Steps Towards Financial Freedom

AN INTRO TO
6 Steps Towards
Financial Freedom
An introductory guide to become financially
free and how to succeed at it.
Jigish Patel - jigish@jpfinancial.in - 9892202415

Table of
Contents
Introduction
Chapter 1 – What is Financial Freedom?
Chapter 2 – Financial Freedom Fund
Chapter 3 – Assuring Financial Freedom
Chapter 4 – Building Financial Freedom
Chapter 5 – Cashing out Financial Freedom
Conclusion

1
CHAPTER ONE
What is Financial
Freedom?

What is Financial Freedom
Ability to follow your passion
Many a time you might have read or heard a lot about Financial
Planning or Financial Freedom planning. What does Financial
Freedom Planning (FFP) mean? When one can claim that he is
financially free? Many times we misunderstand “being Debt Free”
to “Financial Freedom”. But it’s not true. Being debt-free is just one
aspect of achieving Financial Freedom. Being Debt free requires
you to repay all your current liability like Home Loan, Auto Loan,
Personal Loan while Achieving financial Freedom involves being
free from working for money.
In one’s life when a person is earning enough to cover his

household expenses, insurance premiums, and EMIs, we believe
that the person is having a financial Freedom. While actually the
fact is that, when a person requires compulsorily to give the time
or efforts to earn the required amount of money to fulfill all the
commitments as mentioned above he/she cannot be said to

achieve financial freedom. So if you are into the job paying you a
handsome salary or into the business giving you big profits which
are enough to take care of all your expenses and pay for liability,
you might feel that you are Financially Free. But it’s the biggest
“MYTH”.
Then how one can check whether he is financially free? It’s very
easy and simple. While you wake up in to the morning from your
bed, ask yourself, is it necessary to go for a job or doing business
to earn the money you need to survive and to pay for the debt? If
your answer is YES, then you are not financially free. But if your
answer is NO, then you are undoubtedly financially free.
When we say “Mr. X works for XYZ Ltd.” who do you think is the
employer and who is the employee? Obviously Mr. X is an
employee and working for his employer which is XYZ Ltd. Similarly

when we say “I work for Money” who is the master and who is the
employee. In the given situation “I” is the employee working for the
“Money” (employer). So unless in your life Money starts working
for you, you can’t claim to be financially free.
There are two ways through which one can generate the money
which is required to survive. Active Income generation is the stage
where a person involves himself/herself to earn the Money. Salary,
Business Income, Professional Fees Etc, are some of the
examples of Active Income generation and requires Human to give
time or to put his/her skills to earn this income. The other way of
generating the required income is Passive income generation.
Passive income doesn’t require you to work for money. The flow of
Passive Income continues, even if you stop working. Interest,
dividends, Rental income, etc are the example of Passive income.

For being financially free one needs to plan his activity and
investments in such a way as to shift oneself from the stage “Man
at Job” to “Money at Job”.
In lesson no 2 we shall learn how to calculate the fund required for

financial freedom?

2
CHAPTER TWO
Financial Freedom
Fund

The majority of people I have met who are working into the
different field has made my belief very firm. I believe that majority
of the population doing jobs or doing business are if asked a
question about their most desired passion, it is observed that their
passion, in reality, is far away from what they are engaged in their
professional life. Someone loving a painting or photography or
dancing is not into the profession or being a painter, photographer,
or dancer. Some people are very much interested in doing social

work or want to spend time doing some charity. But all of these
people are not able to follow their dream and they work as a job
man or businessman into the area where they are not much
passionate about. It seems to be an idealist situation for someone
to do something which they have dreamt for the whole of their life.
Why? Because they are not financially free and that’s why their

first priority by force is to “work for Money”. Financial Freedom is

the stage which if achieved will allow you to do all those things
which you actually wanted to do. So financial freedom is not only
about being free from work but it is allowing yourself to do only
those things which you love to do.
So, how to achieve Financial Freedom?
Simply putting you need to build enough Assets through which

give the regular cash flow which is more than required for the
living. For example, if you need on an average Rs. 600000 a year
for your household and all other expenses. So you need to create
an asset that gives you this required sum of Rs. 600000 to you in
terms of interest or rent or royalty or dividend. So if, you build up
the corpus of 1 cr and invest into the bank fixed deposit fetching
you 6% per annum interest, then irrespective of you going on a job

or doing any business you will get the regular income. Another
example is you try and create the corpus which is enough to buy
some property that is able to give you the rental income or Rs.
600000. In nutshell, you need to create a mix of assets whether it
is debt, equity, real estate, etc which can give you the passive
income of Rs. 600000 in total in form of interest or rent or dividend
etc.
So for achieving the financial freedom you need to first find out
how much corpus you need to build up to be able to generate the
passive income. We will call that fund the Financial Freedom
Fund. Financial Freedom Fund is the corpus required to buy the
mix of assets that can generate the passive income which will
allow you today to retire irrespective you have attained the age of
retirement as per the norms of society or not.

