Financial freedom is a goal that many aspire to, but it often feels overwhelming. Understanding the fundamentals of investing is utmost important to achieve financial freedom.
By starting with a modest amount of ₹ 5000 per month, you can embark on a journey towards building wealth and securing a brighter future for yourself and your loved ones.
In this blog, we will explore the concept of financial freedom and discover how investing ₹ 5000 per month can serve as a stepping stone towards achieving your ultimate financial goal, leading you towards financial freedom.
What is Financial Freedom?
Financial freedom is a state or way of life where you have the freedom to pursue your desires without constraints or financial limitations.
It means breaking free from the cycle of living paycheck to paycheck and having your living expenses covered, allowing you to indulge in leisure activities like traveling, reading, gardening, writing, or doing pottery.
Financial freedom is all about finding ways to generate income. There are two smart approaches to this. First, you can tap into passive sources of income by mastering a skill outside of your main job. On the other hand, you can explore the art of investment, which can bring you a steady and fixed income.
While retirement planning and financial freedom may be the same for some, if you believe they are distinct, continue reading as we guide you through the journey towards achieving both.
Initial Steps to Achieve Financial Freedom: Reflect and Save
In order to start your investing journey, reflect on your spending habits, and put a stop to reckless expenses. Many millennials and Gen Z believe in living in the moment; they don’t hesitate in cashing the entire paychecks to maintain their lifestyle.
Continuously focusing on earning and spending without considering the bigger picture can lead to missed opportunities for securing the lifestyle you desire in the next 10-20 years.
Therefore, as an initial step towards investing ₹5000 per month, aiming for savings of at least ₹8000 while maintaining a buffer of ₹3000 can set a solid foundation for future investments and financial security. This thoughtful approach allows you to strike the right balance between meeting your current needs and building a strong financial base for a brighter future.
Investing ₹ 5000 per Month to Clear Debt
With substantial savings on hand, it’s wise to prioritize reducing the pile of debt, whether it be credit card debt, EMIs, or home loans. Loans consume your savings in the form of regular interest payments, which could otherwise be invested in Systematic Investment Plans(SIPs).
Furthermore, inflation and fluctuations in market conditions lead to a rise in interest rate. As you develop the habit of taking on easy, zero-processing loans, you get trapped in a cycle of debt. However, with proper discipline and control, you can establish simple rules.
1. Taking one loan at a time and
2. Not indulging in debt for extravagant lifestyle choices that drain your savings.
Investing ₹ 5000 per Month for Insurance
Assuming you are now focused on becoming debt-free, the next crucial step is to invest ₹ 5000 a month in term insurance and a health insurance plan.
Imagine a minor injury in the next ten years that skyrockets your medical bills. Without provision, you might deplete savings, break deposits, and end up jeopardizing your financial plan. Term insurance provides security for your dependents, while health insurance covers medical expenses for your family. Splitting the ₹ 5000 amount and investing it in term insurance and health insurance is a wise choice.
Investing ₹ 5000 per Month for Emergency Fund
Seema never anticipated how her emergency fund of ₹1,20,000 would come to her rescue during pandemic and subsequent sudden job loss. These two years of savings lifted the financial burden of paying monthly expenses and several EMIs, preventing her from falling into debt without any source of income.
Therefore having a contingency plan in place is crucial for handling unexpected scenarios. It can be as simple as setting aside a portion of your salary in a savings account or investing in a liquid mutual fund, both of which are easily accessible within 3 days.
An emergency fund covering six months of expenses can provide peace of mind during various situations, such as switching careers, starting a family, taking a break, or dealing with unexpected financial needs.
Investing ₹ 5000 Per Month for Passive Income
Once you have insurance covered, it’s time to create multiple income streams. You can leverage your expertise by part-time gigs. An easier option would be investing your part of savings in a renewable energy platform like SustVest.
