How to achieve financial independence faster?

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financial independenceHow to achieve financial independence faster?

Every one of us would struggle to earn money till retirement.  By that time, we have money, there is no life to enjoy. Old age keeps us busy visiting Doctors, Hospitals, etc., How about achieving financial independence early in your life? This independence day, I would provide you some mind blowing tips on how to achieve financial independence and reaching your financial goals faster than you thought.

What I mean for Financial Independence faster?

Every one would have set financial goals like buying a dream home, best child education, accumulating money for daughter's marriage, earning money for retirement, etc. The issue is these goals are set for 10, 15 or till the time individual attains 60 years of age. Some of the goals are not accomplished due to death of the individual. How about reaching your goals at 50 years of age? Won’t you get excited if you achieve all your financial goals before 45 years? What would you think if your family would achieve all the financial goals irrespective whether you are there in this world or not? This is what I feel is called as  achieving financial independence faster in life.

How to achieve financial independence early?

Now let me come to the main point. To achieve financial independence in the early stage of life, you may need to follow these 10 simple tips.

Tip # 1: Consider term insurance to achieve your financial goals in your absence

Last week I got a message on this blog from Ms Sujatha Ramakrishnan (Name changed) indicating that she brought an insurance policy for Rs 2 Lakhs per annum for her just born baby. In a casual email exchange she indicated that this is ULIP and risk coverage is Rs 20 Lakhs. She says, I want to give quality education to my child irrespective whether I am there or not.

There are thousands of individuals who think like this due to lack of awareness about investment options. She can still do it by taking a term insurance by paying Rs 10,000 per annum for a risk coverage of Rs 50 Lakhs and invest Rs 1.9 Lakhs in a bank FD earning 9% interest.  

Your first step in achieving independence should be taking a good term insurance plan. This would help your family achieve financial goals in your absence.

Also Read: Which is the top and best term insurance plan in India?

Tip # 2 – It does not matter how much you earn, but matters how much you save

A few years back, I was earning Rs 30,000, and was saving 10,000. My friend was earning Rs 20,000 and was saving Rs 10,000. When I realized this fact, I started questioning myself, why the hell I am thinking that my income is growing, but my objective should be to increase the savings first.

I rephrased the formula of Savings = Income minus Expenses with Expenses = Income minus Savings. Now my concentration is both increasing income and increase savings and keeping expenses constant.  

Tip # 3 – Make a budget and go over it

The best way to be within the expenses is prepare a budget for the month and go over it. It would be difficult in the beginning, but when you start planning, you do well. How many of you think of going for window shopping and spend money which you have not planned? You prepare an expense budget for the month and strictly follow it. You may put a cap on luxury expenses and go and enjoy it to that extent.

Also Read: 20+ Money Saving Ideas which you can implement now

Tip # 4 – Be financially literate and invest in high yielding investment options

You have saved money. But how well you are growing such savings? There are several investment options like Bank FD, RD, Mutual funds, Stocks, IPO’s, NCD’s, Corp Fixed deposits , etc. Where are you investing? Do you know that a low risk appetite investor can still invest in mutual funds provided he or she invests for the long term in best mutual funds in India. Intelligent investor would study investment options and would double, triple money in 3 to 5 years time. The poor knowledge investor would invest in ULIP schemes and would lose money. I am not asking you to join any certified financial planning course. You can follow simple financial blogs, 30 minutes in a week to know more about investment options and the risks involved.

Tip # 5 – Create multiple sources of income

While you would invest your money in bank FD or mutual funds or stocks, you should actually create multiple sources of income. What happens if you lose your job? What happens if you incur loss in your business income and your income stops? Creating multiple sources of income would help you to manage your commitments as is. If you are employed in a company, you can still earn money by spending few hours in a week in what you are passionate about. You may like to write articles, spend your mornings by teaching people, creating blogs like this etc. You can build income earning assets like buying property and giving on rent. The day you feel that you are able to earn at least 30% from other sources compared to your salary or business income, you have achieved this goal. You should continue this.

Also Read: Several Ways to earn money during your free time

Tip # 6 – Be ready to face unexpected financial problems

You would have invested in a mutual fund which would have provided losses. You would have invested in a real estate property and real estate prices would have fallen down. Be prepared to face any such unexpected financial problems.

