Thursday, January 28, 2010

Are you financially independent? You can be! Tips and insights for gaining Financial Independence

Are you financially independent? Are you always complaining that you dont have the resources or time to make a financial plan? Have a nagging frustration that you have always helped others and when it comes to your turn, everybody else is selfish? It occurs to you often that you are very intelligent and creative, but no time to pursue any personal interests, due to the financial liabilities and your need for earning the daily living - is it pulling you down every moment in your life and make you almost depressed? making you stressed out, an addict or a drunkard or unfit? 

It doesnot matter whether you are feeling rich or poor, just  STOP for a while and read this now. Calm down and relax.Think about the need for financial independence.A step by step financial plan to set you free from daily worries and to pursue your interests!

Please find some financial tips and points to ponder, my observations and those tips passed on traditional wisdom in a typical Indian family.

1) Know the assets and liabilities of you and your family members, at any point of time - LIVE WITHIN YOUR MEANS TO GAIN FINANCIAL INDEPENDENCE!

  • Keep a record of the assets and liabilities, and all account information safely.
  • Have a financial plan and make proper savings and term insurance, foreseeing possible expenditures (like child’s education, marriage) and unexpected emergencies.
  • Have proper nominees for the investments and savings you make
  •  Even if you are doing well, your family member’s debt could also ruin you, as there is no meaning in your riches when your kith and kin suffers! Keep a watch, guide, advise and help if possible. If they follow your advice and live as per your control and directions, when they seek your finanical support and help, do bring them up! Remember to expect ingratitude as a policy and believe in the circle of life - certainly what goes out comes back!In future, either they or somebody else would help you or family members as per the almighty's will!  If they are not heeding your advice, keep a wise distance.Otherwise, when they sinks, the complete family sinks and there will be nobody to do any rescue! There are many instances, when people behaved incorrigibly and spend at their own whims and ego, deriding family members and well wishers who advised caution, took their help and assumed it is mandatory for them to help.They have ruined themselves and their own well wishers and family members who helped them.So, be wise and stay away and keep a watch at a distance!
  • Maintain and periodically crosscheck your accounts, to review your finance situation e.g. if you are loosing, know how much you are loosing.Some people meticulously write accounts, but never checks it! This is a dangerous situation as it gives them a false sense of control. And it could also lead them to act stingy for some issues affecting interpersonal relations while being lavish on their selfish interests.
2) Avoid ego and do use commonsense in financial and business transactions.Otherwise it would throw you and all your associates to debts: you keep making liabilities and continue to make irrational decisions. Analyse this for yourself, check with your close circle of family and friends. Beware of this! Easier said than done! :)

3) Identify your behavioural strengths and weaknesses.Seek support by creating a good network of family, friends and associates. For instance, you might have very good ideas and general knowledge and eagerness to start something new!, but sometimes you may lack skill of execution, follow up and necessary management. No businessman was successful, who started his business with a ful lfledged establishment from day one.They built their empire from scratch and gradually with patience and consistent hardwork.

4) Teach your children and younger ones, financial discipline and management, right from early stages. Your direction and experiences will help them to be aware of the right value and need for money and the ethical ways to earn it.
  • Allow them to value and handle money responsibly and make them accountable.
  • Make them aware, what goes into earning a regular source of income and how differently money is distributed in the world.Citing rela life stories are handy.
  • Make them aware of how to save, use the cards, loans and make the most of the time and money etc.
I have seen many children who grow up and learn financial management the hard way- some doesn’t have any discipline, some will be stingy or some will overdo it. The sad truth is that some will never learn it, till the end of their life – due to a simple reason of foolishness or engrossing ego or hatred towards others, whom they blame for their present situation!!! –be it their parents, siblings, friends, partners or associates! Remember, you act different, when in financial strain!

5) Observe and Learn from the mistake of others and never repeat it. Do remember that those who don’t learn from history are condemned to repeat it!

