Module 1: Personal Finance Foundation

Chapter 4: Financial Freedom

Given an option, would you like to retire early or
work till the end of your life?
If money would not be a constraint, what would you like to do?
What is financial freedom?

A state where you don’t work anymore to earn money. You

may still work but not with the intention to make money. You
would work because you really like doing that work. You
might pursue your hobby.
How to achieve financial freedom?
IOIM Framework
Increase Income
1. Increase Income

2. Optimize Expenses

Financial 3. Invest Money

Risk Management Optimize Expenses
Freedom
4. Manage Risk

Invest Money
How to increase income?
1. Understand supply vs demand: Learn skills which are high in demand but low in supply.

Skills with high demand:

● Data Scientist: Machine Learning

● Cloud Computing
● App development
● Digital Marketing- Video
editing/Google SEO, etc
● Film Production
● 3D Animation
● Content Writing
How to increase income?
2. Upgrade your existing skillset: Learn the skills which can complement your
existing skillset

Example 1 : If you have a business, you can learn basics of digital marketing like photo editing,
video editing and use social media to promote your business.

Example 2 : If you are a coder, upgrade your coding skills by learning the most relevant and in
demand skills.

Example 3 : Get the top certification in your existing skills

How to increase income?
3. Generate more than single source of income: Do not depend upon single
income. Generate multiple source of income.

Example 1 : Investment in commercial property can generate fixed rental income.

Example 2 : Investment in stocks, mutual fund, FD, PF, etc. can increase the wealth

Example 3 : If you have an existing skill, you can take classes. For example, if you are good in
Yoga then you can become a Yoga trainer. If you are good in English, you can take english speaking
classes.

Example 4 : Identify digital avenues of income. Identify ways to use WhatsApp, Facebook,
Youtube, etc as digital channel to generate more business.
How to optimise expenses?
1. Be Frugal: Understand the difference between need vs want

Example 1 : Internet is a need but netflix, amazon prime is a want

Example 2 : Phone is a need but iPhone is a want.

Example 3 : Buy a car but do not end up buying a car worth 15 lakh if you have a budget of 10 lakh.

Example 4 : Always look for discount before buying anything. At the same time, ensure that you do
not end up buying something just because it is on discount.
How to optimise expenses?
2. Follow Minimalism: Declutter your life

vs
How to optimise expenses?
3. Avoid debt traps: Never spend your money before you have earned it.

Example 1: If you want to buy a home, you should wait to build a corpus than buying at
90% loan

Example 2: Avoid taking personal loans as they charge very high interest rate

Example 3: Avoid buying stuff on EMI

“Rich invest in asset. Poor end up falling in debt.”

How to invest money?
1. Investment should be done as per financial goal

Financial Goal
Corpus of 50 lakh in 10 years to purchase a house

Short Term Goal Medium Term Goal Long Term Goal

Corpus of 7 lakh in 3 years to purchase a car

Debt Instruments Mix of debt and equity Equity Instruments

Corpus of 30 lakh in 15 years for higher education of

children
“There is no “one size fit all” approach in investing. The selection
of financial instrument is based on financial goal”

Corpus of 2 lakh for vacation in next 1 year

Retirement corpus of 5 Crore in 25 years

How to invest money?
2. Diversification is must for investment
Saving account/ FD/ RD/ Debt Mutual funds/ Equity Stock Trading/
Insurance/Gold Mutual Fund/ Quality Stocks Futures/Options

Extremely Conservative Balanced Approach Extremely Aggressive

I don’t want any risk I want my

in life. I am happy investment to
with low returns double in 6 months
How to invest money?
3. Always invest after you understand the details behind the product. Do not
invest on tips
How to invest money?
4. Keep patience. The day you plant the seed is not the day you eat the fruit.

5-8 Years
How to invest money?
5. Be Disciplined. Creating wealth is a marathon, not a sprint.

Discipline to avoid looking at your portfolio too often

“Your level of success is determined by your level of discipline and
perseverance.” Discipline to avoid market noise

Discipline to control the emotions

How to invest money?
6. Track your expenses. Invest before spending rather than invest after spending

“Sahil, I don’t know where is my money flowing.

Even after earning 1 lakh/month, I am left with
nothing by the end of the month. Please help me sort
my finances.” - My friend’s confession
How to invest money?
7. Control your emotions
Optimism: “I think I have made a good decision of investing in the stock market.”

Excitement: “Wow! I am getting good returns. Let me put some more money. This is the best
investment of my life”.

Thrilled: “OMG! I am going to be super rich. Let me borrow some money and put it in stock. I should
also tell me friends, neighbour, distant relative to invest in the stock market.”
Euphoria: “Buy Buy Buy! It’s a big party. I am loving it.

Anxiety: “Well, this is a small correction and I should not be worried.”

Deniel: “Market going down? Nah.. I am sure it will rise again.”

Fear: “Oh no! It is still falling. What should I do? Did I make a mistake?”

Desperation: “I should exit from the stock market and invest in safer options.”
Panic: “Holy mother! I am at loss. My returns are in negative.”

Capitulation: “I am such a fool to invest in the stock market. I have lost everything. I will never be to
able to recover my loss.”

Depression: “This is just a mirage. The market is going to fall soon.”

Fear, Hope and Greed Cycle Hope: “Hold on.. is market really recovering? Is it really happening? Will I do not lose everything?
Fingers crossed..”

Relief: “I think I will at least break even. Then I will exit from the market.”

Real investing is boring. If you need thrill and excitement, go to Las Vegas
How to invest money?
8. Invest now! Power of compounding is the key
How to invest money?
9. Avoid financial traps
How to manage risk?
1. Take a term plan

There is nothing more important to you in this world than your family

Have you secured your family future from the uncertainties of life?

“Every person should get a term plan of 1-2 Crore for the financial security of the family. Do
not delay it. The earlier you get the term plan, the lesser would be your premium.”
How to manage risk?
2. Take a medical plan

15%

Health care inflation rate

How to manage risk?
3. Built an emergency fund

So that you can feed your kids during difficult times

So that you could pay your kids school fee

So that you could buy the basic grocery for your

family

So that you do not get stressed out

Finally, you don’t have to go through the embarrassment of borrowing money from friends and relative
How to manage risk?
4. Diversify the investment

● Do not keep money in single instrument

● Every instrument has a risk associated with it

● Diversification help in wealth protection

● However, over diversification is also wrong

How to manage risk?
5. Invest systematically

Nullify the market volatility

No need for huge corpus

Power of compounding

No need to time the market

How to manage risk?
6. Make all the EMI payments on time including the credit card

Higher the debt, lower the money to invest

Debt result in sleepless nights

Missing EMI would impact the credit score

 How to achieve financial freedom?
Take a term plan Understand supply vs demand

Take a medical plan Upgrade the skillset

Increase Generate more than single
Built emergency fund
Income source of income
Diversify investment

Invest systematically Manage Financial Optimize

Freedom Be Frugal
Risk Expenses
EMI Payment on time Avoid lifestyle inflation

Avoid debt trap

Invest as per financial goal
Invest
Money
Diversify investment Track your expenses

Do not buy on tips Control your emotions

Keep patience Invest now

Be disciplined Avoid financial trap