Financial freedom has gained significant popularity in recent times as more people aspire to achieve it. The desire to be financially free and retire comfortably is a common goal for many individuals. In this blog, we will explore the meaning of financial freedom and outline a step-by-step plan to help you achieve it.
Retirement should not be limited to a specific age, such as 60, 65, or 70 years old. It is not solely about reaching a point where you are unable to work and are forced to retire. In today’s world, even middle-class families often find themselves in need of financial support after they can no longer work. Relying on your children for money at the age of 60 or 65 can be a challenging situation to face.
That’s why it is crucial to plan for retirement, ensuring you have a fund that provides you with financial independence, eliminating the need to depend on anyone else. This situation also applies to those who aspire to retire early. Early retirement is possible for individuals in their 20s, 30s, or 40s who are willing to take the necessary steps. However, it’s important to note that retirement doesn’t mean you won’t work; it means you won’t have to work for money.
The primary reason most people continue working is the need for money to cover their day-to-day expenses. The key to retirement is having your expenses covered by passive income. At this point, we are not discussing active income, which is the money you earn from your job or business. If your expenses can be met by the income generated through your investments, assets, or other passive income streams, then you can consider yourself financially free.
Let’s consider a scenario where you earn Rs. 50,000 per month from your job, and your current monthly expenses range from Rs. 30,000 to Rs. 40,000. With your current income, you can comfortably cover your expenses. However, if you were to lose your job, your expenses would still remain. This is where the concept of retirement becomes significant.
Retirement requires a separate source of income known as passive income, which doesn’t require active work. For example, if you own a property and receive rental income, that would be considered passive income. In this blog, I will provide you with various examples of how you can build passive income to secure your retirement.
While continuing your job or current profession, it is crucial to explore opportunities for a side business or side hustle that can generate passive income in the future. The moment your passive income from these ventures surpasses your job income, you can start planning for retirement. Retirement, in this context, doesn’t necessarily mean ceasing all work, but rather reaching a point where your passive income covers your expenses, granting you financial freedom.
Find a side business or profession that can potentially generate passive income. This could involve starting a small business, investing in real estate, or exploring other avenues that align with your skills and interests. Dedicate time and effort to grow your side business or profession, aiming to increase your passive income steadily over time. If your current job allows, consider investing your earnings in avenues that offer good returns. Diversify your investment portfolio to mitigate risks and enhance your passive income potential. Consult financial advisors or experts who can guide you in creating a sound retirement plan. They can help you estimate the required retirement corpus and devise strategies to achieve your financial goals. Continuously review your retirement plan, reassess your expenses, income, and investments, and make adjustments as needed. Staying proactive and adapting to changing circumstances will ensure that your retirement plans remain on track.
Suppose you have an investment of Rs. 20 lakhs, and if it generates an annual interest of 12 percent, you would receive 1 percent of that amount each month, which would be Rs. 20,000. Now, you may wonder where this 12 percent interest will come from. One option is peer-to-peer lending platforms, which are gaining popularity and can offer returns of around 12 percent or even higher during lock-in periods. This understanding is crucial because without having the capital to invest, retirement planning becomes challenging.
To illustrate further, let’s consider an example where a person has monthly expenses of Rs. 50,000. To cover these expenses through passive income, they would need a minimum investment of Rs. 50 lakhs. Please note that the example of Mobi Quick is just an illustration, and there are other investment options available as well.
Additionally, there is another concept known as Systematic Withdrawal Plan (SWP). While you may be familiar with Systematic Investment Planning (SIP), SWP allows you to withdraw a fixed sum of money regularly from your investments. This can provide you with a steady income stream from the stock market.
However, it’s important to consider that your expenses in the future will likely increase due to inflation. The cost of items such as petrol, milk, and vegetables tends to rise over time. Moreover, your financial goals may change, requiring additional funds. Simply relying on the current investment and passive income may not be sufficient for retirement planning.
To tackle this challenge, a simple solution is to calculate your yearly expenses based on your current monthly expenses. Multiply your current monthly expenses by 12 to get the annual expense amount. For example, if your current monthly expenses are Rs. 20,000, your yearly expenses would be Rs. 2,40,000. To ensure a comfortable retirement, multiply this yearly expense amount by 25, which would be approximately Rs. 60 lakhs. This calculation provides an estimate of the investment amount needed for retirement planning.
While it is important to calculate your expenses and investment requirements for retirement planning, it is equally crucial to shift your mindset away from constant comparisons with others. Comparing yourself to others based on material possessions and external markers of success will never make you feel truly rich or fulfilled. It is a common misconception that having a bigger car, a larger house, or more luxuries equates to happiness.
Instead, I want to emphasize the significance of nurturing and developing skills that set you apart from others. These skills can be your unique talents, passions, or expertise in a particular field. When you possess a distinct skill or knowledge, it gives you an advantage that surpasses material possessions.
Investing in yourself and continuously developing your skills can lead to immense personal growth and open up new opportunities. It can give you the confidence to face challenges and carve your own path towards success. Whether it is honing your artistic abilities, improving your communication skills, mastering a particular trade, or becoming an expert in your field, these skills can make you stand out and enrich your life in ways that material possessions cannot.
Furthermore, having a valuable skill can also have financial benefits. It can enhance your employability, open doors to higher-paying job opportunities, or even enable you to start your own business. The value of your skill will set you apart and make you an asset in various professional and personal settings.
