Pocketful

Category: Personal Finance

  • Top 10 personal finance lessons for self-learning

    Top 10 personal finance lessons for self-learning

    In a world where money navigates the flow of your life, it is very important to learn about Personal Finance. This article is not only for young individuals who have just started earning but for every person who wants to take charge of their financial decisions and future. We all know that our traditional education system does not teach us about the real financial world. For example, how to file your taxes, how to do retirement planning, what is a credit score, how credit cards work, and more. Once you enter the real world you have to decide on the things that you were never taught about. 

    Here are 10 personal finance lessons for self-learning –

    quick summary of top 10 personal finance rules.

    Read Also: P2P Lending: Definition, Benefits, And Limitations

    1. Setting up financial goals:

    Having clarity about your financial aspiration Lays a strong foundation for your financial future setting up short-term and long-term goals helps to form a road map to achieve them. The financial goal varies from person to person depending on their situation. Setting up financial goals that are realistic, attainable, and measurable is very important.

    Some financial goals could be:

    • Buying a house in the next 10 years
    • Buying a car in the next two years

    2. Have a budget:

    Pen down all your income and expenses on a piece of paper, and see where your money is going. Analyze how could you allocate your income in a better way, so that the utility derived from your income could be maximized. Try to eliminate necessary expenses, fix the budget for every expense and try to stick with it.

    3. Pay yourself first:

    The first thing you should do when you get your paycheck is to pay yourself first. It means that you should keep a fixed amount aside every month for your future depending upon your financial aspirations. It is important to save for your future because we live in a world full of uncertainties, and believe it or not money may not be the most important thing in life but it affects everything that is.

    4. Start investing early:

    Investing work on the principle of compounding. Interesting fact that Albert Einstein famously referred to compound interest as the 8th wonder of the world. Compounding is accumulating wealth by allowing returns to generate more returns amplifying the benefits of saving and investing. 

    Let’s try to understand the benefit of early investing through an example:

    Suppose Mr Sam is 30 years old and starts investing 25000 rupees Every month at the rate of 12% p.a. for the next 25 years.
    At the age of 55 years, the value of his investment would be 4,70,000 rupees.
    But, if Mr Sam had started investing just 5 years ago, i.e. when he was 25 years old then.
    At the same age of 55 years, the value of his investment would be roughly around 8,80,000 rupees.

     5. Automate your saving:

    Saving your money is very important, if you save money in your good time your money will save you in your bad times. Set up automatic Transfer from your paycheck account to a separate savings account. Then slowly and gradually increase the amount you will be stunned to see how rapidly your savings will compound. Automating your savings gives you peace of mind because you know that you are building and saving your funds.

    6. Learn about credit cards:

    Credit cards can be both a boon and a bane. It just depends on the person and how they use them. If you are someone who can pay their bills on time then believe it, credit cards are a blessing for you. 

    There are various advantages of using a credit card such as

    •  Helps in building credit history.
    •  Helps you in tracking your expenses.
    •  Used as an emergency fund.
    •  Comes with a lot of rewards.
    •  Convenient pay method.

    7. Retirement planning

    It is never too early to plan for your retirement since who doesn’t want a comfortable and hassle-free life in their Golden years? so it’s better to start planning for your retirement as soon as possible. First, create a retirement budget and figure out an amount that you think will be enough for you to have your desired lifestyle in your retirement age. Then look for retirement accounts like IRAs or retirement pension plans to start your savings, Apart from this you can also figure out different sources of generating passive sources of income.
    For example, invest in real estate by taking a loan from a Bank in your working year and then enjoy the rental income and capital appreciation in the following years.

    8. How taxes work:

    Learn and have a fair understanding of how taxes work. Learn about Income Tax, wealth tax, rebates, deductions, and credit scores. Identify your tax slabs and understand how to file taxes. ITR is very important if you are looking forward to taking a loan. When you approach the bank for the same they ask you for your tax return filing. Apart from this the government also give various types of relief if you fulfil certain financial obligations. These reliefs can sometimes help you to save a lot of money while making big purchases.

