Tell me what is the most valuable thing in the world? Gold? Diamond? Platinum? No, none of these. Time is the most valuable thing in the world.
All of our lives are limited to a certain time, the average life expectancy of people in Bangladesh is about 70 years, let’s say you live for 80 years.
For the first 20-25 years you have plenty of time but no money.
After that, when your career starts, till 60 you have enough money, but you don’t have time to spend as you want.
And after that for the last 20 years, even if you have money and time, you can’t enjoy them.
So getting financial freedom is very important in life, getting financial freedom doesn’t mean you have to have hundreds of crores of rupees in your bank.
Financial freedom is when you can use your time as you wish without worrying about money.
The thought that retirement is possible after 60 years is unrealistic now.
You will be free only when you work for your own pleasure, not because of money, and your money works for you.
Barriers to achieving financial independence
- Loans (Loan & EMI)
- Inability to differentiate between necessity and hobby spending
Essential to achieving financial independence
- Creating multiple sources of income (especially passive income)
- Spend as needed
- Definitely invest
In the past, when slavery was prevalent, those who were slaves were shackled on their hands and feet, now that custom is gone, but the shackles are still there.
A loan is a shackle that cannot be seen with the naked eye, but if you are burdened with it, you will never be free.
It is not at all that debt is bad, in some cases taking a loan becomes absolutely necessary.
But now in every case debt is presented in such an attractive way that we overspend even on small things.
Let’s say you buy a new smartphone, I personally think 7-8k can get a good enough phone, but I see many around spending 25-30k just for the phone.
Now let’s look at the statistics
Let’s say the price of the new phone you are going to buy is 19000 rupees, but you don’t have this amount of money right now.
But on the online platform where you are looking at the phone, they will say what is the concern, why are we arranging EMI, No Cost EMI, just tell me what you want?
Now see this picture if you take 6 months of EMI then you have to pay around Rs 700 extra, if you take 1 year of EMI you are paying around Rs 1500 extra, and in the case of 2 years you are spending around Rs 3000 extra.
Just think, if you had saved the money with a little patience and bought the phone, you would not have had to spend an extra 3000 rupees.
What are you thinking, only 3000 takes? It’s not about the amount of money, it’s about your spending habits.
The same applies to No Cost EMI, even if you don’t pay extra, No Cost EMI increases your unnecessary spending habits.
And the key to financial freedom is to reduce spending habits and increase saving and investing habits.
Phones were just one example, so many things we often overspend on. Now let’s hope for a big loan, such as –
- Car Loan or
- Home Loan
Let’s say you have a job with a salary of around 1 lakh rupees, now after a few days you see that the people around you or your colleagues are all buying four wheels one by one, you start thinking that you also have to buy a car.
Or your status can’t be maintained and you chose a 10 lakh rupees car.
Now for that, you have taken a car loan where you will repay the money for 7 years at an 8% interest rate.
In that case, your monthly EMI will be around Rs.15586.
If the home loan is combined with this, then there is no question, let’s say you take a loan of 75 lakh rupees and repay it in the next 10 years at the rate of 9-10% interest.
In that case, your monthly EMI for the first three years will be Rs 50-60000 and in total, you will pay around Rs 1 crore 17 lakh.
In other words, if you take a Car Loan and Home Loan, 70,000 rupees out of 100,000 rupees will go only to pay EMI and other expenses will remain.
What’s more, you are forced to work for the next ten years or as long as the EMI lasts, and you can’t do anything else even if you want to.
You wrapped the invisible shackle I talked about a few more times around your hands and feet.
Remember, you are not taking a loan from the bank, you are taking it from your future.
Banks give loans only to those who can repay, that is, you are taking a loan now in exchange for your future precious time.
Also, your physical health may be affected by the thought of a loan. It’s not at all that you don’t buy houses, cars or expensive phones.
Buy, but only when you really need it, not to show off to others.
Comparing someone with someone is pointless, and stupid because we are all different, everyone has different thoughts, likes and dislikes, and dreams.
So don’t compete with others, live to fulfill your dreams.
How to get financial freedom?
To achieve the financial freedom you need to proceed with a proper plan, not at all that you need to be a big businessman or a capitalist.
Even with a simple job or a small business, you can get financial freedom but it will definitely take time.