6) Know the limitations of money in enriching your life. Knowing what your financial independence means to you, your associates, family and the community as a whole.
If your only focus is to make money, this attitude will derail YOU and soon you will realize that most of things you cherish in life are the ones which money cannot buy! In my humble opinion, each and every one of us should be very cautious of this situation!

7) Always be wary of debts. It takes your peace of mind away! Some people get used to a style of living in debts(read, somebody else’s deserving money!); These people mistakenly consider money borrowed as their income and gradually become neck deep to debt!

  • If you know that you are in debt and you may not have the liquidity to pay off, which in turn would destroy your assets and statusquo, act wisely to tally your assets and liabilities NOW! And to do the needful to clear the iabilities immediately!
  • Once you realize that you are in a debt trap, clearly track each and every paise which is in your control and be focused in getting out of the debt as soon as possible.Make a plan and publish it to garner support. Along with a strict financial discipline, convey your plans and solutions for the future to your family, friends, lenders and associates - to give hope and clear vision, to all affected and involved parties, encourage them to perform well in whatever they are undertaking. Live within means and maximize output.
  • Once in debt, prioritize and do close it immediately. Only then take up any other activities which require capital or money to be raised, very cautiously. Know that there are times in your life, when you could take varying degrees of risk and always know your limits and chances – Commonsense helps a lot!!!
    There are lots of financial counseling centres run by professionals and leading banks in India.Contacts could be obtained by a simple search in internet or via financial magazines.
    In my opinion, look for a trustworthy and able friend or family member who could help you in this situation.
8) Actively find additional and sustainable income sources, but be very careful here not to make high investments via further loans, or to involve in high risk affairs. A recommended strategy, is to lie low till you resolve the problem with a clear plan and go for your ambitions only after you recover fully! Donot get ego gratifications in between as it will ruin you and supporting relationships!

9) Remember, charity begins at home. Few people when in debt, go on a lavish spending spree and give everything their children or spouse or associates ask for, to give a temporary false impression to self and public. Some could divert their focus to unrelated areas to gain temporary peace of mind - social work, excessive drinking, giving into tension, runaway from life or abscond for sanyasa.. Needless to say, this is not helpful as a solution in the long run!

10) Keep fit and healthy, so that you save your health and energy to be out of the debt trap and to build financial freedom for you and family members.

11) Be positive with Faith and Prayers – Optimistic faith and sustained belief and ambition to get out of debt and to regain financial freedom could be sustained via regular prayers in this direction! Counselling would be helpful, only at the right and professional hands. Hysteric crowd gatherings and spiritual rituals could only help with temporary nirvana, unless accompanied with a right goal and solution. This will keep you in good stead, away from fraud gurus and drugs alike!

12) If possible, avoid debts. Debt Unavoidable? – Have strict discipline on borrowing and for prompt repayment! - If you have to borrow from somebody, please clearly state the terms and conditions from your side – when will you pay back, what guarantee need to be given, how much interest etc. and keep the promise at any cost, as it determines your reputation and financial freedom! Incase, if you foresee an issue in repayment, always intimate them and ensure to yourself that you pay the lender at the next promised date- give this higher priority than any of your personal needs! – otherwise this becomes a carcinogenic behaviour for you! It will destroy YOU, your associates and family members completely

  • Forget whatever you do, or what you had done, if you have taken money from somebody, then you are indebted to that person!
  • Remember, there is no free lunch!(I used to heavily debate earlier about this in close relationships, but in a family/society where marriages/profession bring together people from different backgrounds, and also when history repeats, IMHO, this will occur at some point of time, in most cases!)
  • Worse, if you are not respecting your word in money matters, people will gradually run away from you! Remember, you are destroying their resources and peace of mind - nobody likes it for long!
  • In case if you foresee a longer term for repayment, please do avoid taking money from friends or relatives and without giving sufficient guarantee (unless voluntarily offered :).
If you have not practiced it so far, please review the situation and start this very essential discipline for life, NOW!!!

