Financial Freedom at the Age 46 || 6 Mistakes I Avoided to Achieve this

Summary

In this video, the speaker shares valuable lessons from their journey toward financial independence, focusing on six key mistakes to avoid. These include saving based on leftover income, relying too heavily on property as an investment, making future-proof financial decisions, not building personal financial knowledge, taking risks without sufficient knowledge, and letting emotions drive financial decisions. The speaker highlights how avoiding these mistakes has helped them build a solid financial foundation, and offers insights into how others can accelerate their financial independence journey. The video encourages viewers to learn from these experiences for their own growth.

Takeaways

• 😀 Prioritize saving before spending: Fix a savings goal at the beginning of the month, and treat savings as non-negotiable.
• 😀 📉 Avoid saving only what's left over: This method can lead to insufficient savings and increased lifestyle creep as income grows.
• 😀 🏡 Be cautious with property investment: While real estate can provide steady returns, it’s not always the best growth investment option.
• 😀 🏠 Don’t overestimate future needs: When making large purchases like houses or cars, base decisions on current needs, not assumptions about the future.
• 😀 📚 Build your own financial knowledge: Rely on self-education rather than financial advisors or influencers, as no one knows your finances like you do.
• 😀 ⚖️ Understand the relationship between financial knowledge and risk: As your financial knowledge grows, gradually increase the level of risk in your investments.
• 😀 💡 Avoid making financial decisions based on emotions: Emotions like fear or overconfidence can cloud judgment, leading to poor investment choices.
• 😀 💸 Disassociate emotions from money: Financial decisions should be rational, especially during market downturns. This mindset helped the speaker capitalize during the COVID-19 market dip.
• 😀 ⏳ Time is precious in financial decisions: Financial mistakes often cost both money and time, which are difficult to recover, so minimizing mistakes is essential.
• 😀 💪 Consistency is key: Having a predictable, systematic approach to saving and investing helps accelerate financial growth and independence.

Q & A

Why is saving whatever is left over after expenses considered a mistake?

Saving what is left over often leads to unpredictable savings, as unexpected expenses or lifestyle creep can interfere with the savings goal. The individual learned that setting a fixed savings amount first, before accounting for expenses, ensures consistent and predictable saving behavior.

What is lifestyle creep, and how does it affect savings?

Lifestyle creep refers to the tendency to increase one's standard of living as income rises, such as spending more on luxury items or upgrading to better hotels. This can diminish the amount available for savings even if income increases, leading to stagnated savings growth.

What is the difference between the original saving strategy and the improved one?

The original strategy was to save whatever was left after expenses, which was unpredictable. The improved strategy was to set a fixed savings goal first and move that amount to a separate account immediately, ensuring that savings were prioritized over discretionary expenses.

Why was property considered a suboptimal growth investment option?

While property can be a stable investment, its growth rate in India has typically been modest (around 6-8% over 10 years), and rental yields are low (2-3%). Additionally, property purchases often come with high upfront costs and loans, making it a less viable option compared to other high-growth investments.

How did the individual make a more calculated decision regarding property investment?

The individual initially avoided property investments due to its low growth potential. However, after the 2008-2009 market correction, they made a calculated decision to buy a property at a reasonable price and later sold their existing property when upgrading, reducing their loan burden.

What is the issue with making large financial decisions based on future needs?

Making big purchases like a house or car based on anticipated future needs can be risky. These decisions might not align with actual circumstances in the future, such as a job change or relocation. The individual focused on meeting current needs and delayed large expenses, ensuring financial stability.

Why is building personal financial knowledge important?

Building personal financial knowledge is crucial because it enables individuals to make informed decisions that align with their unique financial situation, risk appetite, and goals. Relying on external advice without understanding the core principles of personal finance can lead to poor decisions.

How does a lack of financial knowledge relate to taking higher risks?

A lack of financial knowledge often leads to taking greater risks, either by making hasty investments without understanding the implications or avoiding risks altogether. As knowledge increases, individuals can confidently take calculated risks, leading to better investment opportunities and growth.

How did the individual increase their risk appetite over time?

The individual gradually increased their investment risk as their financial knowledge grew. Starting with safer investment options like EPF and PPF, they progressed to more aggressive options like mutual funds and stocks as their understanding of finance deepened.

What is the significance of dissociating emotions from financial decisions?

Dissociating emotions from financial decisions helps avoid impulsive actions based on fear or excitement. The individual practiced this during the market downturn in 2020, where instead of panicking, they saw the market's decline as a buying opportunity, which ultimately accelerated their financial growth.