By investing ₹5,000 per month in sustainable and climate change-focused assets, you can benefit from multiple advantages:
Passive Rental Income: SustVest offers the opportunity to earn passive rental income on your investments. This can be a valuable addition to your overall income stream and contribute to your financial well-being.
Potential Annual Returns: Investing in sustainable assets through SustVest may provide potential annual returns of up to 15% IRR (Internal Rate of Return) per annum. This return potential can help your money grow and accelerate your progress towards your financial milestones.
Environmental Returns: Apart from financial gains, investing in climate change-focused projects allows you to contribute to environmentally friendly initiatives.
Supporting sustainable projects can be personally rewarding, knowing that your investments are making a positive impact on the planet.
Investing ₹ 5000 Per Month For Mid Term Financial Goals
As you approach your 30s, with a promising career trajectory and increasing expenses, mid-term financial goals like buying a home and planning for your child’s education become significant.
Investing ₹ 5000 per month preemptively allows you to prepare for these expenses before they arise, akin to bracing for an impending storm. Investing ₹ 5000 per month can help pay off debts sooner, even with only half of the desired amount.
Therefore, consider investing in lucrative small investments that create a large corpus.
Investing ₹ 5000 per Month for Retirement Planning
Now that you have taken care of the debt, emergency fund, insurance, and mid-term financial goals, the last yet important goal in stride is Retirement planning. Investing ₹ 5000 per month is a way to ensure you will have a steady source of monthly income and a substantial retirement corpus to fulfill those spur of the moment urges.
Let’s take an illustration: Ramesh is 30 years old and plans investing ₹ 5000 per month for 12% CAGR in mutual fund/stock/bond. After 30 years, he will have a retirement corpus of ₹1,76,49,569.
After accumulating the final retirement corpus, he can consider starting an annuity to provide a steady income stream during retirement. However, it is important to account for inflation and the rising cost of living. To ensure that your investment keeps pace with inflation, increasing your monthly investment by 10% over time is recommended.
What Is The Minimum Amount I Should Allocate To Insurance Plan?
As you age, the amount allocated to your insurance plan increases, so make sure to start investing early in insurance.
How Do I Earn Passive Income From SustVest?
SustVest invests in renewable assets, offering investors fractional ownership. As an investor, you can earn passive income from rental income and enjoy an annual 15% internal rate of return (IRR).
Is Investing ₹ 5000 Per Month Enough For Retirement?
Investing ₹ 5000 per month for retirement may contribute to building a retirement corpus, but its adequacy depends on individual circumstances. Factors such as age, desired lifestyle, expected returns, rate of inflation, and additional income sources should be considered.
Final Words: Investing ₹ 5000 Per Month
This step-by-step financial planning approach will assist you in achieving your financial milestones at different stages of life and alleviate the stress that comes with arranging money.
While goals like retirement planning and child education planning are common financial advice, it is important to analyze your current expenses, clear out debt, and establish appropriate insurance coverage before jumping into the investing journey.
By assessing your financial state and addressing these foundational aspects, you can lay the groundwork for a secure financial future. Rushing into investments without considering these factors may set you back and hinder your progress toward financial security.
Additionally, attaining financial freedom early on grants you the freedom to spend quality time with your family, embark on extended vacations, and turn your passions into reality.
The moral of the story is cultivating good saving habits, avoiding unnecessary debt, and establishing a robust financial plan. For some, it’s Sustainable investment that generates environmental returns. Sustvest is one of the most accessible platforms to pay your dues to the environment friendly project and earn passive income out of it. Ultimately, these practices enable you to relish life’s simple pleasures and enjoy greater fulfillment.
Founder of Sustvest
Hardik completed his B.Tech from BITS Pilani. Keeping the current global scenario, the growth of renewable energy in mind, and people looking for investment opportunities in mind he founded SustVest ( formerly, Solar Grid X ) in 2018. This venture led him to achieve the ‘Emerging Fintech Talent of the Year in MENA region ‘ in October 2019.