    9. Lifestyle inflation:

    Lifestyle inflation is a situation when a person starts spending more on their lifestyle than average because their income has increased. As your income grows it is normal to upgrade your lifestyle. But you should be mindful of where your money is going. It is important to distinguish between your needs and wants. However, being mindful of lifestyle inflation and saving a significant portion of increased income can accelerate your progress towards your financial goals.

    10. Kept learning:

    Understand that learning is a continuous and never-ending process. Everyone at some point in their lives has taken wrong financial decisions. But it is okay because everybody makes mistakes. What matters is how much you have learned from those mistakes. Financial missteps are a part of the learning journey. Cherish your mistakes as learning opportunities. Analyze what went wrong and accordingly adjust your strategy.

    Conclusion

    Remember that learning about financial independence is a lifelong endeavour. Which takes time. Being disciplined and having patience over the longer term makes achieving your financial goals more easy. 
    So educate yourself, set your goals, and take productive steps to make your future financially secure. By doing so, you are not just saving your money but investing in a more fulfilling and secure future. 

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    FAQs (Frequently Asked Questions)

    1. What is personal finance?

      Personal finance is the management of monetary resources in such a way that you can maximize its utility. And planning to spend your money in such a way that you can fulfil your present needs and also save for your future.

    2. How to save money wisely?

      To save your money wisely first identify where your money is going or where you are spending your money. Then distinguish between your needs and wants and accordingly cut your unnecessary expenses.

    3. What is the PYF rule?

      According to the PYF pay yourself first rule you first pay yourself out of your paycheck i.e. you keep an amount aside to invest or save for your future. By following this rule you are creating a safety cushion on which you can rely in your hard times.

  • How to invest in dividend stocks in India?

    How to invest in dividend stocks in India?

    We all desire to earn passive income, and investing in dividend stocks provides an excellent opportunity to achieve it. As the Indian markets outpace the returns of other stock exchanges, it becomes crucial to be part of this growth story and reap its benefits. Investing in dividend stocks in India offers a steady income stream & holds the potential for long-term growth. These stocks, often called “cash cows,” allocate a portion of their earnings as dividends to shareholders. 

    Investing in dividend stocks is as simple as your usual stock investments –

    quick summary of how to invest in dividend stocks.

    1. Select a Reliable Brokerage: Choose a reputable brokerage firm with the necessary tools and resources for stock trading.

    2. Open a Demat Account: Sign up for a trading and Demat account with the chosen brokerage. Provide the required documents and complete the account setup process.

    3. Research Dividend: Paying Companies: Identify companies listed on Indian stock exchanges that have a history of paying dividends consistently. Look for stable companies with good financial standing. We’ll be discussing this point in detail.

    4. Evaluate Dividend Yield: Review the dividend yield of potential stocks. It can be calculated by dividing the annual dividend per share by the current stock price. This helps gauge the potential income.

    5. Consider Qualified Dividends: Understand the concept of qualified dividends and their tax implications. Qualified dividends are usually subject to lower tax rates, making them a tax-efficient choice for investors.

    Read Also: What is a Dividend? 

    6. Place an Order: Once you’ve identified a suitable dividend stock, place an order through your brokerage’s trading platform. Choose between market orders (immediate execution) and limit orders (set a specific price).

    7. Monitor Dividend Payment Schedule: Keep track of the company’s dividend payment schedule. Dividends are often paid out quarterly, but the timing can vary. Stay informed to ensure you receive your dividend income.

    8. Reinvestment or Payout: Decide whether you want to reinvest your income or receive them as cash payouts. Reinvestment can lead to compounding returns over time.

    9. Stay Informed: Continuously monitor the performance and news related to the companies you’ve invested in. Stay informed about any changes in the company’s financial health or dividend policies.

    10. Long-Term Perspective: Approach dividend stock investing with a long-term perspective. The goal is to build a portfolio that generates a steady stream of income over time, while potentially benefiting from capital appreciation.

    11. Tax Considerations: Be aware of the tax implications of dividend income in India. Understand the applicable tax rates and reporting requirements for dividends received.

