All of us seek to achieve financial freedom at some point in life so as to do something closer to our heart like pursue a hobby or write a book, travel, etc. So what is financial freedom? It is nothing but creating enough wealth to take care of your finances over your balance lifetime, once you stop earning. In short, your assets/ investments must earn enough (if not more) to meet your current and future expenses. The returns must also take care of the impact of inflation on expenses over the years ahead.

Who comes to your mind when you think about financial freedom? Surely it is famous personalities like those in the Fortune 500 list or even some Hollywood and Bollywood stars who have earned or created enough wealth to last their lifetime even if they stop working today. Climbing down the pyramid, common examples include those retirees who have built a robust investment pool to enjoy their golden years without depending on their children, friends or relatives.

So how does one plan to achieve financial freedom? The process is not easy and needs meticulous planning and implementation especially if one is starting from scratch. There are 3 major rules that are important to follow. Rule No.1 is to start saving early and preferably from the first pay-cheque. Rule No.2 is to be regular and consistent with your investments. Rule No.3, the last but most important, is to stay invested for the long term, i.e., 10, 20, 30, 40 years (as much as you can stretch). The longer the investment period, the bigger the wealth creation potential, mainly due to the power of compounding.

The challenge though is to achieve financial freedom much before retirement, say by 50 years of age. However there are some impediments. For example, if you want to retire at 50 instead of 60 years, you get only 25 years to save instead of 35. Further, you need a relatively bigger corpus to sustain over 40 years vs 30 years if you retired at 60 (assuming a lifespan of 90 years).

So, if you save Rs.10,000 every month for 25 years @ 12% rate of return, you accumulate about Rs.1.90 crore and if you save the same amount for 35 years, your wealth would grow to Rs.6.50 crore. Thus, saving for 10 additional years helps your wealth to shoot up almost 3.5 times (from Rs.1.90 crore to Rs.6.50 crore) – all because of the power of compounding. However, if you want to accumulate the same corpus (Rs.6.50 crore) by age 50, you need to save Rs.34,250 per month for 25 years instead of Rs.10,000. In short, you need to save much more aggressively if you want financial freedom earlier.

Mutual funds can help you to achieve financial freedom through a simple tool called SIP or Systematic Investment Plan (works like a bank recurring deposit) which allows you to start saving with as low as Rs.500 per month. You can benefit from the power of compounding over the long run besides the potential of high returns from equity funds. In fact, SIP is like a Good EMI as it is not an instalment but an investment to achieve your goals and more so your financial freedom!

You can use the  SIP calculator online to calculate your returns and your investments.

Information contained in this article is not a complete representation of every material fact and is for informational purposes only. The recipient is advised to consult its advisor/ tax consultant prior to arriving at any investment decision.