How to be Financially Free with limited resources & money?

Background - In a survey done around the Financial Freedom perspective of Linkedin users, 47% said, Financial Freedom is having passive sources of income, and other 42% said - Living debt-free is financial freedom. In today's Growth Notes Financial Freedom Special issue, I will help you get greater clarity around Fin. Freedom. Here are the results of yesterday's poll on Linkedin.

Let us address, 5 FAQs about financial freedom today.

1) What is Financial Freedom?

Toby Mathis in Forbes writes Defining financial freedom is different for everyone. For you, it might mean that you don’t have to go to work anymore, or you can take a lower-paying or non-paying job to do something you love. It might mean knowing that you always have a roof over your head. Each one of us has a different definition of financial freedom.

Some of the Linkedin users engaged in the poll wrote their definitions of Financial Freedom (shared for your understanding). After reading this Forbes article - I zeroed down on my personal definition of "Financial Freedom".

Here is mine, I would love to read yours in the comments.

For Example - If you need 1000$ today for your basic necessities around food, shelter, clothes, education, health, travel, etc, AND inflation-adjusted, you continue to get that for the remaining length of your life.....work or no work, income, or no income.....you just continue to get that inflation-adjusted PLUS some more growing necessities addressed through addition required money, then you are pretty close to being called a FINANCIALLY FREE INDIVIDUAL. Any other asset - fixed or liquid, bonus, royalty, pension, the active income will be considered as FINANCIAL ABUNDANCE which is different from Financial Freedom.

2) Can Someone have limited resources or money & yet be Financially Free?

I remember around 25 years ago, one of my ex-bosses and mentors insisted, I go ahead with investing even if it was through the route of retirement policies of LIC. Most of my salary after essential expenses would go into paying premiums.

What benefit did I Get out of it all? I started getting my pension early on in life, every couple of years, I would get some funds from Life Insurance of India. That ensured money or no money, income or no income, at least my basic survival was not at stake.

So even if I did not retire at 30 my pension started (of course it was still not enough to meet necessities).

However, this instilled confidence in me, that INVESTING is a good idea to reach a goal, wherein god-forbid something happens, at least I will not be financially dependent for food, shelter & basic necessities on someone or Govt authorities.

Starting a very basic pension early on for life is a psychological reward and inspiration for someone to move towards a financial freedom goal, even if it is as little as Rs.5000/- or $500 a month.

Remember, the first step to becoming a financially free person is to ensure, you start getting a stable life-long monthly income, which would take care of your basic expenses. One of my mentors told me, first ensure your financial security to a level where - you never become homeless, you never lose your money, you never become debt-ridden, that is the foundation building exercise for any financial freedom.

Another important point is, that most of us have forgotten our parked money on many occasions in life. I remember, In my twenties, one of my friends became an insurance agent and he asked me to take the insurance policy of a private player and then we both forgot to pay premiums. I did not claim that for over 15 years......that was a minuscule amount of Rs.5000 HOWEVER India has lacs of crores of unaccounted and unclaimed money in banks and insurance companies.

I would be keen to see you taking notes on your past and current financial situation. Unfortunately, many of us invested long ago and forgot. About ?1,50,000 crore?is lying as unclaimed deposits/amounts with various Indian banks and insurance companies as of December 2020.

I also mentioned it in one of my articles, wherein I wrote about why and how to create your WILL at length................

Be aware of your money leaks or money cracks - So check all your closed and non-closed accounts. Check for the money... you might have forgotten about insurance companies, banks, post offices, provident funds, etc

So, to summarise, anyone can become financially free within limited resources. All they gotta ensure is, that they are clear about their own definition of financial freedom. Remember Financial freedom is different from Financial Abundance. Unfortunately, most people take financial freedom as Financial Abundance.

3) 5 Stages of Financial Freedom?

Financial freedom doesn't come in 1 go, it comes in stages. It is important to highlight here that I am neither a Personal Finance expert nor a professional financial advisor. I have defined these stages out of my and my client's financial journey, so it helps my readers get sheer insights.

4) A Test to check whether you are financially free today or not?

Here is a simple checklist, that will help you crosscheck whether you are financially free today or not? Answering these questions will help you better understand your financial condition for today and the future. It will help you get real-time insights into whether you consider yourself to be financially free or not.

5) A simple Test to check by when will you be financially free?

a) Check your net worth: Your net worth, quite simply, is your country's currency amount of your assets minus all your debts. You can calculate your net worth by?subtracting your liabilities (debts) from your assets. When your assets exceed your liabilities, it is considered you have a positive net worth.

b) Check your active income: Now calculate all your Active Net Income ie Active Income (-) current expenses, taxes, EMIs, interests, etc.

c) Check your Passive income: Now calculate all your Passive Net Income ie income from all passive sources such as royalty, dividend, pension, etc - taxes, interests, deductions, etc made from passive income.

If your net worth, active income & passive income exceed your current expenses, obligations & unforeseen expense heads, then you are in a state of CURRENT FINANCIAL FREEDOM.

FUTURE ESTIMATE OF FINANCIAL FREEDOM - When you calculate it with REALISTIC future estimation AND you find that you will lead a debt-free life, with consistently increasing net inflow of income sources till you die. You will be considered Financially free for life.

For example: Hypothetically, I earn $1000 in India (roughly 75K Indian Rupees) per month. My expenses are $300 (roughly 20k). I live in my parents house, so I exclude rental, etc. After taxes and growing expenses plus unforeseen expenses - I am able to save $500 per month. So yearly I am able to invest 6000$ in my retirement planning, adjusting inflations & growing expenses.

Besides that, I have a pension of $1000 per month from previously invested schemes. So if I continue to keep myself debt-free, and manage my lifestyle in current and little more growing expenses, I would continue to enjoy my debt-free living with my passive income sources plus a little nest of where I continue to invest my active income sources for the future.

This needs little careful planning & defining my boundaries wrt expenses. This is called a basic stage of Financial freedom, wherein active income or no income, at least I continue to meet my expenses for today and tomorrow.

So when you are able to calculate and create good estimates of the current and future needs, current and future assets, current and future inflows of active and passive incomes. You will be able to know by when can you become financially free.

I personally believe with thoughtfulness, little effort & being finance savvy most of us can become Financially free now or in the future. Thoughts??

Let us talk in the comments!