    12. Diversification: With any investment strategy, diversification is the key. Avoid putting all your funds into a single dividend stock; consider building a diversified portfolio across different sectors.

    Now, you’ll be all set to start your journey of investing in dividend stocks in India. The goal is to create a steady income stream and see your investments grow over the long haul.

    Read Also: 5 Highest Dividend Paying Stocks in India

    Factors to see for identifying dividend-paying companies –

    1. Financial Performance: Examine the company’s financial statements, including revenue growth, profitability, and cash flow. A strong financial foundation is essential for consistent dividend payments.

    2. Dividend History: Check the company’s track record of dividend payments. Look for a history of regular and stable dividends over several years.

    3. Dividend Yield: Evaluate the dividend yield, which is the ratio of annual dividends to the current stock price. Compare this yield with industry averages to gauge competitiveness.

    4. Payout Ratio: Calculate the payout ratio by dividing dividends per share by earnings. A sustainable payout ratio indicates the company can comfortably afford its dividend commitments.

    5. Earnings Growth: Assess the company’s earnings growth trajectory. Companies with steady and increasing earnings are more likely to maintain dividend payments.

    6. Debt Levels: Analyze the company’s debt levels and debt-to-equity ratio. Excessive debt could impact its ability to sustain dividend payments during economic downturns.

    7. Industry Trends: Consider the industry the company operates. Research industry trends and forecasts to ensure the company’s position is strong and its market share is sustainable.

    8. Management and Governance– Evaluate the quality of the company’s management team. Transparent governance practices and a history of shareholder-friendly policies are positive indicators.

    9. Competitive Landscape: Compare the company’s performance, dividends, and strategies with its competitors. A company that outperforms its peers is more likely to provide stable dividends.

    10. Market Capitalization: Consider the company’s market capitalization. Larger, well-established companies often have the resources to maintain consistent dividends.

    11. Future Prospects: Research the company’s growth potential and expansion plans. A company with a clear roadmap for growth is more likely to continue rewarding shareholders.

    12. Dividend Growth: Assess the company’s history of increasing dividends over time. Consistent dividend growth demonstrates management’s commitment to shareholders.

    13. Analyst Recommendations: Review recommendations from financial analysts and experts. While not definitive, these insights can offer valuable perspectives on the company’s prospects.

    14. Industry Regulations: Be aware of any industry-specific regulations that could impact the company’s ability to maintain dividends.

    15. News and Developments: Stay updated on recent news, events, and developments related to the company. Changes in leadership, acquisitions, or strategic shifts can influence dividend sustainability.

    By following these steps, you can navigate the world of dividend stocks with confidence and make informed investment decisions.

    Investment principles to swear by –

    1. Focus on Regular Payouts: Look for companies that give out dividends often. They’re like your paycheck but from your investments!

    2. Don’t Chase Just High Yields: Sure, big payouts are tempting, but make sure they’re sustainable. Sometimes a struggling company offers high yields, but that might not last.

    3. Stability Matters: Pick companies that are strong and steady. You want them to keep making money so they can keep giving you dividends.

    4. Diversify: Don’t put all your eggs in one basket. Invest in different companies and industries. If one isn’t doing well, others might make up for it.

    5. Long-Term Thinking: Dividend stocks are like slow-cooking investments. Think long-term. Over time, your money can grow nicely.

    6. Reinvest or Enjoy: Set your goals beforehand in terms of the yield you are targeting. Decide if you want to buy more shares with your dividends (like planting seeds) or just enjoy the extra cash.

    7. Keep Learning: Keep an eye on the news about the companies you invested in. If there are big changes, it could affect your dividends.

    8. Know the Tax Rules: Remember, dividends are taxed. Know how much you might need to give back to the government.

    9. Look at Dividend Growth: Companies that increase their dividends over time are a good sign. It means they’re getting better at making money.

    10. Stay Calm: Don’t freak out if the stock price goes up and down. Focus on the dividends and the company’s overall health.

    11. Patience Pays: Think of it like growing a garden. It takes time, but the rewards can be worth it. Hold on for the long haul.

