Overview – How to achieve financial independence ?
Many of us would be thinking about achieving financial independence at some point of time. There are various ways on achieving the financial independence.
What is financial independence?
If a person started earning Rs 10 lacs per annum, does this mean he is financial independent? If a person has accumulated Rs 50 lacs, does this mean he is financial independent? I feel none of these make a person financially independent.
Well, then what is financial independence all about?
In my opinion, a person is financial independent when he does not depend on a monthly salary income or a business income to take care of his monthly regular expenses.
Say for an e.g. you are earning Rs 50,000 per month as salary income or business income. You have accumulated Rs 500,000 and invested in a fixed income option like bank fixed deposit which is offering 12% return per annum. The return you earn would be Rs 60,000 per annum which translates to Rs 5,000 per month. So you are financial independent to the extent of 10% of your salary income i.e. Rs 5,000. So when you gradually increase this to 100%, then you are no more dependent on your salary or business income. Even if your salary income stops, you are able to manage your monthly expenses. I feel this is what is called as financial independence.
Good, but how to achieve financial independence? Is it not a difficult to attain this goal?
Start this journey with 1% or 2% and gradually increase this year on year. Over a period of time, this is definitely possible.
Say an example, if your salary/business income is Rs 360,000 per annum. If you want to start this goal with 5%, then you need to get a fixed income of Rs 18,000 per annum. If you are investing in a fixed income option which generates 10% return, then you need an investment of Rs 180,000. With this investment option, you would be financial independent to the extent of 5% of your salary income. Now you can gradually increase this by 5% to 10% every year.
What are the best investment options available to achieve financial independence goal ?
There are various fixed income options available. However you should invest in safe investment options to achieve this goal. Also these investment options should be generating regular incomes by monthly/Quarterly/Annually.
1) Bank Fixed Deposits – This is one of our favorite fixed income options. There are various banks which are offering good interest rates for long term investment. Below are the top-36 bank fixed deposits which are offering highest rate in India as of Oct-2012 (> 8.5% interest rate per annum).
2) Real estate – Investing in real estate property which generates regular rental income is another good investment option for financial independence.
3) Post Office – Monthly Income Scheme (MIS) – Post office MIS scheme offers good regular monthly / annual income. Currently the interest rate is around 8% per annum and the investment period is for 5 years.
4) Government Bonds – Govt. bonds are good options for earning regular fixed income for long term. When interest rates are low, these are best investment options for fixed regular income. The interest rates are ranging between 8% to 9% per annum.
5) Debt Mutual Funds – I somewhat feel the debt funds can also be categorized as safe fixed income category. These debt mutual funds offer regular fixed income. However there is little risk in these investments.
Conclusion: Achieving the goal of financial independence is very important for every individual. If you are earning any fixed regular income, then you are financial independent to that extent. Once you are zero dependent on salary or your business income, then you achieved the financial independence. To attain this goal, you should invest in a high returns investment options for a long term.
Readers, what is your opinion about achieving financial independence? Do you have specific investment ideas where you can invest for regular fixed incomes which are safe investment options? Please give your comments
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