What Does Becoming ‘Financially Free’ Mean?
Imagine some of your biggest dreams in life. You might want to retire a whole decade early. Or build a substantial corpus that will provide passive income for you and your family's everyday needs. You might want to get out of the corporate world and pursue your hobbies - travel, go on adventures, write a novel, etc. Or go on an international trip every year. And, all this - without having to worry about 'money'.
Well, as time passes, you might be able to achieve some of these dreams. But in order to achieve all these dreams, that too without straining your budget, you need to attain 'financial freedom'.
Achieving financial freedom is a goal for many of us. In this short 3-minute read, let’s learn what it means to be financially free, and two specific situations that can be clear indicators of your financial freedom.
So, let’s begin.
What does it mean to become ‘financially free’?
When you don't need an active income to fulfill your financial responsibilities, you can consider yourself to be financially free. This is possible in two cases -
- You have no financial responsibilities or you had financial responsibilities but you fulfilled all of them.
- You created enough wealth that will last a lifetime.
Let us study both these cases in detail.
1️⃣ You have no major financial obligations - never had or fulfilled
When we talk about financial obligations, we basically mean responsibilities such as your children’s education, spouse’s higher education, children’s marriage, etc. When you’ve no such financial responsibility, you are financially free. For instance -
👉 You don’t have any financial dependents
There’s no one depending on your income, for their expenses and lifestyle - both in the short term and the long term.
👉 You’ve had financial dependents but they no longer rely on your income
For example, your children who were your dependents in the past have grown up, taken their own jobs, and are earning sufficiently to support themselves.
👉 You don’t have any loans or liabilities
You’ve no outstanding home or educational loans or liabilities or have not provided a guarantee for anyone’s loans.
👉 You’ve paid off all your loans and liabilities
For instance - you’ve completely repaid all the home loans and business loans over the last few decades.
👉 You’ve fulfilled all your major financial responsibilities
For example, you’ve finished paying for your children's education, children's marriage, etc.
2️⃣ Becoming financially free by creating enough wealth to take care of all your financial responsibilities
If you’ve created enough wealth to give you a steady stream of passive income that's sufficient to take care of all your financial responsibilities over a lifetime - then you’re said to have become financially free.
Here are some examples to give you a little more clarity -
- 50 years old, married, working
- 2 children, both married
- No financial dependents
- Paid off all loans and liabilities
- Has enough savings for daily needs
- 35 years old, unmarried, working
- No children
- Parents & sister - financial dependents
- Taken a loan for sister's wedding
- Does not have enough savings
In the above two examples, after considering everything, we can say that Sanket is financially free. Manav, on the other hand, is not financially free yet because he doesn’t have enough savings and has financial dependents and loans and liabilities.
If you have any further questions related to financial freedom or keys to financial freedom, you can post them on the Beshak Insurance Forum and get answers from insurance experts.
- You can stop your term insurance once you become financially free.
- You can become financially free in two cases -
- When you don't have financial responsibilities or when you’ve had & fulfilled all your financial responsibilities.
- You’ve built enough corpus to take care of your financial needs for a lifetime.
Aakansha is a Content Ideator and Writer at Beshak. With her easy-to-understand content, she makes insurance simple for everyone. She comes with a strong background in finance and commerce and wants to help families make positive insurance decisions that are good for a lifetime.