Calculating this financial freedom fund is very crucial and a little bit
difficult. There are some important things you need to keep in
mind while calculating the target corpus. Things which you need to
keep in mind are,
1) Calculating the exact money required for the household

expenses
2) Projecting the future financial liability
3) Keeping in mind the future Inflation
4) Deciding the right asset mix
5) Existing debt repayment schedule
There are many more thing s which one needs to keep in mind.
But the above are the major areas that are crucial to finding out
the FFF (Financial Freedom Fund).

In short, FFF is the function of corpus which is able to generate

the sum total of the present value of all the current and future
expenses and EMIs you are supposed to pay till the lifetime.
Seeking the help of the Professional Financial planner is advisable
for all. Once the FFF is calculated then you can adapt the right
investment strategy to achieve that targeted Financial Freedom
Fund. By doing that exercise you will also get to know that how
many years you are going to take to achieve Freedom from
“working for Money”.

Financial Freedom Fund
Calculate your Financial Freedom Fund
I have tried to make the process of achieving financial

freedom in a simpler manner. I personally call it the ABC
of Financial Freedom. It’s a three-step approach towards
achieving financial freedom. If one follows all the steps
religiously the chances of getting early retirement, by will,
are very high.
The following are the three stages or the steps towards

achieving Financial Freedom, which I call ABC of Financial
Freedom.
1) Assuring (Man at Job)
In this stage, the Man is at the job all the time and he
ensures the financial freedom for him and his family
irrespective of his physical presence.

Financial Freedom Fund
Calculate your Financial Freedom Fund
2) Building (Man + Money at Job)
Here one needs to adapt the investment strategy and to

follow the right asset allocation plan which suits his risk
profile to start building the Financial Freedom Fund. This is
the stage where Man and Money both are in Job. A man
works for the money and invests in some investment
avenue and Money also works by fetching the returns from
the investments done by man.
3) Cashing (Money at Job)
This is the stage where you accumulate all your

investments reallocate those into the assets which start
giving you the Passive income.

3
CHAPTER THREE
Assuring Financial
Freedom

Assuring Financial Freedom
It’s about you and your family
Financial Freedom is not the individual goal or dream it’s a

dream for the family. So when I say I want to achieve
financial freedom, I am not talking about only myself. This
is the stage wherein the absence of you, your family also
enjoys the same financial freedom.
So before achieving Financial Freedom it is very important

that you assure the financial freedom irrespective of you
being there or not. Assurance is the stage where an
earning person ensures that even in case of the
unfortunate demise of himself/herself, the family of his or
her will get the Financial Freedom Fund.

As building up the Financial Freedom fund is a process that

requires the disciplined investment over a period of a few years, it
requires man to work for money till the FFF is build up. This stage
requires “Man at Job” cent percent.
Once the Financial freedom fund is calculated you need to find out
the gap which you required to bridge between the Financial
Freedom Fund and your current assets and investments. And
whatever gap is found out is to be bridged by the Insurance.
Assurance is the stage where you need to use Life Insurance to

bridge up the gap:
Financial Freedom Fund – your current assets – current life

insurance sum assured = Buy Life Insurance

Let’s take an example
In this example to make it simple to understand I would ignore the

inflation and time value of money.
Mr. Prem is a family man having a wife and daughter into the
family. Some of the data regarding his expense liability and
investments are as below.
Monthly Household expense: Rs 25000
Amount needed for the higher education of Daughter: Rs. 500000
Amount needed for the marriage of Daughter: Rs. 700000
Current Outstanding Home Loan: Rs. 1200000
Current total investment value: Rs. 700000
Life Insurance Sum Assured: Rs. 300000

In the above case let’s, first of all, find out the Financial Freedom
Fund.
Considering the rate of the interest in the bank deposit is currently

8% then Mr. Prem needs around Rs. 3125000 for taking care of
his household expenses. Rs. 3125000 if invested in FD then it
would fetch Rs. 300000 as a yearly interest at 8% rate of the
return which is around Rs. 25000 a month. so total financial
freedom fund is the sum total of Rs. 3125000 plus the current and
future liability minus his investments and
Life insurance. In this case, it would be

Rs. 37,50,000 (to take care of the household expenses)
+ Rs. 12,00,000 (Outstanding Home Loan)
+ Rs. 5,00,000 (Daughter’s Education)
+ Rs. 7,00,000 (Daughter’s Marriage)
Rs. 61,50,000 (FINANCIAL FREEDOM FUND)
-Rs. 7,00,000 (Investments)
-Rs. 3,00,000 (Current Life Insurance)
Rs. 51,50,000 (GAP TO BE BRIDGED FOR ASSURING

FINANCIAL FREEDOM)

In the case of Mr. Prem, his Financial Freedom Fund requirement

is Rs. 61,50,000 and the value of the investments and the current
life insurance are 10 lacs. So there is a gap of Rs. 51,50,000
which he needs to build up through regular investments. So it is
required for Mr. Prem for buying one a life insurance policy giving
the Sum Assured equal to Rs. 51,50,000. The best choice for
Assuring financial freedom through life insurance is to buy the
Pure Risk cover also known as the Term Plan. So with the least
cost, one can Assure his Financial Freedom.
In the next chapter, we shall learn Building Financial Freedom

Fund.

