Often, we hear about the significance of savings to achieve stability in our financial affairs. People also tend to define saving as a virtue and spending a vice.  But let’s approach the basic question of how to save? Is it merely setting aside our income after all our expenses?  Should we compromise our lifestyles to save?  Or should we be endowed with a vast amount of wealth so that savings become incidental? At the age of 18 children are expected to move out of their houses and become independent in many countries. Have you thought about what freedom is to you? Does it mean moving out, earning money, or managing your own expenses?

Imagine not working even for another day in your life and being able to continue the same lifestyle you are living now. Exciting and intriguing right. In fact, for most of us the very purpose of earning in a job is to reach this level and have significant amount of leisure so that we can pursue those activities which gives us fulfilment.  This status is completely achievable once a person attains financial independence.

So, what does financial independence mean? And how can one become financially independent?

Financial independence is the stature of having sufficient income or wealth to suffice one’s living expenses for the rest of one’s life without having to be employed or dependent on others. While so much has been spoken about returns offered by various investment avenues over time, the importance of carving out a Savings pool out of a person’s income cannot be understated.  The whole process can be summed as a continuum of earning income, identifying savings pool, allocating the savings across multiple investment avenues and being consistent with these processes.

Will more money give you happiness?

Let us address this straight. Most of us would like to spend as much as we can the moment we get our pay checks and save the residual portion of our income. In fact, many of us using credit cards tend to spend on the future income as well. The impulse to spend on discretionary items is much more than the impulse to save. Why not try reversing this approach towards spending and saving? An effective method to save money is by treating saving as the first expense. All of us will have mandatory expenses like paying for the needs, payment of bills and loans and supporting dependents to name a few. Why not include saving money also in this list of mandatory expenses? As soon as you receive income, first put aside a portion of your income for savings and this can be wisely allocated towards various investment avenues for wealth accumulation. A good thumb rule that we have often heard in this context is the 50-30-20 rule which means allocating 50% of the net income towards needs, 30% towards discretionary spends and a minimum of 20% towards savings. If we put this rule to practice, in addition to the mandatory deductions by the employer towards retirement benefits, this pool can help you as a baseline for accumulating good amount of corpus. This brings us to the next set of questions. What avenues to consider for investments? How long should I invest? Should I borrow money for accumulating assets? We will surely address these questions in our subsequent blogs. Saving money is a baby step towards financial independence. So, create the habit of saving. What money brings you gives you more happiness than the money itself.