Anil Pinapala is a FinTech entrepreneur with an experience of over 18 years in the Micro Loans /Digital Lending Industry. For the last couple of years, he has been working on expanding Credit Access in India with Vivifi – a FinTech NBFC – that offers Innovative Financial Products to customers across the Credit Spectrum with a focus on the Under-Served / Unserved Customers. Vivifi’s flagship product, FlexSalary– India’s first emergency Line of Credit, provides unsecured personal loans to prime and non-prime salaried individuals. The business has expanded exponentially, receives over one lakh loan requests a month and has extended over 200 Crores to its customers. Anil’s continuing vision has now enhanced the underlying Line of Credit by adding a payment layer to provide customers who never had credit with a true (Digital) Credit Card experience.
To start with, financial freedom is about taking ownership of your finances, to live the life you want to. That doesn’t necessarily mean luxury, mind you. Neither does it mean you have to be rich to enjoy financial freedom. A big misconception!
Financial freedom actually is too broad a concept to be limited into a definition. It can be interpreted in various ways depending on what an individual seeks. For some, it can mean not having to work unless one really wants to; for some, it could be being able to save up to buy something; for others, it could be being able to travel without a care in the world.
If we view it keeping in mind the middle-class Indians that form the majority of the population, financial freedom simply means to have the ability to spend when you want to, without creating a burden on oneself. What’s important to note here is that, contrary to what is often said, financial freedom does not mean being debt-free. We will come back to that.
Let’s look at ways how one can win financial freedom:
- Make sure that you are not over leveraged. If your salary is X, your payment burdens should not exceed your monthly requirements.
- Make sure that you always have some room to play in your payment burden. (Payment burden is a sum total of all your EMIs plus your living expenses).
- Make sure that your indulgence doesn’t take over your salary.
Whether you identify yourself as an individual consumer or an organization, the points mentioned above are important and hold true for everyone. You can have financial freedom only if you have some room to play in your salary/income. Having said that, there are times when things are not in your control. There are months when the going gets tough. What do you do then? Going back to the last point mentioned above –
- Focus on making sure that you have an end to your indulgence.
- Timing of purchases (as per requirement) is a mechanism of winning financial freedom.
- Making sure that you are insured for unforeseen events with the help of health insurance/vehicle insurance is another way to win financial freedom.
- And of course, savings. An amount, even if small, is required to be saved, to attain financial freedom.
A major part of the discussion on financial freedom is often taken over by investments. Rightly so. But there is a misconception that investment invariably means it is large.
Investments or savings need not be large. Systematic investment plans offered by mutual funds, or recurring deposits, chit funds, fixed deposits – are all investments. What you choose depends on where you are in life. As a young salaried person, an individual will have a certain kind of needs to take care of. So, savings may be smaller. But as the person grows and has family, the need to save becomes greater.
One must also understand that the nature of investment keeps changing. For instance, for a person currently residing in Hyderabad, real estate is a good mechanism of saving. But then, it’s out of reach for most. So, the individual may look for other avenues, like chit funds, recurring deposits, fixed deposits, mutual funds.
The thumb rule for any kind of investment, however, is – to spend some time researching and reading up on the subject before you invest, rather than merely seeking advice. As someone said: “A huge mistake many of us make is to work hard our entire life for money and not require money to work for us in return.”
Now, coming back to where we left the subject of correlation between financial freedom and not being debt-free. Most people think, to be financially free is to be debt-free. For the uninitiated, achieving financial freedom does not necessarily mean that you are debt-free. It rather means being leveraged. Let’s make it simpler with an example. When you buy a house, all you pay as down payment is 20 percent of the loan; 80 per cent is financed by the bank. But the house or rather the rate grows in whole. So your 20 per cent is multiplied by the 80 percent that is invested by the bank. That’s why leverage is good. But again, being fully leveraged isn’t the best, especially for salaried or self- employed people, because when emergencies come, having a line of credit at your disposal, or having health/vehicle insurance help in making sure that you don’t have a big debt into either your savings or your salary.
Furthermore, if you are debt-free, it means your money is not growing in a way you want it to.Money depreciates – that’s important to remember. Also, when there is inflation and the cost of things grow, your money is not growing at the same pace. And thus, you end up losing money.So to protect against it, you have to make sure that your investments are right, and always keep a small part for payments in your salary.
To reiterate, it’s better to have debt for it brings discipline in repayments as well as in taking cognizance of your money in totality; a discipline in saving and spending. Your debt and your savings together will establish your financial freedom.
To conclude, financial freedom is a mental, emotional and educational process. It comes to those who learn about it and work for it, stay focussed, alert, make smart decisions without draining yourself emotionally. And when you have worked that hard for money, well, the best thing money can buy you is financial freedom.