Financial Independence Goals. ‘Save and Invest’

Not taking risks at all may be alright to protect your savings, but it may not be enough for your savings to grow.

Every year we celebrate Independence Day with enthusiasm and gusto and remember the brave hearts who sacrificed their lives to get us our freedom. Freedom gave us the ability to pursue our dreams and aspirations.

It also gave us the fundamental rights that allow us to enjoy our lives without the fear of reprisal or repression. It is so important to create similar independence in our financial situation as well.

All of us would like to be financially independent; acquire material possessions like houses, cars, white goods; send our children to good schools and colleges and spend during their marriages; take holidays and spend on lifestyle needs like watches, jewelry, and clothes, provide for emergencies, and finally create a good corpus for retirement.

However, most of us earn a monthly income. Most of our income is spent in meeting day-to-day expenses. The only way to fulfil our aspirations is to save and invest some of our earning in a manner that they can grow substantially.

I used the words “save and invest” for a reason. If you just save, it may allow you to accumulate some wealth but your savings would not be working hard for themselves.

Financial Independence Goals

That is why it is important to invest your savings where they can earn a return that is reasonably higher than the prevalent rate of inflation.

We should understand the difference between nominal and real returns. When you invest in a 6 percent fixed deposit, the return that you get is “nominal”. If inflation is 4 percent, the “real” return is just 2 percent. And, in higher tax brackets, even this 2 percent may go away in taxes.

Therefore, not taking risks at all may be alright to protect your savings but it may not allow your savings to grow after adjusting for inflation and taxes.

To achieve financial independence, it is therefore paramount that you invest in high yielding assets. But, with small sums of money at our disposal, the only viable option is to invest in equity markets through institutional vehicles like mutual funds.

Equities, in the long term, are the only asset class that consistently enriches investors. A study of the Indian mutual fund industry shows that on average, mutual funds multiplied money 12 to 15 times in the last 20 years.

During this period, an investment in a fixed deposit would have multiplied the money four or five times only.

Creating financial independence requires a lot of discipline. As a thumb rule, one should save at least 25 to 30 percent of one’s monthly earnings. Also, the younger you are, the higher percentage should be allocated towards equity investments.

The journey towards financial independence is fraught with volatility. There will be times when you would feel that all your investment decisions are wrong.

There will be long periods of time when you may not see any returns at all. But you should remember, that when it comes to investing, the most patient investor is always the most successful investor.

The only thing that one should always be worried about in this endeavor is the quality of investments. Always focus on having the highest quality of investments.

If you do not have the skills to differentiate between good and poor, it is advisable to take the help of financial advisers.

Of course, financial advisers be proficient and experienced. A financial adviser is like a guide who can drive you through the complex maze of the financial world and keep you and your investments safe.

Having someone qualified by your side would ensure that you do not make the mistakes that most people do and that you stay the course, in times of volatility and uncertainty as well.

You earn every month. You spend every month. You should also invest every month so that you can fulfill each of your dreams and aspirations.

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