Tip # 7– Pay off your high cost debts

You have a car loan and you have a personal loan. Which one do you want to pay faster. How many of us know that personal loan comes with much higher interest rates and car loan comes with lesser rates? If you have surplus money do you pay off some of the housing loan or pay off personal loan or car loan? If you have debts, analyze how much interest rates they are charging and which one you can pay faster. What are the pre-payment charges or early payment charges. This would help you to pay high interest rates and come out of debt at a faster pace.

Tip # 8 – Reduce income tax

What I meant here is not to avoid income tax. You can legally cutoff income tax in several ways. Apart from 80C deduction of Rs 1.5 Lakhs, you can get 80D deduction for health insurance premium, housing loan interest up to Rs 1.5 Lakhs etc.,

How may of you know that you can get unlimited housing loan interest rate exemption on second housing loan?

Instead of investing in Bank FD for 10 years or more and paying FD interest tax every year, invest in PPF for 15 years where you would get tax free returns after 15 years.

How many of us know that you can open second PPF account in your spouse name and invest Rs 3 Lakhs in total in your name and in your spouse name and get Rs 94 Lakhs after 15 years which is tax free.

Tip # 9 – Take help from your family to make savings

I believe in reducing expenses by discipline and not ask my family to reduce expenses. I would narrate a small incident happened 2 years back.

I was planning for my investments in my room in my laptop. My daughter was reading in their bedroom. My son was busy doing a painting in the living room. My wife was preparing a special food that day in the kitchen. We all occupied in separate rooms. I called all of them for a minute and showed what was happening. We were wasting power energy without our knowledge. Our power bill was coming around Rs 2,000 per month. I have educated to my son and daughter about saving. “Use it when you need”. Now we all try to sit in a single room whenever possible and reduce power consumption. You cannot believe that now our power bill comes to less than Rs 500.

A small discipline and support from my family, helping me to save Rs 10,000 per annum. What happens if you find 10 such savings in your house? Why you cannot implement them now?

Tip # 10 – Take help of your financial advisor / Financial experts

Still, if you think that you want to take experts opinion about your finances, you can approach a financial advisor and take his expert opinion. You should be able to realise in case there is any biased advices from him or her. Some money minded financial advisors would keep recommending ULIP schemes or local ponzy schemes which you should be able to avoid. Don’t mind paying some fees which you may definitely afford.

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Suresh
How to achieve financial independence

Suresh KP
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29 comments

    1. Jessie, Just this article and this would help your query. https://myinvestmentideas.com/2013/11/best-mediclaim-policy-health-insurance-plan-in-india/

      Reply

  3. Hi,

    We are unable to save as we have more Liabilities than Income… ( Personal Loan, Car LOan, Rent, Insurance Premiums etc) we wish to invest in housing but unable to save at all… is there any way we can get 100% Housing loan from bank???

    Reply

  4. Dear Suresh ji, I want to invest 36,000 to 50,000 per annum for few years which can give a good amount for my future plannings…I am 33 year old, earning around 38,000/- per month and having one girl child 6 months old. so for 3 of our family member where i should invest. I need money for my child's education & her marriage basically which will be needed after around 20 years. later for me and my wife's general expenditure. I have no investment yet. Just have a term insurance for me of 50 lacs and also a mediclaim of 3 lacs per annum for all of family members. Now where should i invest and how much ? I want to know your opinion about aviva i growth plan as i was advised that it's a good plan.

     

    I will be very much thankful to your sir if you answer my query. 

     

    regards. 

     

    Amit K Mishra.

    Reply

  6. Suresh,

     

    I am planning to invest in icici wealth builder 2, 5k per month. What do you advise ? My idea is to get a good returns after may be 5-10 years for some returns which I can use it for some thing, dint plant yet, some abroad tirp etc.,…Main idea is only returns as I have already have monthly 1.5 lakh for tax purpose, Please advise what do I do. Appreciate it.