And if you want to get financial freedom very fast then you need to increase the source of income, create multiple income sources and invest that amount too.
Now let’s see what are the steps to get financial freedom?
1. Financial Security
First of all, you need to secure your family financially, the things you need to do to get this financial security is –
A) Emergency Fund i.e. emergency savings –
According to financial advisors, you should keep at least 6 times your monthly household expenses in an emergency fund.
I personally think that at least 1 year of household expenses should be kept in an emergency fund, I have already written about this in the article Ten Money Sources.
You can also keep 2 years of cash ready as liquid money for extra protection, the length of time you feel comfortable saving for household expenses is up to you.
The money in this emergency fund must be liquid so that you can use it when needed, so the easiest place to keep this fund is in a bank fixed deposit.
But if you want to get a little more interest, you can keep money in any liquid mutual fund, but you need to have proper knowledge about the advantages and risks of that liquid mutual fund.
b) Health Insurance
Our lifestyle has become such that maintaining physical fitness has become quite a difficult task, besides there is environmental pollution, the decline in quality of food, etc.
Once you or someone in your family has to go to the hospital/nursing home, it will cost you a lot of money in one fell swoop, which will set you back a lot on your journey to financial independence.
So try to keep yourself healthy but it is very important to have health insurance along with it.
C) Term Insurance or Life Insurance –
When you think of life insurance, LIC comes to everyone’s mind, but here term insurance refers to the insurance where you get the money only when you die within the insurance period.
If you pass the term of this type of insurance you don’t get a single rupee back but due to this the premium of this type of insurance is very low and in case of your death due to any reason your family gets at least 20-25 times the coverage.
Many people are not interested in this type of insurance because they think that they will not get the money back even with the premium, but consider that the purpose of term insurance is not to increase money by investing, its purpose is to provide financial protection to your family even in your absence.
Also, if you are very adventurous, you can get travel insurance.
The next step to financial security is to bring financial solvency into your life, once you have completed the previous three tasks, you are financially secure enough.
Now you need to develop investment habits so that you can save and grow. Ways to increase savings are –
Increasing income (creating multiple sources of income), reducing costs, or both i.e. reducing costs and increasing income.
First, let’s talk about cost reduction, there are two types of cost – one is necessary like – market cost, grocery, electric bill, gas, travel cost, etc. They will exist and you will have to spend them.
Second is the unnecessary
such as spending extra on cosmetics, spending on clothes, gadgets, or shoes, subscription to Netflix, Amazon Prime, or Hotstar, standing at a biryani shop, etc.
All these expenses you incur to satisfy your hobbies but you can stop them if you want, if you can’t stop them, at least you can reduce them.
Increase Income Source
If you are working at least ten hours a day will be spent in the office, time is equal for everyone so you need to find time to create an income source where you give passive income even if you put in less time.
What is passive income?
Passive income is a form of income where the work or business continues and you earn from it even when you are not physically present.
If you can devote at least a couple of hours to something regularly, you can generate some source of income. This kind of work is called a side hustle.
Then when you have reduced the expenses and increased the income, now you have to invest with proper planning and proceed with specific goals.
Also if you don’t have any debt or loan, if any, pay it off first and then invest.
There are many investment mediums, the risks of different mediums are different and so the amount of profit is also different.
Whichever medium you invest in you need to be aware of the medium.
Keep in mind that the interest rate you will get from the investment medium must be higher than the rate of inflation.
If not, your savings lose their value and you end up poorer instead of financially independent.
This is why the fixed deposit is not an excellent way to keep the money you want to save for a longer period or as an investment medium because the interest rate earned from it is much lower than the appreciation.
In the book, The Almanack of Naval Ravikant Ravikant says that if you want to get rich you have to get equity i.e. ownership of a business, otherwise you can never get rich by selling time.
And the way to get equity is to invest in the stock market which you can do by directly buying shares or you can do it by investing in mutual funds.
There are many investment mediums, you need to make your portfolio by choosing the investment medium according to the minimum percentage of return you want to get per year.
How much money is needed to get financial freedom?
The easiest way to know how much money you can be financially independent with is the 4 percent formula or The 4% Withdrawal Rule which is mentioned earlier in the Ten money formula article.
