India celebrated its 75th Independence Day on 15th August 2022. We all Indians celebrated this significant day which is dedicated to our freedom fighters and people of India with sheer enthusiasm and love for our nation and talking about independence I want to talk about another independence which people are trying to figure out these days i.e. Financial Independence.

What is Financial independence?

Financial Independence is a state when your expenses are being covered by your passive income which doesn’t require your time and effort. In even simpler terms, your money working for you and doing better than you.

Remember, when I say expenses over here I mean basic expenses + a little more to do what you love doing.

How can someone achieve financial independence?

So, now we know what is financial independence but the important question over here is how can someone achieve it. There will be many answers to this but it all dumbs down to one, INVESTING. You need to invest your money early into assets that keep on generating good returns over time and keep on compounding.

Let me tell you a story based on TRUE EVENTS, Ramesh & Suresh graduated with commerce degrees in the same year. They both always had the same preferences, they began their career with the same consulting company, they both had the same bike and even they both liked the same girl in the office but their financial choices were poles apart.

Ramesh started investing as soon as he started earning while Suresh never really planned his investments and didn’t bother to think about them but after some years he realized the importance of investing and started investing with a bigger amount than Ramesh.

Can you guess why investing a higher sum of money than Ramesh still Suresh’s returns were this low? As I mentioned Suresh was a little late to the party and started investing when he was 35 whereas Ramesh started investing when he was 25. This depicts the magic of compounding.

So, the answer to the question (How can someone achieve financial independence?) is START INVESTING EARLY.

What should you invest in?

Well, there are many options for investment like Real Estate, Gold, Bonds, FDs, and Equities.

Now quickly I’ll state the reasons for avoiding Real Estate and FDs as your initial investments.

• Real Estate requires a large corpus of an amount to invest along with a hefty legal procedure
• Illiquidity – which means it’s a hassle to buy and sell real estate, this is another reason for not choosing real estate as your first investment
• Historically, FDs were a premium investment option since the rate of returns was quite high but gradually over decades FDs returns have been diminishing which doesn’t make it an attractive investment option

Since Real Estate requires a huge amount and FDs don’t give good returns we have the best option left which is Securities(Stocks and ETFs) and Bonds(Debt).

Now, why I say this is the best investment option because it is, let me state a few reasons for it

• No barrier – Anyone can invest with the tiniest amount that they wish to work for them in the long haul
• Great returns – Stock markets have indexes which can be observed by watching the returns that markets have generated for people who have invested in them over the years. Indian markets have generated returns close to 15% – 18% CAGR (compound annual growth rate) over the past decade.
• Investing with all benefits and less worry – If you want to invest in gold, buying gold jewelry comes with making charges, additional taxes, and worry of getting stolen. On the other hand, A gold bond or ETF lets you invest in the commodity without having any physical disadvantages
• Manageable risk – If you’re someone who gets affected by equities volatility and doesn’t like to see their investment jump high and fall low then you can invest in debt products which are less volatile than stocks and more fruitful than FDs

Hence, considering all these reasons Stocks and ETFs should be your first step towards Financial Independence.

Well, this brings us to the end of this article where we talked about What is financial independence? How can someone achieve it? and What should you invest into?

Now, I want everyone who is reading this article to take a pledge this Independence Day, A pledge to work on their financial independence and start planning their investments NOW.

Happy Independence Day Everyone!