    12. Expert Help: If you’re unsure, get advice from experts or professionals. They can guide you based on their experience.

    Remember, there’s no one-size-fits-all strategy. Your approach depends on your goals, risk tolerance, and how much you want to be involved. With the right strategy, dividend stocks can be a tasty addition to your investment plate!

    Read Also: Highest Dividend Paying Penny Stocks List

    How to research dividend-paying Companies?

    First off, identifying stocks that pay a good dividend yield is important. This means looking at how much dividend you’d get compared to the stock’s price. Companies that keep their dividend yield high are usually seen as pretty stable investments. The screener can be used for this purpose. When you’re picking these dividend-paying stocks, it’s smart to know about “qualified dividends.” These are dividends that meet certain tax criteria and are usually taxed at a lower rate, which is a good thing for your pocket.

    Now, when it comes to actually investing in these stocks, proper research needs to be undertaken. Look for companies that have a track record of sharing profits with their shareholders. They usually pay out dividends regularly, like every quarter. It’s a good idea to keep an eye on when they announce their dividend payouts.

    Here’s the deal though: this kind of investing is like the slow-cooking of investing strategies. You’ve got to be in it for the long haul. Even big shots like Warren Buffett say they like to hold onto stocks “forever.” It’s all about being patient and letting your money grow over time.

    Conclusion

    But hey, remember that dividends in India are taxed. The rate depends on how much you earn, so it’s good to know what you’re in for tax-wise. If you’re not super into picking stocks yourself, no worries. There are mutual funds that focus on these dividend-paying stocks. That way, the experts handle the hard work and you still get the benefits.
    The main goal here is to create a source of passive income. By choosing stocks that keep growing their dividends, you could have more cash coming in over the years. So there you go! Investing in dividend stocks in India is a smart way to get some cash flow going and let your investment bloom. Just remember to pick wisely, be patient, and let the magic of compounding do its thing.

    Calculate Dividend Yield – Dividend Yield Calculator

    FAQs (Frequently Asked Questions)

    1. What are dividend-paying stocks?

      The stocks of companies that pay a portion of their profits to their shareholders are called dividend-paying stocks. Investing in dividend-paying stocks acts as a passive source of income.

    2. Which are the best dividend-paying stocks in India?

      You can check out this link to find the top fundamentally strong stocks that dividend-paying in 2022 India. click here

    3. Is investing in dividend-paying stocks good?

      Yes, investing in dividend-paying stocks is good. Because it not only pays out dividends to its shareholders but the investor also benefits from capital appreciation.

  • How to find and identify undervalued stocks

    How to find and identify undervalued stocks

    Undervalued stocks are stocks that are trading at a lower price than their actual fair price. At times the stock price does not fairly represent the true worth of the company. Sometimes small companies get ignored by analysts who are experiencing increased sales and better profit margins and have undervalued share prices. Investors look forward to investing in undervalued stocks because the possibilities are very high that the price of these stocks will increase in future. But, the question that arises here is how to identify these undervalued stocks.

    10 parameters that one should consider to decide whether the stock is fairly priced or not –

    quick summary of 10 paramters that one should consider to decide whether the stock is fairly priced or not

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    1. P/E ratio

    The P/E ratio shows the relation between the stock price and the company’s earnings. It is calculated by dividing the current market price of the stock by the earnings per share.

    The ratio can be used to determine whether the stock is undervalued, overvalued or fairly valued.

    • If the stock P/E is more than the industry P/E we can say that the stock is overvalued.
    • If the stock P/E is less than the industry P/E we can say that the stock is undervalued.

    And lastly, if the stock P/E is nearly equal to the industry P/E then the stock is fairly priced. The P/E ratio is important when determining the true worth of the company.

    2. P/B ratio

    The P/B ratio shows the relationship between the current stock price and its book value.

    There are 3 main steps for computing the P/B ratio of any company.

    • Step 1- Calculate the book value(company assets minus liabilities ) = assets – liability = book value.
    • Step 2- Calculate the book value per share = book value. of outstanding shares.
    • Step 3- Calculate the P/B ratio = current market of the share book value per share.

