Financial independence is extremely important to everyone and is often described as when you can live the quality of life you want without having to work any longer. In fact, financial independence means different things to different people. For some people, financial independence means that they are able to meet their financial obligations without help from their parents or others. For others, financial independence means they have enough to be comfortable with while being able to cover an emergency. For others, financial independence means freedom from worry when they retire.  Still, others see it as being able to support themselves without worrying while being able to support the causes they value. In summary, while your definition could include any combination of the concepts above, financial independence means that you have the freedom to live the lifestyle you want with enough funds for emergencies and your future requirements and without going into debt.

To achieve financial independence, you must have enough income or wealth to pay one’s living expenses for the rest of one’s life without having to be employed or dependent on others. Income earned without having to work a job is called passive income. There are many sources of passive income, including:

• Bank deposits

• Business ownership

• Dividends from stocks, bonds, etc.

• Interest

• Life annuities

• Pensions

• Rental property income

• Royalties or patent licensing

There are many benefits to being financially independent. Some of the key benefits are as follows:

• When you have enough money saved up, you don’t have to worry about bills or debt

• This gives you a lot of freedom, peace of mind and self-confidence

• When you are financially independent, you are in charge of building and protecting your own credit, which means that you can build up your credit score by making smart financial decisions. Having good credit is important because it can help you get lower interest rates on loans and lines of credit.

• You can make decisions about how and what to save money for, like retirement or a major purchase like a house. By focusing on saving money, you can better reach your financial goals.

• When you’re financially independent, you don’t have to rely on anyone else for money, so you can make your own decisions about how to spend your money. Of course, you still want to ensure that you make smart financial decisions, but there is something very liberating about spending your money on what YOU want or need.

• When you are in charge of your own finances, you can focus on achieving YOUR personal financial goals on YOUR own timeline.

• If you are financially independent and don’t have to worry about money, you can lead a much more stress-free life while enjoying spending time with your friends and family, travelling or doing hobbies that you enjoy.

• One of the best things about being financially independent is that you can retire early. It’s important to remember that it is never too early to start saving for retirement. While it can be difficult to retire early, it IS possible.

No matter how you define or achieve financial independence, you have to start saving and investing early, which requires you to establish and stick to a detailed financial plan and clearly-defined budget, in which you have a clear view of your income, expenses and how you will achieve your financial goals. Quite simply, if you want to achieve financial independence, you need to make your money work for you instead of working for the money. It will likely require making some sacrifices, but with dedication, hard work, good financial planning, asset accumulation and sticking to a tight budget, it is possible to achieve financial independence.

The first step towards financial independence is to track your expenses and create a budget that is based on SMART financial goals, like buying a home, saving for education or saving for retirement, for example. You must then invest your savings and ensure you stay ahead of inflation. If you haven’t done so already, start a systematic investment plan, known as a SIP, which allows you to invest a fixed amount of money on a pre-determined basis. By having the money come directly out of your bank account, you don’t even see the money, and you pay yourself before you do any other spending, thus making it easier to save and invest.

If you haven’t done so already, life insurance is an important component of all financial plans. Regardless of your employment status, life and health insurance policies are essential for your long-term financial well-being. In addition, you should also always ensure that you have an emergency fund to cover the unexpected.

Of course, women are faced with unique challenges when it comes to achieving financial independence due to a variety of factors, including the fact that we tend to take more career breaks to either have children or for caregiving, that we also typically make much less while we are working, and that we outlive men by almost three years. This highlights the need to enhance our education and constantly build our financial literacy. It’s imperative to understand both the basic financial concepts, like budgeting, saving, investing, and insurance, as well as more complex financial concepts, like credit, taxes and retirement planning, for example.

The good news is that an increasing number of women are managing their own finances and planning for the future, while we are also seeing an increase in the number of women entrepreneurs. Women are increasingly advocating for our financial rights, access, inclusion and equal pay, although we still have a way to go.

At the end of the day, each of our ability to achieve financial independence is impacted by family responsibilities, health and personal circumstances, among other things. What IS given is the need to be disciplined and persevere to become financially independent. Whatever your objectives, you have to write them down and refer to them constantly to help keep you focused and on track. Keep looking for new ways to make the most of your hard-earned money. Just remember that the road to financial independence requires a lifetime commitment to continuous budgeting and investment. It won’t be easy, but it WILL be well worth it!

An Investor Education and Awareness Initiative of Aditya Birla Sun Life Mutual Fund.

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