‘Freedom’ is defined as a state of being free with an absence of necessity, coercion or constrain in choice or action. From a personal finance point of view, there is no single definition of ‘freedom’.

The term “Financial Freedom” means different things for different people.

Let’s look at a few examples.

The first salary credit

• Mohan, a 23-year-old gets his first salary credit
• Feels ‘on top of the world’
• Liberty to go after his aspirations

My dream houses

• Shruti is 30 years old and has saved enough for the down payment of her dream house
• Achieves a sense of fulfilment
• Freedom to design her own house as per her choice.

Switching career paths

• John is now 45 years old and has built a reasonably big enough retirement corpus
• Satisfaction of a secure future ahead
• Flexibility to pursue different career options

Daughter's MBA campus placement

• Rajendra’s daughter got placed through MBA campus
• Relief after years of frugal living to ensure daughter’s education
• Freedom to go after his own aspirations during retired life

Going debt-free

• Aadesh, a 35 year old, pre-pays home loan to make his house debt-‘free’
• Debt-free means stress-free
• Free from the EMI burden, Aadesh can start accumulating to build a corpus for the future

Single mother saves enough

• Asha, a single mother is able to save enough monthly to educate her child
• Confidence to face future challenges
• Her child goes to a school of choice

The list can go on. The key takeaways from these examples are that:

• There is no one definition of financial freedom as the idea of it differs from person to person and situation to situation.
• Achieving financial freedom gives us a sense of fulfilment.

Let’s delve deeper.

Financial Freedom is about Striking a Balance

Let's take example of the life of two individuals, one of them is a workaholic and wishes to retire at the age of 40. He understands the need for financial security after retiring and is willing to work hard for it. However, he is too focused on his objectives that he completely forgets to ‘enjoy the present’. In contrast, his girlfriend believes in ‘seizing the moment and living life to the fullest’. She has no worries of the future and is too focused on the present.

From a financial planning point of the view, these two individuals may be classified as extremes, and a more prudent approach lies somewhere in between the two.

While the decision as to how much to spend and how much to save now is a matter of personal choice, it is ideal to strike a balance between present and the future. Every one of us with a disposable income, after spending on essentials, need to decide the split between discretionary spending and investing for future.

Financial Freedom is about keeping the Options Open

Which situation would you prefer?

There is no right answer to this question. However, consequences of opting for these choices differ. With money we have the option to spend till we actually spend it. The irony is that the moment you buy the car, you look ‘rich’, but you are exactly Rs.40 lakh ‘poorer’. In other words, when we buy something we are giving away the ‘options’ or the ‘financial freedom’. This brings to the question of spending on ‘needs’ vs 'wants'.

Needs Vs Wants

Illustrative table on Needs and Wants

Sometimes, the line that distinguishes ‘wants’ from ‘needs’ is blurred. Spending on your lifestyle to be categorized into ‘needs’ or ‘wants’ can be dicult. For instance, person A may term entertainment expenses as ‘needs’ and person B as 'wants'. Since these are personal choices, one needs to have clear understanding of their choice and a monthly budget for spending on 'wants'.

Can we quantify the money required to achieve Financial Freedom?

While there is no single definition of ‘Financial Freedom’, a simple definition would be to have enough money (savings and investments) to lead a good life (needs and wants of the family). But, many of us are not aware as to how much money is sufficient enough. This is the approximate amount of money that might be required to allow an individual to retire today and gain financial freedom.

A few things to keep in mind while assessing the amount of money for Financial Freedom:

• Current monthly expenses of the family (needs)
• Your current lifestyle and the estimate amount of money you will require to upgrade it (wants)
• Dreams you want to achieve in your retired life. (this may also include future needs)
• Your current wealth (your cushion)
• Expected inflation (your enemy)
• Expected returns from your investments (your friend)

Since there are multiple factors to consider, it is ideal that you consult with an investment expert to better understand your route to financial freedom.

HDFC Retirement Savings Fund

A vehicle you can consider to achieve financial freedom

If a sufficient enough retirement corpus can give you financial freedom, you may need to plan for it years in advance. Regular and habitual investments, preferably though SIPs, into HDFC Retirement Savings Fund could enable you to embrace retired life with confidence.

You can choose between 3 plans depending on your age and risk profiles:

Investments in the scheme qualify for benefits U/s 80 C of the Income Tax Act, 1961. Trying to achieve financial freedom without planning is like appearing for an exam without preparation and hoping to score good marks. So, start your SIP today in HDFC Retirement Savings Fund.

Views expressed above are indicative and should not be construed as investment advice or as a substitute for financial planning.

Due to the personal nature of investments, investors are advised to consult their financial advisors before investing

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