    Any value below 1 is considered desirable by value investors indicating that the stock is undervalued. And a value above 3 is considered that the share is overvalued.

    3. P/S Ratio

    The P/S ratio or price-to-sales ratio is a financial ratio that shows the relationship between the price of the share and the sales of the company.

    P/S ratio = market capitalisationnet annual sales

    • An ideal P/S ratio can vary from industry to industry or sector to sector. But still, a P/S ratio between 1-2 is considered a good ratio for value investors.
    • A high P/S ratio may indicate the inefficiency of the management in using the shareholder’s funds to drive more revenue.

    Whereas a lower P/S ratio as compared to the industry standards may indicate that the stock is undervalued.

    4. Debt-to-equity ratio

    The debt-to-equity ratio is a financial ratio that is used to assess how much proportion of debt to equity a company is using to finance its assets. Debt is the creditor or debt holders’ money that is invested in the company against which they receive a payment in the form of interest regularly. Whereas equity funds are the money of the shareholders that is invested in the business.

    Having a high debt-to-equity ratio can be a big red flag for any company if the free cash flow of the company is not good. Because then the company will not be able to meet its short debt financing obligations which is not good. This does not mean that having a high debt-to-equity ratio is a bad thing. It generally depends from sector to sector. A sector that requires heavy fixed assets (like automobile or construction) might have a high debt-to-equity ratio as compared to a company that does not require so many fixed assets (like the IT sector).

    5. The PEG ratio

    The PEG ratio is a financial ratio that shows the relationship between the price and the earnings to the growth of the company. It can be defined as an advanced version of the P/E ratio. Since the P/E ratio does not tell about the price of the stock being fairly valued taking into account only the current earnings of the company and not the forecasted future earnings.

    That’s where the PEG ratio comes to the rescue it tells whether the share is being fairly valued or not at the stock exchange taking into consideration the growth rate of the company.

    PEG ratio = price/EPS growth

    • A PEG ratio of more than 1 is considered that the stock may be overvalued and not considered for investing by value investors.
    • A PEG ratio of less than 1 indicates that the stock is undervalued than its true worth and might be a good option to invest in by value investors.

    6. Free cash flow 

    Free cash flow is the cash left with the company after paying for its operating expenses and capital expenditures. The formula for finding the free cash flow for any company is given below.

    Free cash flow cash flow from operations – (operating expenses + capital expenditure).

    Having a positive FCF is a major green flag for the company because a positive FCF indicates that earnings are expected to increase in future. Which is a good sign for any value investor. Showing that either the company is experiencing sales growth or better net profit margins and that the company is effectively using their resources.

    7. Dividend yield

    The dividend yield is a financial ratio that shows what percentage of the share price the company is giving out as dividends to its shareholders.

    Dividend yield =annual dividend paid/market price

    If a company is giving out high dividends it is a green flag for any value investor and might indicate that the company is undervalued. Because generally in a company with a high dividend payout the shareholders are not only benefited from the capital appreciation but also the dividend payments give them a good annual return on their investment.

    8. ROE

    Return on equity is a financial ratio expressed in percentage terms indicating a relationship between the company’s net earnings and the shareholder’s equity.

    ROE=(Net earnings/ shareholders equity)*100

    • A 15-20% ROE is considered very good for any company as it shows how effectively the company is using the shareholder’s funds to make more money. 
    • An ROE higher than 20% might indicate that the management is taking a high risk on shareholders’ money to get more business. 

    9. Intrinsic value 

    Intrinsic value is the anticipated value of any stock. Based on certain parameters the IV of any stock is calculated. Taking into consideration both tangible and intangible factors. 

    Intrinsic value = Future cash flows(1+ discount rate)^no. of periods

    It is very complicated to calculate the intrinsic value of any stock manually, and individuals can use the stock screeners available online to get the correct IV for any stock.

    • If IV>current market price then the share is considered to be undervalued.
    • If IV<current market price then the share is considered to be overvalued.
    • If IV is almost equal to the market price then we can say that the stock is fairly valued.