4
CHAPTER FOUR
Building Financial
Freedom

Build Financial Freedom
SIP by SIP
Once you have Assured that your family would certainly

get financial freedom even in your absence then starts the
second and most important part of achieving financial
freedom. The second step towards achieving financial
freedom is Building the Financial Freedom Fund (FFF).
The gap between the Financial Freedom Fund and the
current value of your investment is the corpus required to
be build up over a period of time through a wise investment
strategy.
Continuing with the earlier example in the previous case

the required Financial Freedom Fund was Rs. 61,50,000
for Mr. Prem, while the value of his current investments

SIP by SIP
were Rs. 7,00,000. So in the case of Mr. Prem, we need to add

Rs. 54,50,000 in his investment basket. Targeted corpus or Rs.
54,50,000 lacs is to be achieved through various investments.
If Mr. Prem’s monthly income is Rs. 46,700 then he would leave

with a surplus of around 21,700 per month as the household
expenses of Mr. Prem is Rs. 25,000/- p.m. Assuming Rs. 4000/-
p.m. is the premium he pays for the life insurance policies. Then
he will be left with Rs. 17,700/- p.m. as an investible surplus.
Mr. Prem wants to get the Financial Freedom in 12 years.
So first of all we need to find out how much rate of return should
any investment require to give the corpus of Rs. 54,50,000 lacs by
investing Rs. 17,700/- p.m. in 12 years. The required rate of return
in this case would be approx. 15% CAGR (Compounded Annual
Growth Rate).

SIP by SIP
If Mr. Prem by mistake opts to invest in postal recurring giving 6%

CAGR return or any other instrument which gives the rate of
return lesser than 15% CAGR, he would not be able to achieve his
financial freedom in 12 years.
If by mistake Mr. Prem opts for the Postal recurring giving 6% pa

return it would take him around 15 years and 8 months to achieve
the Financial Freedom. So by selecting the wrong instrument one
might end up wasting some of the very important years of his life
in the slavery of Money, which otherwise he would have to spend
doing what he actually loves to do the most.
Instead, had Mr. Prem found out the investment avenue yielding
20% CAGR he would have achieved the financial freedom in just
around 9.5 years only.

SIP by SIP
So in Nutshell,
For building up the Financial Freedom Fund, you need to
a.) Find out the investible surplus.
b.) Find out how much rate of return is required.
c.) Selecting the right investment option giving the required

rate of return.
d.) And investing regularly without fail
If asked to common man, In how many years would he be wanting

to get Financial Freedom? The answer would be as soon as
possible. So what to do?

SIP by SIP
My personal suggestion would be to do a SIP into the Diversified

Equity Mutual Fund having a long track record. As being a
common man and putting a lot of hard work earning money it is
difficult for someone for doing a research on where to invest?
Given many investment options carrying different characteristics it
very difficult and in fact sometimes it is confusing also for
someone who knows little about investments.
Investment in the Diversified Equity Mutual Fund with a proven

track record through SIP (Systematic Investment Plan) will give
you the better inflation-adjusted returns with much lesser risk.
In this phase of Achieving financial freedom, Man works for

money, earns it, and invests it. Money invested would also earn
some return for Man. That is why I say that for Building up the
Financial Freedom Fund, both men and money need to work
simultaneously.

5
CHAPTER Five
Cashing Financial
Freedom

Cashing Financial Freedom
Focus on regular Income and Growth
This is the final stage of achieving and enjoying financial

freedom. At the beginning of this stage, the Financial
Freedom Fund is already built through various investment
strategies. In this stage, one needs to reallocate his
Financial Freedom Fund into the various investment from
which he would get the passive income which is sufficient
for giving him the passive income required by him for one’s
livelihood and future financial requirements.
In this stage of life, one needs to move out of his money

from the assets which are considered riskier and buy those
assets which are not risky and gives stable income flow.
Some of the examples of these kinds of assets are Bank

FD, Pension Funds which provides annuity, Bonds, Postal MIS, a

Real estate with good rental yields, etc.
The most important thing which one needs to keep in mind during
this phase is, then passive income should come without liquidating
the assets themselves. For example, if Tree is an asset and one is
expecting a passive income then he should generate the income
by selling fruits of the tree and not by selling the wood. If you try
chopping wood by cutting the tree then it makes no sense, in such
instance, one will be able to enjoy financial freedom only for a
short period of time, and once the assets are exhausted one will
have to once again start running after money.