When it comes to our goals and aspirations, whether it’s buying a dream car, providing a beautiful home for our parents, or embarking on worldly adventures, it is essential to understand that achieving these dreams requires a substantial income. While material possessions alone do not define happiness, they can serve as milestones and representations of our hard work and success.
To make our dreams a reality, we must focus on earning money, and that requires solving problems for others. For that, we need an exponential increment in income, which I will talk about now. And how will that come? You will have to solve people’s problems. And to solve the problem, you will have to create a business somewhere; you will have to build a business.
When it comes to achieving financial goals, one effective approach is to identify products or services that can solve people’s problems and have a wide-reaching demand. By offering such products to the masses, it becomes possible to generate substantial revenue and work towards earning the desired amount, such as 1 crore.
To illustrate this, let’s consider an example where you find a product with a profit margin of 100 rupees per unit. This could be an e-book that provides valuable information or addresses a common need. Suppose you successfully market and sell this e-book to 1 lakh people, the revenue generated would amount to 1 crore rupees, fulfilling your target.
Alternatively, if you find a product with a higher profit margin, such as 1000 rupees per unit, the number of customers required to reach 1 crore in revenue decreases significantly. For instance, if you launch a cosmetic or beauty product, you can collaborate with companies that offer a wide range of products. By branding and selling these products yourself, you can set a higher selling price on e-commerce platforms like Amazon or Flipkart. Assuming a profit margin of 1000 rupees per sale, you would only need 10,000 customers to achieve 1 crore in revenue.
Moreover, exploring partnerships with manufacturers or factories can present additional opportunities. For example, you can approach a shoe factory in Kanpur and collaborate to design and produce a unique product, such as invisible-heeled shoes for men. By listing these shoes on various e-commerce websites and setting a higher price, you can earn a substantial profit margin. If the margin is 3000 rupees per sale, selling the product to 10,000 customers would yield 1 crore in revenue.
In a similar vein, you could explore products with even higher profit margins, like electric cycles, which may have a margin of 10,000 rupees per sale. In this case, only 1000 customers would be needed to achieve the desired 1 crore revenue.
In today’s digital age, targeted advertising plays a significant role in reaching potential customers and driving business growth. Platforms like Instagram offer the ability to target specific audiences based on their interests, allowing businesses to tailor their ads to those most likely to be interested in their products or services.
Let’s consider an example where a business advertises luxury furniture and home decor items. By targeting individuals who follow luxury brands like Louis Vuitton, the business can reach a select audience with a higher paying capacity. For instance, if a thousand people follow Louis Vuitton, it is reasonable to assume that a considerable number, let’s say 50 to 100 individuals, are interested in luxury products and may be potential customers.
Additionally, focusing on specific geographic areas, such as South Delhi, further hones in on a target market with a higher average income. By placing ads in this region, the business can increase the chances of reaching individuals who have the financial capacity to invest in luxury furniture.
When a potential customer inquires about a specific item, such as a sofa, it opens the door for further opportunities. People rarely require just one piece of furniture. Instead, they may be interested in upgrading their entire living space, including dining tables, additional furniture, and beds. This creates an opportunity for the business to upsell and provide a comprehensive solution to the customer’s needs.
Considering the average order price of 4 to 5 lakh rupees, it becomes clear that each lead has the potential to generate significant revenue for the business. If the business receives an average of 2 leads per day, amounting to 60 leads per month, the potential for substantial growth and profitability is evident.
Furthermore, by strategically scheduling customer inquiries on Saturdays and Sundays, when individuals have more free time, the business maximizes the chances of closing deals and converting inquiries into sales. Taking advantage of customers’ availability and creating a seamless buying experience can significantly contribute to business success.
In the pursuit of wealth creation, it is crucial to adopt a minimalistic lifestyle, where the focus is on prioritizing financial growth over extravagant spending. While it may seem tempting to indulge in luxury brands, expensive cars, and lavish possessions as income increases, it is important to consider the long-term implications of such choices.
Often, when individuals experience an increase in income, their first instinct is to upgrade their lifestyle by acquiring assets that reflect their newfound financial status. For example, someone earning 1 lakh per month may decide to purchase a car with a monthly EMI of 20,000 rupees. However, if their income subsequently rises to 1.5 lakh, they may be tempted to increase their car EMI to 50,000 rupees, thus committing more of their income to expenses.
While it is understandable to desire a higher standard of living, it is essential to avoid the trap of lifestyle inflation. Simply put, lifestyle inflation occurs when income increases are immediately absorbed by corresponding increases in expenses, resulting in limited wealth accumulation. By succumbing to this pattern, individuals find themselves trapped in a cycle of never-ending financial obligations, hindering their ability to build substantial wealth.
This is where the concept of minimalistic living comes into play. Embracing a minimalistic lifestyle means making intentional choices about spending and prioritizing financial goals over material possessions. It involves evaluating needs versus wants and distinguishing between essential expenses and discretionary indulgences.
Contrary to popular belief, minimalistic living does not imply deprivation or a lack of enjoyment. Instead, it encourages individuals to focus on experiences, personal growth, and financial security rather than acquiring material possessions that offer only temporary satisfaction.
Financial advisors often advocate for minimalistic lifestyles because they recognize that excessive spending on luxury cars, extravagant homes, and high-end jewelry may not contribute significantly to long-term wealth creation. Instead, they recommend redirecting funds towards investments, such as sovereign gold bonds or other income-generating assets, which have the potential to appreciate and generate passive income.
Many individuals who showcase luxury brands and possessions may not have achieved true financial freedom or long-term wealth. Behind the façade, they may be burdened with debt and financial stress, unable to build a solid foundation for their future.