Here again, I mention it, Let’s say your monthly household expenses are Rs. 25000 at the moment.
So your annual household expenditure is 25000 X 12 = 3 lakh rupees.
Now imagine if you only got these 3 lakh rupees as 4% of your accumulated capital but you didn’t have to do any boring job or dislike job separately to support the family.
That is, it can be said that you are financially independent in this situation, because at 4 percent interest, your household expenses for the whole year are going away, so you can do whatever you want.
You can spend your time as you wish, you can try to fulfill any hobby or passion, and you can do these things without worrying about whether you will benefit financially from them.
To get Rs 3 lakh as 4% your capital amount should be 3 X 25 = Rs 75 lakh. Although we have not considered taxes here, this is the simplest formula for achieving financial freedom.
Also, keep in mind that this 4% is what you get after overcoming inflation. So if the price increase is 7-8% then you should try to get at least an 11-12% return.
The amount of risk and return is different according to the investment medium like in a fixed deposit there is almost no risk but here you will get an interest of 3-5% which is less than the appreciation.
By investing in various government bonds or investing in government schemes you can get 8-9% returns but there the risk will increase slightly.
You can easily get an 11-12% return by investing in just index funds or exchange-traded funds without any special knowledge about the stock market but that has to be long term, short term is also very risky.
By investing in various mutual funds you can get 14-15% interest but of course, there is risk involved.
You can get an 18-20% return by directly investing in the stock market i.e. buying shares of a company directly but you need to have that amount of knowledge, skills, and experience in stock analysis.
Investing in the stock market without adequate knowledge is bound to lose money.
Now is the era of Cryptocurrency, it is very risky but it is not impossible to get a 25-50% return.
So in which medium to invest and what percentage of return you want to bring, you need to decide how much money you want over time and decide and learn accordingly.
Now let’s go back to earlier, let’s say you are 25 and have 75 lakh rupees right now, you could have achieved financial freedom according to the 4% formula.
But you don’t have this amount of money right away, so you decide that you will be financially independent in the next ten years and invest regularly and get at least a 12% annual return.
Depending on your skills and knowledge you can get more returns but here we will settle with 12% as it is easy to get.
Now if your monthly household expenditure is Rs 25,000 then due to inflation it will double in the next ten years, that is, you will not save Rs 75 lakh.
Because after the next ten years your monthly household expenses will be 50000 rupees, that means annual household expenses will be 50000 X 12 = 6 lakh rupees.
So you have to save 25 times 6 lakhs i.e. 6 X 25 = 1.5 Crores or 1 Crore 50 Lakhs.
You can easily know how much you need to invest by using any compound interest calculator or SIP calculator online, keeping your desired amount and interest rate fixed.
In this case, to get 1.5 crore rupees in 10 years at a 12% interest rate, you need to invest at least 65000 rupees per month.
If you can invest a lot of money in one go, you will get some benefits, but financial freedom can be achieved by making regular monthly investments.
Now 65000 you have to save in addition to your current expenses so you either have to do a big mining job or create multiple sources of income.
If that still seems too difficult to do then extend the time frame, if you aim for 20 years instead of 10, you can still retire at 45 which is better than 60 even if late.
Again, retirement does not mean you become inactive. You will retire from all the work you dislike, and do only what you like on your own time.
Spend time with people you want, spend time in places you want. And work with double enthusiasm to fulfill your desire.
So according to the previous calculations, your monthly expenses will be 1 lakh rupees in the next 20 years, that is, 12 lakh rupees per year.
In that case, your desired target would be 12 X 25 = 3 Crores.
So if the interest rate is 12% per annum then you need to invest 30000 rupees per month in reaching 3 crore rupees in 20 years.
Investing Rs 30,000 will seem much easier than Rs 65,000, so as you increase the time frame, you will have to invest less money.
But remember that the later you get to financial freedom, the less time you have to enjoy yourself. So I think it is better to go with a 10 to 15-year target.
And if you have debts or loans then go with a 20-year target and try to clear all the loans in the next 5 years.
The younger you can start investing, the faster you will achieve financial freedom even with less money invested.
And if you start investing at an older age and want to get financial freedom quickly, then the amount of money invested should be much more.
I hope this article has given you some direction on your journey to financial freedom. If you like the article or find it useful for your loved ones, please share it.