Can You Explain FINANCIAL FREEDOM in simple terms and How to go for it?

Friday, May 27, 16

Can You Explain FINANCIAL FREEDOM in simple terms and How to go for it?

Wish you a very Good Morning. I keep on receiving questions and I think the answer of the above questions will be useful to all. So, I am going to deal with the same in my own way.

What is Financial Freedom?

In normal cases – you do some job/business and generate income. This is called ACTIVE income. There is another way also – you save or invest money and it generates income for you. This is called passive income. When your Passive Income is able to take care of all your expenses – compulsory and discretionary – then you can say you have reached to Financial Freedom. I see Financial Freedom in Stages – BASIC to ULTIMATE. Let us deal with each of the stages.

Basic Freedom:-

If your passive income takes care of your 6 BASIC needs – you qualify for BASIC FREEDOM. Let me enlist them.

1.   Your Housing RENT / Maintenance – if owned flat / EMI – if your house is on LOAN. This is the first thing to deal with when you deal with your financial freedom.

2.   Your HOME UTILITIES – GAS / ELECTRICITY / Telephone / WI-FI etc.,

3.   Food for your family members.

4.   Transportation – CAR / PETROL / Railway-Bus Pass / TAXI / AUTO expenses.

5.   Your Medical and other insurance PREMIUMS.

6.   Educational Expenses for your KIDS.

If your investments can take care of the above expenses – you qualify for BASIC Financial Freedom.

Take a paper or excel sheet and write down the figures for each of the items above and multiply the same with 12 months. This will give you the yearly figures. Your investments need to generate above figures year after year – so that you DO NOT HAVE TO HAVE TO WORK any more day for them.

This does not include your EMERGENCY FUNDS – in case you come across any. You need to plan for that also in the above.

Discretionary FREEDOM:-

You will say – what is a fun without entertainment / shopping / wine and dine / Club membership / Small indulgences like – massage / gym membership / DRY CLEAN / BEAUTY TREATMENTS / Mobiles etc. In this stage we will think for them also.

Find out your PRESENT monthly expenses for CLOTHING / WINE and dine / Entertainment and divide that by HALF and multiply that by 12 months.

Add these figures to your BASIC FREEDOM Level and you reach at DISCRETIONARY FREEDOM.

We have taken HALF as – you may or may not go for them each of the MONTH with the SAME INTENSITY. (Many of you will be going to 5 STAR HOTEL for dinner on your birthday but in normal cases you would be going to NORMAL restaurants.)

What is Your FREEDOM NUMBER?

If you add all of the above – you will get your YEARLY EXPENSES. (It would be better – if you write all the numbers along with this POST).

Your passive income needs to generate this FIGURE every year and you achieve your Financial Freedom.

Say you are a very NORMAL investor and you can do FIXED DEPOSITS in the BANK only. Banks are offering 7.5% per annum now. So, your FD should generate your above income. Say your figure is Rs.300000 per annum. You need Rs.40 lakhs in FIXED DEPOSITS to give you FINANCIAL FREEDOM!!

Most NORMAL guy will be happy if he can do this much!! Now, this is not 100% FREEDOM.

Let us say you want to go for a WORLD TOUR / You want to BUY your PRIVATE JET or MERCEDES / you want to DONATE / You want to be able to do anything at your WHIMS and DESIRE – then you need to plan further for the same.

The IDEA of this post is to make you AWARE – yes, NO PHILOSOPHY – PURE KNOWLEDGE – about your LIFE STYLE and what you should be doing, if you really want to MAINTAIN the same.

What should you do now?

Now, you have a figure for your yearly expenses. Look at it. Many of you will be shocked to know that you spend this much every year.

It’s really good – if you have a good health and you are gainfully employed to generate income to meet the above expenses.

Say you have retired NOW and you are going to live upto 90 or more years ( it’s not easy to die – thanks to medical science) – you need income for another 25 years – assuming you will retire at 65!! (As per the last information Mr.Modi is proposing to increase the retirement AGE to 65).

If you are born post 1970 – you will need to think about OLD AGE HOMES also!! Your KIDS will not be able to support you or going to be with you!!

Some important QUESTIONS:-

1.    How will you generate above income every year (adjusted for inflation) when you are working and when you are not able to work?

2.    Do you have some solid plans to meet the above expenses?

3.    You have worked till 60 or 65 age, do you still have to work for the rest of your age?

4.    Do you think – your life is all about to keep on WORKING for money?

5.    If you are STRUGGLING to generate this income while you are WORKING – how will you meet your expenses, if you are not WORKING?

Just ask these questions to yourself and write down the answers. YES, WRITE THEM DOWN.

ADVANTAGES of FINACIAL FREEDOM:-

If you really want to live your life at your own TERMS – your money should be earning MONEY for you. When your money is earning money for you – you are FREE to do other important things life has to offer you. You can spend time on your DREAMS / TRAVELLING / Social work / Religious or spiritual activities. In short, you can CONTRIBUTE to the society in various ways.

But as long as you have to go to work 9 am to 6 pm – you end up becoming a ROBOT.

How CAN WE HELP YOU ACHIEVE FINACIAL FREEDOM?

Just do the above calculation on paper or excel sheet. You will have your figures with you. Once you have your figures – you can approach us and we can give you 100% personalized guidance for the same.

If you have a capital of Rs.1 Cr – you can earn just Rs.7.5 lakh in case of your BANK FDs (before TAX) but if you create proper mix of ASSETS – you can make say Rs.15 to Rs.25 lakhs per annum or even more.

When you earn above your NEED of Rs.7.5 lakh per annum  - the additional money can be REINVESTED and you can CREATE a FREEDOM FUND for 90 years to 110 years of your life!!

What NEXT?

Take out time this weekend and find out your FREEDOM Number. Unless you know that – you will not be able to do anything about it.

Somebody has said – “You can’t hit the TARGET, you don’t see at the first place”.

Just do these much and it will change your perspective towards your own life and your future.

HAVE A FANTASTIC FRIDAY.

Follow me on Twitter @hiteshmparikh /  WhatsApp - +91-9869425399 / www.hiteshmparikh.com

Live With Passion…Invest With Passion.

Hitesh Parikh.

www.hiteshmparikh.com