13) It is very essential to keep your account and transactions in good respect, to keep even blood relationships in long term. Remember, if the person who gives doesnot keep track, atleast the person who gets should know!! If you have to get money from somebody, however small it may be, you may decide sometimes not to explicitly ask. But, if you need to give somebody money, however small it might be, do explicity mention it and promptly give it.

14) Never ever divert and use an amount you have borrowed for a different purpose, which maynot help you repay it. Danger clearly waits you, if you had raised an agricultural loan for a harvest you need to sustain your family and repay the loan, and then have to divert that money for some other purpose! Time will come to repay that amount and for such situations, some people blame the circumstances or other people, rather then their lack of financial planning!!! They then take more high risk debts to pay off the current one and you know where it normally leads to!
You would remember the fall of many "Blade" financiers, once thrived on cut-throat interest rates to amass wealth(they have their own risks you know :) and then later became pauper simply because of diverting the excess amount collected from investors in several unrelated investments or utilizations with out any return of investment.

15) YOU can save yourself, if you do financial analysis and planning NOW, irrespective of your current statusquo! –this is for the sake of YOU, your life, to realize your potential and dreams, your associates who trust and survive on you, your family members, ALL!!!
Don’t live further without taking full responsibility or fully delegating to a successor, to take charge and to do the needful immediately! Let go of your ego and heartaches! Be wise to know what is more important!
Maximum danger lies in not doing so – this is same for those who are in neck deep debt and for people who are not currently in debt as well!

  • Evaluate your financial planning and situation as of NOW!
  • Make the affected near and dear involved and aware of the situation, on how you are going to SOLVE this and about the future plans!
  • Listen to all advices or criticism, have and convey your alternatives in finding a right solution – See whether it is possible for you alone (say, by selling few assets to clear of the debts fast) or else, do seek support at the earliest!
  • Be disciplined and accountable to the ones who supported you in need and have a real wish to repay their debts asap.
  • Remember, not to repeat this scenario!
Focus on your circle of influence and abilities, to garner support and achieve financial independence.

  • When you are in debt, it is not at all advised to get into unrelated social work or risky and ambitious projects which need liquid cash flows. Mostly this will only jeopardize and waste your resources and energies, from achieving financial independence.
Financial planning and awareness is essential for you at any point of time, irrespective of your statusquo – it means the organization of financial affairs so as to achieve specific goals or objectives, keeping in mind the age , risk and returns profile etc. For an individual, it is the process of meeting his(or her) life’s goals through the proper management of finances. These can include buying or building a house, saving for child’s education, marriages, planning for retirement or estate planning, as well as unexpected emergencies. Budgeting, saving, investing, reviewing, retirement allocation, insurance allocation, contingency planning and taxes are some important steps to financial planning for you.

16) Follow a very simple rule of 60:40 for expenditure and savings, from your income.
In general, you must save 40% of all your income -  irrespective of whether you earn Rs.10 or Rs.1 crore. Out of this savings, 40% you must keep in very safe and guaranteed instruments like FD, PF etc.), and 60% you keep in medium/high risk returns, depending on your age and requirements in life. There is NO excuse for anybody, if you live within your means.Have personally observed and validated this simple rule, in many known people’s successes and failures.

17) Take Responsibility of the situation and it never helps to blame others or circumstances. Clearly know that only YOU are responsible for your current situation and only you can Act now to CORRECT and SOLVE this!

Hope the above points will help you to reflect on your situation and encourage you NOW to make a healthy financial plan towards your financial independence!

Summary: Only if you know your strengths and weaknesses, you could act on it and succeed. So, take time off to ponder each of these points towards the direction of financial independence and set measurable goals! To achieve financial independence for you, the challenge is to develop simple attributes like awareness, humility, commonsense and right attitude in handling money! A higher EQ or IQ doesn’t matter otherwise. I think each and everyone of us already possess all these skills in varying degrees and only need a strong focus and discipline towards financial planning now! 

Imagine yourself in a financially independent state (to live without having to worry about your day to day financial needs), which then enables and position you to unleash your true potential! Know and live within your means!

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