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Finance is not merely about making money. It’s about achieving our goals and protecting the fruits of our labor – Robert J. Shiller, American economist
In our own small way, as a mark of respect and to commemorate India’s glorious 75th Independence Day, we thought of aligning the theme of this article to financial freedom. This article explores the aspects of monetary and financial independence.
AtmaNirbhar Bharat, at the macro level, is a clarion call for our nation as a whole to achieve economic independence with the goal of encouraging entrepreneurial spirit, business resilience, and the proliferation of a vibrant start-up ecosystem.
What does financial freedom mean?
At a micro level, for each individual, the concept of financial freedom is about having adequate financial resources to fund one’s lifetime goals. This could involve spending upon and buying ones’ preferred goods or services, investing money in ones’ preferred investment avenues, building wealth, or securing the future through insurance.
There are many ways, but the goal is one – achieving financial independence in sufficient measure and as early as possible. But to achieve this goal, efficient money management skills are needed to create the necessary capital for investments.
What is Money Management?
In essence, finance is the art of managing money. The art of money management primarily involves balancing between one’s earnings and channelization of funds towards spending, investing, and saving.
Money management is a lot more than the mere allocation of money. One needs to meticulously follow certain thumb rules, adopt the correct attitude and financial discipline, and manage within the budget. For example, while credit-enabled purchases facilitate buying power, the credit limit would be based on the creditworthiness of each customer and would need to be repaid within the credit period.
How To Make Money Work For You?
Here are the steps to follow if you wish to make money work for you:
1. Be diligent, compare and opt for financially intelligent products: Ultimately, rather than aiming for financial independence only, it would be prudent to opt for financial intelligence as well. While financial freedom is about reducing debt and borrowing to control monetary outflow, financial intelligence revolves around growing one’s money and managing one’s money better.
For example, for regular purchases of small monetary amounts, Buy Now Pay Later might be a better option than credit cards. Buy Now Pay Later is an example of a financially intelligent product. The former allows an interest-free credit period without the additional cost of annual charges. Plus, with Simpl, there is no impact on the CIBIL score.
2. Minimize borrowing and spending: An optimum level of leverage can provide the necessary funds to acquire capital assets like house property. However, one must distinguish between essential and non-essential borrowings.
Often with ready access to credit products, the temptation to buy in excess, more than what is necessary, can become unmanageably high. The credit access is not an unbridled blank cheque! This can result in binge buying, whereby one ends up accumulating excessive debt and might land in a debt trap by borrowing further to repay existing debt.
Income needs to keep pace with the borrowing levels, to avoid defaults. The secret is to settle bills and debts promptly to avoid any default or delay in payment and subsequent penal interest. Borrow prudently and repay on time.
3. Save for emergencies: One fundamental lesson that the pandemic has taught us is to be monetarily prepared for emergencies. Emergencies like a sudden medical condition or loss of income source can strike at any time, without notice. Most emergencies invariably involve a monetary outlay. Thus, one needs to plan in advance and be well-prepared to tide over such situations. This could be in the form of insurance as well as setting aside a lump sum amount.
Experts recommend accumulated savings equivalent to 8-12 months of one’s expenditure as a buffer, in liquid financial instruments like bank FDs, liquid mutual funds, or short-term debt funds. The importance of a backup monetary corpus as a line of defence against sudden emergencies cannot be overemphasized.
4. Invest early: It’s advisable to start investing early to build a sizable corpus of wealth due to the compounding effect of investment, to meet financial goals across different time horizons i.e short to medium term and long term. While the short-term goals might be buying an electric car, the long-term horizon might involve retirement planning.
There are a plethora of investment avenues available based on the risk profile of the investor and the desired returns. While equity delivers market-based superior returns, the risks are high. Vice versa in the case of debt instruments that offer relatively lower returns for a lower level of risk assumed. One can select hybrid, debt, or equity securities based on the risk categorisation.
How are time and money related?
There is an associated time value of money. Thus, monetary decisions invariably involve a trade-off. In economic theory, this would represent the opportunity cost of an alternative choice. For example, the decision to spend money on a consumption good would involve a trade-off between instant gratification and money saved by the postponement of the purchase.
One could save money by opting for Simpl’s Buy Now Pay Later and settle a consolidated bill during the interest-free credit period. This decision would, in turn, depend upon a host of non-monetary factors i.e. the utility derived from the use of a good, the cost of the product, its availability, etc.
How Simpl is empowering customers with financial freedom?
At Simpl, the concept of monetary freedom is embedded at the very core of our product philosophy. Our mission is to make money simple, so people can do amazing things!
Aligned to this, our Buy Now Pay Later products are aimed at enabling convenience, enhancing the affordability factor, accelerating the trust quotient between merchants and their loyal customers and facilitating customers to make their desired purchases, without worrying about the immediate availability of funds.
What is Simpl’s Motto?
In other words, Simpl’s motto is that the customer should NOT be deprived of buying their favourite product or enjoying their favourite dish, or indulging in shopping on their favourite merchant sites due to wanting immediate money. We step in at the right time to facilitate those purchases to happen for our customers.
To sum up, with money comes responsibility. Whether it is one’s own earned money or borrowed money through a credit product. Thus, one must be careful with money: spend with discretion and within one’s repayment capacity, be money smart and use financially intelligent products, save for a rainy day and grow money through investing and saving, to secure one’s future and achieve one’s financial goals.