     

    Thank You

    Reply

      1. May I know, Why is that you are aganist ULIP. If you take aviva i-growth ULIP plan, it has a consistent growth ..and an absolute growth of 63.77% till date from the past 3 years. The fund name is "Life enhancer fund 2". Plus its giving you a life coverage of 10 lakhs + plus loyalty bonus for last 3 years in the plan + low fee + tax benefit + low admin charges. Can you please explain why are you aganist ULIP's, inspite of having so good performance of the fund. Is there any specific reason for not taking ULIP even if its a long term goal. Plus this covers 10(10) D + 80 C on the return and the investment as well. What is the issue now, I would like to understand. Appreciate your input. Thank You

        Reply

        1. Good to hear that. However I am suspecting that you are agent of this insurance plan. Now provide your honest answer 1) Any fund provides good returns in bull run. If you see 2011, 2012, 2013, the NAV was only 10.12, 10.37 and 10.74. Means, you got 3% returns. Now in last 1 year it gained 72% returns. Yes I say it is excellent performance in last 1 year and not past 3/4 years 2) The units alloted is after allocation charges. Means don’t think that your money is double 75% in last 3-4 years. But these are after reducing allocation charges of what ever it is. Hence I do advice investors not to invest in ULIP’s. Tell me what your have invested in last 3 years and how many units have been alloted to you and what is the total investment value now.

          Reply

          1. Mr.Suresh,

            Thanks for the update.By the way, I am a SAP Consultant working for IBM, and not a insurance agent. I can give more detials, but this is a public forum. Please email me, as you must be having my email id as you are the admin. I can reply from my IBM email id.

            Lets come to the subject. I have done enough research before giving a statement. I guess you are doing a wrong math here. Ok lets discuss step by step. you said 3% returns. Its not for 72% returns for 1 year. Please check the performance of " Fund enhancer 2" in the NAV chart. if u have invested 1 year back its 63.5% 2 yr back 62.7% and 3 yr back its 72.6 %.. I have read in your blog's some where… to invest in a fund or mf by seeing "how well the fund is doing in its previous perf" correct ? …so this means this is doing well from the past 3 years whcih we can conclude that it will be doing better in future as well…because we need to invest in the MF in the same way or same principle….based on the past perf right ? ok 2nd point, allocation charges…these charges.. may b in a differnt name will be there in MF as well, you cannot avoid it. Well here you are getting a cover of 10 lakhs, will you get that money if you die next year ..after investing in MF. and the charges are minimum as well. ….ok 3rd point….MF is no good for tax purpose or 10(10)D or 80C. …..you need to pay tax on the return as well. ….ULIP covers tax benefit + 80C+ 10(10) D….that complete amount is tax free including return + principal and you can put that money in annuity as well as its for 10 years and get permanent fixed returns without tax …you cannot do that in MF. ….4th point….MF does not have life coverage….you will say invest in a seprate term policy for that, right …I know your terms, but here you are getting that for free….without a seprate term,…you can take a seprate term if you want more coverage even while taking ULIP as well….Well you have loyalty bonus for the last 3 years based on the NAV as well …no admin charges after 5 years……This will grow same as MF plus so many other benefits which were discussed above. I still dont understand why do you say and ask people to avoid ULIP and still not getting your point …..why ULIP is not good even for longterm ? Do you have a point with my argument.

            Thanks for the update again.

            Cheers

          2. I have not yet ivested, and doing research to buy 1…..and landed up in your blog asking not to take ULIP. I have done good homework to prove my statement, and still not getting convinced about why ULIP are not good for longterm and how MF are good. I agree MF are good, but you can ask people to avoid ULIP completely. MF is pure risk investment, where as ULIP is calculated and safe.

          3. Hi Manu,
            You are concluding everything by looking at the profit ratio of just 2-3 while you are locking your money for a period of 10-15 years in ULIP; most of the ULIP will not permit to withdraw money till 3/5 years of time; if you do the same, the cash flow will be negative. In MF, you can withdraw money anytime you want or can invest for any period of time based on your wishes.

            I will explain you with simple example; If you are investing 5,000 rupees per month in RD i.e. 60K per annum; before starting RD, bank will give you in writing that you will get 9% p.a. or 9.5% p.a. & again, the final maturity amount is written in clear words i.e. you will get 9,71,145 @ 9%p.a. i.e. an interest of 3,71,145. You can close your account at any time & pre-penalty charges will be x% where x is 1 or 2, depending on bank.

            In case of MF, you can again withdraw anytime when NAVs are higher with certain penalty (only in certain cases). Again, allocation charges & administrative charges are almost negligible.

