You already know that after retiring my debt — early in the second half of last year — financial independence has been my priority. It’s already been over six months into my quest for financial independence and during this time I’ve been working on building my financial independence portfolio.
Now, most of us
wish to become dream of becoming financially independent as soon as possible. To get there requires prudent pruning of your expenses (so that your target corpus isn’t unnecessarily inflated) and optimal flexibility in your financial independence portfolio (so that your goal of financial independence doesn’t become a hindrance for itself). Get into the wrong financial investments and your dream of becoming financially independent as soon as possible simply keeps getting further and further away.
I’ve summarized below the types of financial investments that you ought to avoid on your journey towards financial independence.
- Investments that perennially require a huge cash outflow — Think in terms of endowment, money-back, ULIPs, and other such life insurance policies that require you to commit huge sums of money each year for over 20- to 30-years. You can’t achieve financial independence when you have such unnecessary expenses to provide for. If you already have invested in such financial instruments, you might want to consider exiting them at the appropriate time. If you haven’t, it’s a good idea to maintain status quo.
- Investments that lock you into making monthly contributions — Think in terms of a multi-year Recurring Deposit. If such an investment happens to be a part of your financial independence portfolio, your quest for financial independence starts becoming a self-hindrance because you now need to worry about how you’re going to ensure the availability of that cash each month. You aren’t financially independent when there are financial worries bothering you.
[Note: I’m locked into one such investment. Lesson learned.]
- Investments that lock you in for longer than when you’ve targeted to become financially independent — For example: If you plan to become financially independent within the next 5-years, it’d be a really bad idea for you to start a new Public Provident Fund account today and include that in your financial independence portfolio.
Having embarked on this goal, I’m finding that Financial Independence is a fascinating journey (I read this blog for motivation) and there are plenty more lessons to be learned. I promise to share my learning as and when they happen.
What do you think?
“Investments that lock you in for longer than when youâ€™ve targeted to become financially independent â€” For example: If you plan to become financially independent within the next 5-years, itâ€™d be a really bad idea for you to start a new Public Provident Fund account today and include that in your financial independence portfolio.”
Financial independence to me is
1) have enough for today’s expenses
2) save enough for tomorrows expenses
3) have enough in case of emergencies
4) figure a way to replenish the emergency fund
So if I have start a PPF towards (2) I would like to think my fin. independence coefficient has increased. If I get into debt it decreases. I dont see why one should wait until 1-4 are reasonably in shape to open something like a PPF. As long as a goal is 15 years away and you keep it alive its a good investment in my book.
Indeed. You confirmed my thoughts. So long as a financial instrument’s tenure is in line with your time frame for financial independence, you ought to consider that financial instrument.