The critical gateway for financial independence is how you invest. If you keep your eye on your goal and are disciplined, even with modest savings, you can fund your goals.
“We define financial independence as your ability to choose to do what you want to, independent of your financials,” said Vishal Dhawan, a Mumbai-based financial planner.
“At least 25 per cent of your income should go into savings,” said Amar Pandit, a certified financial planner. “Along with this, there should be minimal liabilities as they hinder the savings programme.”
It is critical to keep analysing your investments and their performance to see if they are working in line with your goals. You must also keep analysing any new needs that may arise after a period of time and plan for that — a child, for instance.
As the example of Rajat Beri shows, discipline works. Since 2005, he has diversified his investments into real estate, mutual funds, direct equities and fixed deposit. All this, in the last four years and in a manner that can take care of future needs that arise with time.
Experts are impressed. “A single source of income does not work and to attain financial freedom, the income should come from variety of asset classes like dividend, interest and rental income,” said Dhawan.
“My wife has been the guiding force and she wanted me to create a pool that can act as a safety net for the family,” said Rajat. “With my investments diversified in funds, equities and property, I feel financially secure and even in case of any eventuality, my family will have both liquidity and other assets in place.”
But with three-fourths of his assets in equities, Rajat’s exposure to risky instruments is rather high. “Equity and debt investments can be broken up on the basis of the age of the person, his income, number of dependents,” said Surya Bhatia, a Delhi based financial planner. “A young individual with limited liability can invest most of his money in equities.”
Not Rajat. While he was unable to get a life cover because of an open-heart surgery that he underwent in his childhood, he has taken a term cover of Rs 80 lakh for his wife, Kavita.
As far as Ridhit is concerned, “I have invested close to Rs 4 lakh in equity of blue chip companies in a separate account and I hope it will take care of his higher education.”
While Rajat is well on his way to financial independence, what is missing is his retirement plan, which he plans to fix by investing in the low cost new pension system designed by the Pension Fund Regulatory and Development Authority.