            In case of ULIP, if a person is paying 60K per annum in these ULIP for 10 years of time; he will get a life cover of 6 lakhs to 7.5 lakh (Maximum i.e. 125%) only. What the hell the family will do from this 6 to 7.5 lakhs of rupees. For a person of 30 years, he need to pay just 5,000 rupees per annum for getting a cover of 50 lakhs & 20K per annum for 50 years old person. Her's the difference in case of life cover.

            Now, let's talk about the return!
            My question is can your agent define in writing form, what the person will get in return if he is alive after 10 years?? The answer is no! Will you get 62% per annum?? Well, NAV had increased for 1st year; what about next 9 years; What will be final total amount that you will get after 10 years i.e. in 2024?? MF has a benefit; you can quit anytime but you cannot quit ULIP based on your preference! If you even dare to think regarding quiting these MF, you will incur a loss.

            Just ask one question from your agent; I am investing 6 lakh rupees in ULIP in the coming 10 years; I will get a cover of 7.5 lakhs, if I die. If I don't die, how much will I get, if I quit in 2019 (when NAV had started falling); till the time, I would had invested 3 lakhs of rupees. How much will be my return?? Can you give the same in writing the minimum & assured amount that I will get!

            In 2024, what will be my final return after deducting every sort of charges; what amount will be written on cheque that I will get in 2024 because that is the only point, we are interested in; we are not interested regarding performance of any company or any sector or MF houses or ULIP. In 2024, how much your 6 lakhs investment will turn to?? Will it be 7.46 crores based on 62%p.a. or just 7.46 lakhs, which is far below RD!

            I want to tell you one thing, these agents earn 10%-15% (based on their performance) of the premium of the first year & for next 9 years, they will get somewhere between 2%-5% of your premium amount (again, based on their performance). In case of term insurance, they get just 1%-3% of the premium amount (everytime, they collect cheque from you). If you started paying premium online, they will not get commission but in case of ULIP, even you pay online for the subsequent years, they will get commission.

  7. Hi Suresh,

    I want to invest 5 lakhs for a period of 15-30 yrs (one time bulk investment). Can you please indicate the investment distribution which is safe and yet will yield 15-20% annual returns.

    Regards

    Abdul 

    Reply

    1. Abdul, Best way to get higher returns than bank FD is mutual funds. Since you want to invest lump sum, invest in short term funds / liquid funds now and do a systematic transfer plan (STP) to a equity  / balanced funds. This way you can expect good returns of 13% to 15% per annum. You can even get more during market rallies

      Reply

  10. Hi sir i'm jst a teenager & may be a noob about financial decisions but i want to know u mentioned on ur Tip #8 dat 3lakhs ppf can turn into 94lakhs in 15years i.e how exactly i want to know.. 

    P. S- I can't comment frm operamini please look into it.. Thnk u

    Reply

    1. Prithish, If you and your spouse can invest Rs 1.5 Lakh each every month in PPF account @ 8.7% interest rates, you would get Rs 94 Lakhs tax free income. 

      Reply

  11. Hi suresh..
    I very much appreciate on your blog.. can you plz suggest i want to invest 500000 one time investment for my new born baby for her future purpose.. can you advise which investmant plan i have to FD R PPF R Any other options..
    Very much thankful if i get better solution.

    Regards
    Srinivas.A

    Reply

  12. Hi Sir,, 

    I happy that I am going in similar direction, but still there are many ways to improve by your suggestions. Its very nice and useful information which helps for leading better lifes. 

    Thanks,
    Kadambari

    Reply

  14. Hello Suresh  Sir,

    I am regular follower of your blog. It's a very nice article.

    Thanks,

    Suman Deb

     

     

    Reply

  17. Hi Suresh,

    I have few lakhs parked in my savings bank earning just 4% interest.  I was keep thinking to invest it in multiple ways like some lumpsome and some in other diversified investments but I couldn't spend enough time to find the right investment opportunities due to lack of knowledge.  Can you pls. suggest some investments with high yeildings and pay very less or no tax.  We are 4, me, wife with two children of 2 & 4 and like to invest for long term.

    Thanks,

    Venkat.

    Reply

  18. I must say this is the best article and im learning a lot from this website. and Im doing my best to save as much as i can every month.

    Thank you sir

    Reply

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