    10. Pitroski score

    Pitroski f- score is a no. between 0-9 which is used to assess the strength of the company’s financials. It is taken into account to decide whether the stock is suitable for investing or not with 9 being the best and 0 being the worst.

    The calculation of the Pitroski score is quite complicated if done by hand, there are many stock screeners available online that automatically calculate the Pitroski score for you.

    • A Pitroski score below 3 is not considered good.
    • A score between 3-6 is considered good.
    • And a score above 6 is excellent for investing.

    Conclusion

    Thus we can conclude that identifying undervalued stocks is not even that hard. You just need to keep a few points in mind before starting your research. 

    Investing in stocks that you can hold for the long term is a good way to build a strong portfolio. Also, it is important to regularly churn your portfolio on a regular basis so that you can maximize the returns and minimise the risk in your overall portfolio.

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    5Best Places To Park Your Short Term Money

    FAQs (Frequently Asked Questions)

    1. What are undervalued stocks?

      Stocks are trading at a lower price in the stock exchanges as compared to their actual fair price. There are various accounting financial ratios that you can use to assess the true value of the stock.

    2. How to find undervalued stocks?

      There are different financial ratios you can consider to decide whether the stock is undervalued, overvalued or fairly valued.

    3. Fundamentally strong stocks that are undervalued in 2022 India.

      You can check out any stock screener to find the top fundamentally strong stocks that are undervalued in 2022 India.

  • How to achieve financial freedom before retirement

    How to achieve financial freedom before retirement

    As financial guru Warren Buffett once said, “Do not save what is left after spending, but spend what is left after saving”.Have you ever wondered how some people retire early at a young age? Because they have achieved financial freedom before retirement.
    So let us understand what is financial freedom. Financial freedom can be defined as a state where your monthly income from passive sources exceeds your monthly expenditure. Also, you do have an emergency fund for any type of contingent liability that may arise in future. Okay, let’s try to understand the few technical terms that were used above in the definition of financial freedom.

    quick summary of financial freedom before retirement
    • Passive income- Passive income is the source of income where you are not actively working but your money is working for you. E.g. rental income, dividend income, interest from debt fund investments, etc.
    • Emergency fund– A fixed amount of money set aside in liquid form for unforeseen future circumstances.
    • Contingent liability– A contingent liability is a potential obligation that may arise from an event that has not yet occurred. 

    Now that we have understood what financial freedom is, the question arises how to achieve it?

    Read Also: 10 Essential Financial Planning Tips for Military Members

    Here are 10 easy rules that you could opt for to achieve financial freedom before retirement :

    financial freedom

    1. Understand where you are at present- 

    The first and foremost step in the journey of financial freedom is understanding your present financial situation. Your expenses, income, assets, liabilities, debt and savings. 
    Sat down take a pen and paper and write down your expenses, income, assets, liabilities, debt and savings. So that you have your financial statement. 

    2. Frame your future goals-

    Clearly define your future goals. It could be buying your dream car, clearing up your education loan, saving up children’s marriage and anything else. Write down your 1, 5, 10, and 20-year financial goals or whatever you want you want to achieve in your life in the following years. But make sure, that your goals are specific, measurable, realistic and time-bound. 

    3. Budget like a boss-

    Make a budget and have a record so that you know where your money is going. Try to cut unnecessary expenses from your budget. Distinguish between your needs and wants. A need is something necessary to live and function. A want is something that can improve your quality of life. Using these criteria, a need includes food, clothing, shelter and medical care, while wants include everything else.
    It’s not like you have completely ignored your needs but the motive is to spend your money in such a way that you can maximize the satisfaction derived from it so that your future is also not compromised. 

    4. Pay yourself first-

    The financial rule of paying yourself first simply means that you put a certain amount aside for your savings or investment before paying for any of your bills. 
    This helps you to build a cushion, for your future on which you can rely in uncertain times. 
    This rule enables you to prioritize your savings and investments, even if that means compromising on your wants today. PYF rule helps you to achieve financial freedom early and also to accumulate wealth.

