In personal finance, specific problems are always easier to tackle than general ones. If someone asks me to recommend mutual funds to invest for 5-10 years, not only is the answer straightforward, but the process by which the answer is arrived at is almost self-evident. However, bigger, conceptual problems are not simple to reason. For instance, consider a question like, ‘What should my overall financial strategy be?’ The answer needs to incorporate longterm goals, spending habits, income levels, and family situations into a comprehensive plan that evolves with time. While specific investment picks can follow the plug-and-play mode, big picture finances need customisation and frequent reassessment.

Such a question can be paraphrased to, ‘Could you plan my entire life’s finances?’. It’s more a topic for consultation than a question, but people ask it anyway. There’s an even more conceptual question that is coming up increasingly: ‘How can I achieve financial freedom by age X?’. The value of X is generally well short of the usual retirement age. To answer this question, one requires not just financial planning, but a lifestyle overhaul. It involves optimising savings rates, investing aggressively, minimising expenses, and potentially considering non-traditional income sources. It often requires focusing on this one goal to guide all major life decisions.

The concept of ‘financial freedom’ itself is highly personal and subjective, and cannot have a clear, universally accepted definition. Achieving it by a certain age will mean different things to different people based on their personalities, interests, responsibilities and outlook on life. So, in effect, a question about pursuing early financial freedom is as much about understanding someone’s motivations and aspirations, as it is about numbers. The financial plan flows from the life plan, not vice versa.

Many people dream of achieving financial freedom early in life. The routine of working to earn money is a major part of our lives, and breaking free from it represents a significant form of liberation. Financial freedom comes at various levels, with the highest being the ability to live without needing to work for income. Some individuals, such as those with substantial inheritances, may not need to work. However, for most people, reaching this level of financial independence requires a lifetime of work, if it’s achievable.

Still, attaining financial freedom earlier in life through prudent saving and investing is possible. This doesn’t necessarily mean complete independence from work, but can provide a substantial benefit. For those who earn salaries, gaining some level of financial freedom early on has become increasingly important today, compared to a couple of decades ago. Even though India is, in general, much more prosperous than it was about two decades ago, potential professional and financial instability is a lurking fear for a lot more people. Amid various job-related challenges, it is undeniable that individuals who have adequate savings tend to be stress-free. Unfortunately, the proportion of younger salary earners (in their 20s and 30s) who save is quite low. The young generation is almost uniformly dedicated to negative savings. As soon as people start earning, they take on loan EMIs, essentially spending future savings today.

This appears to be the usual crusty advice that older people offer the young, but it is true. Regardless of the job market conditions, early career savings significantly contribute to later happiness. The individuals with enough savings to cover a year or two of expenses, including loan EMIs, generally feel more secure about their career choices. Moreover, financial security empowers them to negotiate better employment terms, as they can afford to take risks.The reality is that achieving this level of financial security is the closest many will come to financial independence. The concept is simple. The first step is to start saving, and the second is to save sufficiently. However, beginning this process is challenging, especially amid a hyper-persuasive consumer culture that constantly lures you to spend. Still, this is the path to true financial independence for most people.(The author is CEO, VALUE RESEARCH)


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