As we observe the celebrations of Independence Day on 15th August, let us also pause for a moment to ponder upon the essence of the word ‘freedom’. For many of us, the idea of freedom involves living life in our own way, on our own terms, and being able to make our own choices. If we consider financial freedom, in particular, it would briefly mean the ability to control our own finances without any dependency on anyone else. Additionally, it may also mean having access to money whenever you need it and that it will be of service to your goals. But how many of us can assuredly say that we have achieved financial freedom? To learn what it takes to achieve financial freedom, let us learn about the financial planning first.
Key Aspects of Financial Planning
There are 3 important aspects to financial planning:
- Protection
- Investment
- Credit
Protection focuses on effectively safeguarding your wealth against emergencies using instruments like insurance; Investment requires investing your money for capital appreciation and the third key, credit factors strategies to plan the key purchases with credit solutions.
Steps to Start Financial Planning
Today, easy access to credit plays a big role in enabling financial freedom, and one of the key factors that can ensure this is your credit score. Just like your PAN card is an identifying document of you as a person, your credit score is an identifying number of your creditworthiness and eventually your financial status. If you have a good credit score, you have a good standing in the market, and you have great chances of securing a loan or credit when in need. This means you would not have to struggle to arrange finances in times of need. So how do you improve your credit score? Well, here are 3 key steps you can take to build and maintain a high credit score and move towards financial freedom:
Clear all your payments & debts on time
If you need to buy a new automobile or take your family for a vacation, most lenders would demand a good credit score for a personal loan. The number one factor that affects your credit score is your payment history. It is advisable to set payment reminders for yourself or to make these payments auto-debit from your account. This way, we eliminate our chances of missing payments and hunting our credit score.
Plan for the future by analyzing your present financial situation
You may be single, married with children, the sole breadwinner of the house, or just a contributor – evaluate your current financial responsibility and also anticipate your future growth. Your future plans could include investing in assets, paying for your child’s education, and saving for medical emergencies. With a little discipline in your life, you will be able to achieve your goals without overburdening your finances.
Keep an amount reserved for emergencies
Every month, set aside some amount that will only be used in cases of financial emergencies such as a loss of job/business or medical emergency that requires an amount in surplus of your insurance. The ideal case is to reserve at least 6 months of income.
Don’t let your debts pile up
The best financial plan involves clearing off your debts on time and not opting for more credit than required. When used wisely, credit cards can be rewarding both emotionally and financially. Choose a balanced mix of secured and unsecured loans for the right credit strategy.
Monitor your credit profile regularly
You should regularly check your online credit score and credit report by downloading them from the CRIF website. This way, you can not only be aware of your current credit position but also see if it has any discrepancies, obsolete accounts, or errors that are affecting your credit score.
Sure, achieving financial freedom is not an overnight feat and the journey might make you question your goal. But in reality, it is indeed a great feeling and a worthwhile investment of your efforts when you see the results. When you’re financially free, you’ll be able to do what you want while knowing you’re in good hands, now and in the future. With a little hustle and a lot of planning, you can achieve your financial independence at the earliest.
