Financial independence has a different meaning for everyone, depending on their circumstances and personalities. For some, it is career progression and job security, while for others it can be accumulating enough wealth or having a secondary source of income. For someone approaching his/her retirement, financial independence is whether the money they have saved can last for the remaining years of their lives. Whatever the reason be, the question to ponder is, “Can just saving a part of your monthly income enable you to achieve financial independence in the years to come?” Maybe not.
In the subsequent sections, we will understand a few reasons stating why saving is not enough to get that much needed financial security.
Ever-Increasing Cost Due to Inflation
Remember the price of veggies ten years ago? They cost much more today, due to increasing cost, or put simply, because of inflation. Inflation denotes the tendency of prices for services, consumer goods, housing etc., gradually increasing over time. While the inflation is cutting into your purchasing power with every passing year, you can’t keep up your standard of living, if you continue living on your limited savings. But, the good news is that there are ways you can ward off the impact of inflation on your personal savings. You can aim to be more aggressive with your investments to get a better return.
Changing Lifestyle Over the Years
As your income grows, your lifestyle changes too, meaning, branded clothes, a bigger house, a more expensive car among other things become regular.A decade ago, a simple movie time for the family of four on weekends would have set one back by Rs 200 to Rs 300. Today, the cost of one ticket for a weekend show is more than Rs 200.Throw in lunch or dinner,and the bill is easily tenfold of what it was a ten years ago. This is the effect of lifestyle inflation, which has become part and parcel of our modern lifestyles.
Important milestones of your life like your marriage, birth of your baby is most exciting, but also the most demanding on your finances and lifestyle. Moreover, raising a family today comes with a hefty price tag, with endless expenditure cropping up here and there, from price hikes to school fees, mortgage repayments, not to mention the day to day expenses of families. Hence, it's never been more important to keep a tight grasp on your finances.
Increasing Financial Responsibilities
If you are the sole provider for your family, your financial responsibilities are bound to increase each passing year, more so, when the number of dependents increases. Some of these include financing for your children’s education, their career and marriage, and fulfilling your spouse’s/parent’s needs. Also, the queue of financial obligations is never ending, including, buying the family’s daily needs, paying all sorts of utility bills, not to mention shelling out money for unplanned expenses when injury, sickness, or disability occurs.
Achieving Financial Independence After Retirement
Your retirement life should mean embracing a life of freedom as well as reducing stress and not worrying about alarm clocks or rush hour. This is possible only if you achieve financial independence before retiring. Having adequate corpus accumulated for your retirement life become essentially vital if you want a life that’s completely debt-free so that you have a roof over your head that’s rent-free and have amassed enough funds that you could live passively off interest and dividends.
Importance of Investing in Income Generating Assets
Just about everyone wants to become financially independent, so why do only a few get there? Financial independence doesn't usually "just happen". It starts with a detailed financial plan, including investing in the right products and a willingness to commit to that plan. Moreover, it is important to keep investing over the long term in investments that can cater to all your needs and goals and help achieve financial independence by having enough income to pay your expenses for the rest of your life. One way to achieve this is by investing in an income-generating asset like Unit Linked Insurance Plans (ULIP Plans).Unlike plain savings, ULIP offer numerous benefits like providing life cover, offering a choice of investment across different asset classes, higher returns over long-term, tax-free maturity benefit etc.
Being financially independent is a long-term process, but you can get there in less than 15-30 years if you remain invested in equity funds of ULIP plan for a long-term. Lastly, you need to make financial independence your goal and start working on it to make your life worry free and not dependent on factors you cannot control.