Are we financially independent, yet?
The government recently set out updated guidelines for citizen freedom as it unveiled ‘Unlock 3.0′. The new phase opens up our malls and entertainment zones but the directive retains the strict social distancing norms. The lockdown has highlighted how a seemingly insignificant virus can bring to halt the things that we often take for granted. One actually wonders if we will indeed be looking at ‘Independence Day’ in a new light on 15th August this year.
India created history when we took back our freedom from colonialism. In today’s context, can we win back our freedom and defeat Covid through human ingenuity? And more importantly, are we financially equipped to deal with the repercussions of health scare of this magnitude?
While there is no direct comparison to the actual suffering of tyranny, the collapse of the world economy, loss of jobs, investments, volatility in this market has presented us with valuable lessons, the most important being that of financial independence.
Being financially independent means being in control of the financial health and future of yourself and your loved ones. The desire to free yourself and your family from the chains of financial insecurity, risk of unemployment and the struggle to make ends meet during a pandemic act as key factors as one strives to be financially independent. All of us are going to retire at one point or probably burn out and opt for early retirement. Calamities may strike unknowingly, and being reliant on the government for some aid may not always necessarily be fruitful. A few pointers on financial planning may help you along the way in your endeavor to financial freedom.
#1. Idea bada hona chahiye, pocket choti chalegi
India’s independence was not the outcome of a single major event, rather multiple protests and retaliations. Just like that, financial independence is not a direct byproduct of parking your money aside for the future. Identifying suitable investment avenues that are aligned to our financial goal is essential. If the goal is to retire in your 40s, then plan accordingly. Start small but start early. An initial investment of even Rs 1000 – Rs 1500, that is gradually increased depending on the increase in income and the risk taking ability, will yield good returns through rupee cost averaging. It is also equally important to invest not in one, but various avenues that will eventually support the financially independent dream.
#2. A goal without a plan is just a wish
While everyone wanted independence, only a handful fought for it. Similarly, it is important to have a plan that underlines all your wishes and aspirations so that you can work backwards to it. Investing today in regular intervals is bound to not only benefit you but also the entire family. Consult with financial advisors who will chart out a plan that is devoid of emotional biases and suits your needs perfectly well. Or if you have one, revise and rework on it regularly. All of us may not have the same risk taking ability that we did in 2019!
#3. Money isn’t the root of all evil, procrastination is
Sitting around and waiting for the perfect time to invest is often detrimental and nips most financial plans in the bud. Today investing in mutual funds can be done with as little as Rs 100 and as frequently as one might wish. Taking the first step is as simple as buying an ice cream and once you start, keep going!
#4. Triumph is easier if the warriors are aligned to one goal
If one were to look at the freedom fighters, it was a team of some of the world’s best leaders. The commonality amongst all was their morals, their ethics, their strategies, and the drive in them to win independence for our nation. Similarly, for investing in mutual funds, choosing the right investment portfolio is very important. The future of work in uncertain and the debts are probably only going to increase. In such a situation, it is imperative that your investment portfolio is structured in a manner to give the best possible returns!
#5. Plan today, conquer tomorrow
Investing in the right instrument requires meticulous planning. It is vital to analyze whether your goal is long term or short term. Depending on the goals, we can decide whether to be invested in long term funds where risk appetite is relatively low but good moderate consistent results or in short term funds.
While the pandemic has made us all realize the importance of having a financial plan, shortage of time and lack of adequate knowledge are the key deterrents that stop us from achieving this goal. For most of us, COVID 19 has shown a mirror that reflects of our poorly planned investments. Maybe this Independence Day, we will take a new pledge to become financially secure and independent, as well!
(By Raghav Iyengar, Chief Business Officer, Axis AMC)
Disclaimer: This article represents the views of Axis Asset Management Co Ltd and must not be taken as the basis for an investment decision.