International Women’s Day 2024: What are 5 Ps to help you achieve financial freedom?
Financial freedom is a progressive journey requiring process-oriented management of income, expenses, and savings. Building investing resilience is crucial for achieving financial freedom, with a focus on a robust investing process and long-term goals.
Financial freedom is a long-drawn journey, often stretching decades. It is progressive and not a one-time event, which implies that the more process-oriented a person is regarding their income, expenses and savings, the more incrementally financially free they become over time.
There is no magic wand or shortcut to creating wealth. The key to being financially free is to build investing resilience and remain focused on your goals. Great returns are an outcome of a fantastic investing process. So how can she build investing resilience?
Firstly, overcoming information clutter, getting actionable intelligence, making smart investment decisions and the ability to remain invested despite market volatility is critical to developing investing resilience.
It is a chain of events, a robust process that needs to be inculcated in your everyday life. Investing is easy, but becoming financially free takes a lot of time and effort.
Here are a powerful 5 ‘P’s process to achieve financial freedom:
People: Get a trusted investment expert on your side. This person should understand your situation and requirements, help you with monthly budgeting, identify important personal finance ratios, set the right expectations, manage investing biases, and help in joint decision-making through collaborative discussions. Technology can help you invest but it’s the human expertise that can personalise and make you achieve your goals.
Personalisation: An investment that might be great for one person can be disastrous for another. Keeping this in mind, your roadmap to financial freedom must be hyper-customised to your requirements. Informed risk must be taken keeping your finances, goals and timelines in mind.
Purpose: Having clearly defined objectives and roadmaps helps you to be goal-centric and not return-centric. Today, information overload is a major impediment towards staying invested and goal-based investing cuts through this clutter and helps you invest with purpose. Remember, wealth creation through compounding can only happen if you take informed risk and remain invested throughout your goal.
Process: Automating investments, saving first and spending later, reducing risk through staggered investing, and timely review of life events and goals are important aspects of achieving financial freedom. Often underrated, a strong investing process is more important than fund/stock selection.
Products: The final step would be the selection of the right investment asset suitable for your requirements. By using step-up systematic investment plans (SIPs) and systematic withdrawal plans (SWPs) risk can be mitigated, and pressure on compromising your current lifestyle can be reduced without compromising your financial freedom. Your investments need to be simple, transparent and well-regulated.
Your fund selection should be based on long-term performance and fund management expertise rather than short-term past returns. How aggressive or conservative your investments are should be decided by the time horizon of your goals.
Mutual funds industry data shows that more than 70% of investments stop within 2 years. Today, top-performing funds and their past performance can be easily accessed by almost everyone through a simple Google search. Why is it then that very few people can remain invested long enough to create wealth?
Information clutter has massively amplified fear and greed, the two most destructive forces in the investing world. Information is no longer a premium, in fact, it's turned counterintuitive!
Investing resilience means having absolute clarity on what you are doing, why you are doing it and what to expect on this journey. Having the right expectations will allow you to reap the benefits of high returns compounded over a long investment duration. For example, a Rs. 15,000 SIP compounded at 15%, for 20 years, would accrue a corpus of 2.27 crores (invested amount is 36 lakhs).
These numbers are mouth-watering, who wouldn’t want 2.27 crores? I can assure you that very few people have the mental strength to remain invested for 20 years. What makes matters even worse is that, in investing, most advice is product-led and not client-centric. Even investors are looking for quick returns and ignore the process involved.
International Women’s Day serves as an occasion to celebrate the remarkable accomplishments women have achieved across diverse fields, ranging from science and technology to being pioneers of the most innovative new-age businesses. Each year, we witness an increasing number of women gaining more prominence, whether in sports or within the defence services, highlighting their invaluable contributions to society. This leads us to a crucial aspect which is adept management of financial resources as a cornerstone for attaining financial freedom, a vital component of success.
For women today, a strategy of being independent, confident, and stress-free with a great work-life balance rests on the foundation of a solid financial plan. You must be able to see your dreams in action!
Harsh Gahlaut, CEO, FinEdge
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First Published:7 Mar 2024, 01:03 PM IST
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