triggers, declining interest rates seems to be the major one. Further, as per SEBI data, FY 2021 saw investors opening 1.42 cr new Demat accounts, nearly thrice 49 lakh accounts that were opened in FY 2020.
Borrowers have also moved from availing loans from unregulated lenders to regulated players like banks, NBFCs, and peer-to-peer lending platforms. Many potential homebuyers are now questioning owning a house rather than renting out one. Moreover, an increasing number of women are realising the importance of being financially independent and are setting off on a journey to achieving it. The younger generations are actively participating in stock markets to earn passive income. And senior citizens are striving to be financially self-dependent in their sunset years rather than relying on their children.
This only testifies that the personal finance landscape in our country is progressing. And so are our needs, goals, and the meaning of financial freedom. Yet, there are many struggling to sort their finances. Lack of awareness, guidance, and initiation are a few factors responsible for it.
5 Must-dos to achieve financial independence
As we celebrate the 75th Independence Day this year, let us solemnly swear to take responsibility for our personal finances and work towards becoming financially independent. Here are some ways to work towards it.
1. Listen to your inner voice
First things first. Independence doesn’t come easy. You have to fight the oppressor, in this case, your vices. More often than not, your mind knows what you should not be doing with your finances. For instance:
- Following the crowd cluelessly
- Using your credit card mindlessly
- Overlooking your money management flaws
- Postponing retirement planning thinking you have a lot of time
- Not directing efforts towards upgrading your financial awareness
Having said that, it is just a matter of listening to what your mind has to say about your undesirable financial moves and correcting them. Of course, nothing comes easy, you need to be disciplined and willing to work. It’s on you!
2. Have a generous emergency fund
It can get confusing. Should you start investing first or buy insurance? Well, that’s a secondary question. Your primary financial goal should be to secure yourself against uncertain times, without having to pay for it. Yes, we are talking about having an emergency fund in place. That’s what you should do first, even before starting to invest. Going by the norm, saving at least three times your monthly expenses can help you stay afloat during an emergency. But modern financial experts recommend beefing it up to at least 6 times.
3. Invest with a goal in mind
Investing without a goal in mind is like driving without knowing the destination. When you have a clear goal in mind, it serves as a guiding star and helps you realise your objective without stressing much. Let’s assume that you want to buy a sedan worth Rs 10 lakh in three years. Now that your goal is clear, you are in a better position to ascertain the monthly investment amount required to meet the goal, the returns that you expect, and the risk that you can take.
All these will lead you to the right asset class to invest in. Since equity is volatile, it typically performs better in the long term. Ergo, you’d rather invest in debt or hybrid avenues for this particular goal. Had you not decided the timeline and therefore invested in equity to earn high returns in the short- to medium-term, you would run a risk of losing your capital, let alone the returns.
So define your goals and what financial independence means to you and start working towards them; the sooner the better.
4. Discuss finances with your family
Gone are the days when only the breadwinner of a household was aware and involved in all things finance. With the changing societal fabric and household setting, financial responsibilities are now extended to other family members too. Ergo, it makes sense to keep all the members in the loop about the financial situation of the household, especially the monthly budget and loan repayments. A plus point is that discussing this with your children will help them learn and practice financial discipline well before they step into the shoes of the provider. But be smart when disclosing your investments. After all, you are the better judge of it.
5. Insure yourself, your folks, and your assets adequately
Speaking of family, it is a no-brainer that you should insure your and your family’s life, health, and required assets adequately. This not only lightens your family’s financial burden in unwarranted situations but also relieves you of any worry and stress about your folks’ well-being in times of distress. Remember, insurance is not an investment. So don’t mix them both.