    5. Invest early- 

    ‘The earlier you start the more you earn’ is a saying that goes by. Starting your investing journey early gives you a competitive edge over others to achieve financial freedom. The earlier you start the more benefit you could get from compounding because it takes time to grow your money. 
    The compounding effect is the gathering of big rewards from a series of small and intelligent choices. Small, seemingly insignificant steps completed with discipline over a longer period can show exceptional results. An interesting fact is that Warren Buffet’s net worth graph closely resembles the graph of a compounding series. 
    To experience the power of the compounding effect yourself is to start investing early. Today with so much technological advancement anyone can start their investing journey with as little as 500 rupees per month. 

    6. Never put all your eggs in one basket-

    When we say never put all your eggs in one basket it means nerve depends on one or two sources of income. Or never put all your savings in one type of investment rather diversify your portfolio.
    During covid-19 we have seen how blue collar job people had to give up their jobs because of the situation at that time. Similarly recent mass layoffs by big companies forced us to realise the need of having multiple sources of income in such uncertain times to provide for the safety of our loved ones.
    It is very important to diversify your risk and accordingly allocate your resources and efforts over different assets so that you can create multiple passive sources of income. 

    7. Understand how taxes work

    It is very important to understand how the tax system works if you want to save your money. Rich don’t pay taxes or the CEO of XYZ company takes 0 salaries. We are sure you must have heard all those things. 

    There are so many legal ways in which rich people avoid paying taxes few are mentioned below:

    • Income shifting-
      Shifting your income from one person or entity to another to reduce taxes.
    • Charitable giving-
      Donating large sums of money to charitable organisations to reduce your gross taxable income.
    • Capital gain taxes-
      The tax rate on capital gains is less than the tax rate on personal income, so many times rich people invest their money in different asset classes.
    • Tax heavens-
      Tax heavens are those countries where taxes are low or not at all. So many rich people just transfer their wealth to such countries.

    8. Crush your debt-

    It means that first arrange your debt in descending order i.e. first try to pay off the debt with the highest interest rate following the ones with lower interest rates. This way you will pay less for the interest and more for the principal amount itself.
    Try to make extra payments when possible. Instead of paying 12 EMIs the whole month, you can simply start paying 13 EMIs a year. This year you will, be able to close your loan on time without taking extra financial burden. 

    9. Automate your savings-

    There are so many ways in which you can automate your savings. One is setting up a direct deposit, wherein you simply give instructions to your bank to transfer a certain amount every month to another account or SIP account.
    Apart from this, you could you budgeting apps that track all your daily expenditures and automatically invest the change amount to your desired asset classes. 

    10. Educate yourself-

    This is by far the most important point that you should swear by in your financial journey. The journey to achieve financial freedom is full of ups and downs. And the only way to tackle them is by educating yourself and being updated on your surroundings. 
    Understanding money, finance and investing is a long-term journey that takes time, patience and discipline to complete. 

    Read Also: What is FIRE in Finance? Full Form, Features, Types, and Formula Explained

    Conclusion

    Hope that now you will have a clear understanding of how you can achieve financial freedom before retirement by just following these simple steps. Having financial freedom is not only about having enough money in your bank account to sustain you for your golden years. But also having peace of mind and understanding that having enough money for the future is not the ultimate goal.
    But diversifying, allocating and churning your investments in such a way that it can sail you through the thick and thin market trends.

    FAQs (Frequently Asked Questions)

    1. What is financial freedom?

      Financial freedom can be defined as the state where you have enough monthly income from passive sources to cover your monthly expenditures without working. Financial freedom is not about being rich or wealthy but about having enough resources to pay your bills.

    2. How to achieve financial freedom?

      It takes discipline and patience to achieve financial freedom. Achieving financial freedom is a long-term thing that takes time. First, you have to know about your monthly income and expenditure and then accordingly create passive sources of income.

    3. How to plan early retirement in India?

      In the above article, 10 simple yet very important steps are mentioned that if you follow you can achieve early retirement as compared to others.

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