You hear the words ‘financially free’ or ‘financially independent’ regularly, right? What exactly do these words mean?

Well there are a few things that it means:

1. You spend significantly lesser than your income: this is difficult to describe beyond a point. Let us say you are earning Rs. 300,000 a month post tax. Your monthly expenses are about Rs. 100,000 – it is surely comfortable, but just imagine if your income went to Rs. 500,000 per month, and your expenses are still Rs. 1L….obviously it is a better situation. So I am not getting into specific details of earning-spending ratio, but you get the hang, don’t you?

 2. You have 4-5 sources of Income, not just one: being rich vs being wealthy is having various sources of income, so one source drying up does not create panic.

3. In case you have to leave your main job, you could live for a few years without any worries. This of course has come from a portfolio of debt instruments, equities, real estate, annuities – created by you because of your effort or inheritance. Of course a well earning spouse is also an added advantage 🙁

4. Your skill sets are reasonably transferable between industries: If you are a pilot, you could be in trouble. All the private sector airlines are in some kind of a financial bind. However if you were a salesman or an accountant, you could easily change your industry without any problem.

5. Your income is not dependant on anyone doing you a favor: You are employed on merit in a non family business. I know people whose life depends on the job, and the job depends on the life of a sole proprietor.

……more to follow……….