Five Steps To Achieve Financial Freedom This Year
Have you been:
- Making last minute investments every financial year to save taxes?
- Investing based on tips and recommendations from friends or family?
- Taking most of your financial advice from a life insurance agent(s)?
If the answer to the above questions is “yes”, it’s about time you made some changes to make your financial life easier in future.
Usually haphazard decisions leave investors quite clueless about where their money is, and how exactly it’s performing (or underperforming!). This can make achieving even the simplest financial goals difficult.
With the new financial year let’s bring in the changes which will ensure that your investments add value to your prosperity and financial freedom.
Here we list five ways you can head closer to Financial Freedom in the next ten months:
1. Consolidate your Investments
Over the years, many investors end up with their funds scattered all over the place. This is usually an outcome of not having a structured approach to investing. If you’re the kind who makes last minute investments at the end of every financial year to save taxes, invests mostly based on tips and recommendations from friends or family, or takes most of your financial advice from a life insurance agent, chances are you’re quite clueless about where your money currently is, and how exactly it’s performing (or underperforming!). It’s vital for you to get all your investment and savings records in one place, and preferably consult with an unbiased Financial Planner on which investments to retain and which ones to junk.
2. Get a Financial Plan prepared
World’s most successful people abide by a famous saying, “a goal without a plan is just a wish”, so do the financial planners.
Do You Know?
A Financial Plan can increase the chances of your achieving your future goals by 300%!
Like most people, you probably have several financial goals, such as buying a new car or a new house, taking a foreign vacation with your family, or providing your child with the best possible education. However, without a proper structure, these “goals” are no more than “dreams” which you wish to come true.
With a Financial Plan, you will be scientifically structuring all your goals and drawing a roadmap to achieve them, a vital step towards the betterment of your and your family’s financial future.
In fact, studies have indicated that the simple act of having a Financial Plan can increase the chances of your achieving your future goals by 300%!
3. Start an SIP
Over the past few years, Mutual Fund SIP’s (Systematic Investment Plans) have emerged as the number one choice for generating wealth through affordable monthly savings. SIP’s have the potential to turbocharge your savings by harnessing the power of the equity markets.
Do You Know?
An SIP of Rs. 500 can accumulate Rs. 11.5 Lakh over 20 years through equity funds.
Traditional savings instruments (such as recurring deposits and life insurance) barely help you outpace inflation. However, equity oriented SIP’s can create sizeable corpus over long period of times even with small amount of investment.
If you haven’t started investing into SIP’s already, you need to get started right away!
4. Put your Tax Savings on Auto-Pilot
Every yearend, the tax savings rush prompts countless investors to commit their long-term savings into low yielding traditional insurance policies that earn them barely 5 to 6% per annum. This habit can be extremely damaging for your financial future.
This financial year, why not reverse the trend by starting a monthly investment into an ELSS (Equity Linked Savings Scheme) instead?
- Simply start by calculating your approximate Section 80C “gap” (1.5 lakhs, minus the amount you’ll already be saving through your existing home loan, life insurance policies, children’s tuition fees and the like).
- Divide this number by 12 and start a monthly SIP into an ELSS for that amount.
ELSS funds not only have the lowest lock in period (3 years) amongst all the available options, but also the ‘equity edge’, giving them potential to create long term wealth for you.
Putting your tax savings on auto-pilot will make it easier on your pocket. SIP will lower the average purchase price of MF units and the longer you stay the more profitable it becomes.
5. Pay off Expensive Debt
If you’re sitting on some liquidity at the start of the Financial Year, you can focus on reducing the interest costs on your income.
- Prioritise the prepayment of expensive debt, especially personal loans or credit card debt that attracts exorbitant interest costs.
- If you’ve just started a home loan recently, it makes sense to work on a prepayment strategy that involves accumulating a lump sum of money in 5-6 years’ time to make a sizeable prepayment.
For instance, did you know that making a prepayment of Rs. 10 lakhs into a loan of 50 lakhs (at 9.15% interest) in the 5th year can reduce your interest burden by nearly 20 lakhs?
This Financial Year, make sure you speak with a Financial Planner regarding a prepayment strategy that’s in sync with your available surplus and other long-term objectives.