Example:
For simplicity let’s take an example of Mr. Ramesh Patel.

Assuming he has no further financial liability other than the regular
household expenses, and his monthly household expense is Rs.
25000/-. Mr. Ramesh Patel has gone through the first two stages
of the ABC of Financial Freedom and now has built the Financial
Freedom Fund worth Rs. 5000000/-. So now Mr. Ramesh can
either invest this sum of 50 lacs into the FD giving him the monthly
post-tax interest of equal to or more than Rs. 25000/ per month.
Or Mr. Ramesh can buy some real estate property fetching the
rental income of Rs. 25000/- or more per month. He can also
invest in some debt fund or hybrid fund and start withdrawing Rs
25,000 per month systematically through a systematic withdrawal
plan.

So generating the Passive income without damaging assets is the

third and final step of achieving Financial Freedom. In this stage,
money works hard to generate income and one can do whatever
he or she loves to do.
Systematic Withdrawal Plans of Mutual fund is one of the best

ways of generating regular cash flow for your need. It also gives
you the chance of capital appreciation. Simple putting, even after
withdrawing every month form your investments, your financial
freedom fund can still increase every year which can help you to
fight future inflation.
Happy Financial Freedom!

“ “
Financial Freedom is mental,
Emotional and Educational
process.
Robert Kiyosaki

Consult
Financial Advisor Now

It is always advisable to consult a financial advisor
who can help you in creating a roadmap towards
your financial freedom and also to help you to stick
to it in disciplined manner.
ALL THE BEST

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AN INTRO TO

Jigish Patel - jigish@jpfinancial.in - 9892202415

Chapter 1 – What is Financial Freedom?

Chapter 2 – Financial Freedom Fund

Chapter 3 – Assuring Financial Freedom

Chapter 4 – Building Financial Freedom

Chapter 5 – Cashing out Financial Freedom

Jigish Patel - jigish@jpfinancial.in - 9892202415

Jigish Patel - jigish@jpfinancial.in - 9892202415

In one’s life when a person is earning enough to cover his

Jigish Patel - jigish@jpfinancial.in - 9892202415

Jigish Patel - jigish@jpfinancial.in - 9892202415

Jigish Patel - jigish@jpfinancial.in - 9892202415

In lesson no 2 we shall learn how to calculate the fund required for

Jigish Patel - jigish@jpfinancial.in - 9892202415

Jigish Patel - jigish@jpfinancial.in - 9892202415

or dancer. Some people are very much interested in doing social

Jigish Patel - jigish@jpfinancial.in - 9892202415

first priority by force is to “work for Money”. Financial Freedom is

So, how to achieve Financial Freedom?

Simply putting you need to build enough Assets through which

Jigish Patel - jigish@jpfinancial.in - 9892202415

Jigish Patel - jigish@jpfinancial.in - 9892202415

1) Calculating the exact money required for the household

2) Projecting the future financial liability

3) Keeping in mind the future Inflation

4) Deciding the right asset mix

5) Existing debt repayment schedule

Jigish Patel - jigish@jpfinancial.in - 9892202415

In short, FFF is the function of corpus which is able to generate

Jigish Patel - jigish@jpfinancial.in - 9892202415

I have tried to make the process of achieving financial

The following are the three stages or the steps towards

1) Assuring (Man at Job)

Jigish Patel - jigish@jpfinancial.in - 9892202415

2) Building (Man + Money at Job)

Here one needs to adapt the investment strategy and to

3) Cashing (Money at Job)

This is the stage where you accumulate all your

Jigish Patel - jigish@jpfinancial.in - 9892202415

Jigish Patel - jigish@jpfinancial.in - 9892202415

Financial Freedom is not the individual goal or dream it’s a

So before achieving Financial Freedom it is very important

Jigish Patel - jigish@jpfinancial.in - 9892202415

As building up the Financial Freedom fund is a process that

Assurance is the stage where you need to use Life Insurance to

Financial Freedom Fund – your current assets – current life

Jigish Patel - jigish@jpfinancial.in - 9892202415

Let’s take an example

In this example to make it simple to understand I would ignore the

Monthly Household expense: Rs 25000

Amount needed for the higher education of Daughter: Rs. 500000

Amount needed for the marriage of Daughter: Rs. 700000

Current Outstanding Home Loan: Rs. 1200000

Current total investment value: Rs. 700000

Life Insurance Sum Assured: Rs. 300000

Jigish Patel - jigish@jpfinancial.in - 9892202415

Considering the rate of the interest in the bank deposit is currently