independence

Financial independence and its underlying connotations

We know that we have to take some drastic steps to achieve financial independence. Though the technical definition is being independent of a regular monthly salary to fulfil our financial needs, the term “financial independence” may have some underlying connotations that you need to know in order to understand what it means to you as an individual.

Plan Early, Not Quickly

It is a very well-known fact that in order to reap the most benefits of your income over a long term, you need to start early so that you maximize the benefits due to compounding, which is the eighth wonder of the world, according to Albert Einstein.  However, don’t make the mistake of confusing “planning early” with “planning quickly”. It is not the timing of investment but the time you stay invested that creates great wealth.
As Saint Augustine has said, “Patience is the companion of wisdom”.

Let’s take the example of the Chinese bamboo tree. In your first year of growing a Chinese bamboo tree you plant it, lovingly water it, fertilise it, carefully remove the weeds surrounding it, and wait. And what do you see after a year? Nothing… Same happens in the second year as well, and the third one then the fourth one. At this point, anyone would be tempted to give up and stop caring about the tree. But in the year 5, Green life begins to burst through the soil. Most plants grow gradually and in millimetres. But the Chinese bamboo tree bursts through the soil at an astonishing rate of 90 feet in just five weeks! This is the power of patience.

Hence, patience is important when it comes to investing and the earlier you start, the longer you can reap the benefits.

Wants vs. Needs

There is a constant conflict within oneself about what they need and what they want. It is important to draw a distinction between what you need and what you want. Your household expenses including food, rent, and maintenance are necessities which cannot be compromised on. Your expenses related to leisurely activities such as shopping, entertainment, dining and other activities are wants that contribute to your expenses that can be cut down.

It cannot be expected that one always cuts back on their wants and only focuses on needs. It is necessary to focus on your wants as well since they bring you joy and keep you happy. But see to it how frequently you indulge in wants and how much it impacts your ability to save.

Another thing to keep in mind is your real wants as opposed to your “reel wants”. Pursuing an MBA at the right age and spending money for it is a real want. But dreaming of owning a car before you even get a proper job is a “reel want”. The more realistic your wants are the more beneficial it will be in terms of the value generated by them.

Urgent vs. Important

The Chinese philosopher Confucius has said, “We are so busy doing the urgent that we don’t have the time to do the important”. But what exactly is the difference between urgent and important?

All urgent things are important, but not all important things are urgent. This difference is not commonly understood by people, and as a result, get confused between the two and fail to plan properly. Urgent things are time-sensitive that need your attention at that instant. Important things are not necessarily time sensitive, but need to be paid attention to nonetheless.     Each individual has their own share of urgent and important things. The tricky bit is identifying which one is which. Anything that has an immediate time associated to it can be classified as urgent, whereas something which can be put off for later can be considered as important.

For example, the EMI payment for your house loan is urgent since it has a time associated to it such that it needs to be paid every month. But saving for your retirement and planning for the same, which is important, is not urgent and can be paid attention to once you take care of urgent matters first.

By maintaining a balance between urgent and importance things you will be able to feel satisfied and relieved having made provisions for your future.

Simple vs. Easy

People may have the tendency to mix up the terms “simple” and “easy”. However, the things that are simple are seldom easy. Planning investments and savings early and building your retirement fund by systematically putting aside a fixed amount of your salary sounds simple, but when you actually start practicing it, only then you will realise that it is actually not easy. On the other hand, people readily take the advice of their friends and relatives and make investments that may not necessarily be suitable to them, because it was “easy” to listen to a friend than to do research on their own.

In order to achieve simple things it requires great discipline.  But once you get a hang of it, it gets smoother to plan your financial independence through simple changes in your money habits.

Conclusion:
It is understandable if someone mixes up similar sounding terms, but the consequences of that mix up can be expensive. Thus, identify what it means to you when you plan early, take care of your needs, complete urgent tasks first and finding simple ways to achieve it all, for yourself and your loved ones. As Albert Einstein has rightly said,”try not to become a man of success but rather a man of value.”

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