Here are some key steps for achieving financial independence

Have you ever wondered about the true-blue secret to financial independence? Is it a high paying job or a smart business move? Or is it a steady approach to savings and investments as you earn and grow? Or is it a combination of all of these, as the expert Robert Kiyosaki says, "Financial freedom is available to those who learn about it and work for it."

However, spending less than what you earn is a sure way to improve your net worth. Many people do not understand the difference between income and wealth. Though income is the primary source of wealth, your personal balance sheet will have both income and liabilities, hence your true wealth is what's left once you pay off these liabilities. To tilt the balance in your favour, you need to do more than earning more; you have to make it work for you by investing smartly. You have to make your money make money for you. Here are some of the pointers on how to make it happen:

Start early: Building a culture of saving is important, a slow and steady start to investments at an early stage of your life will help you achieve financial freedom earlier. Having a financial plan is the first step towards achieving your goals. Planning for your retirement is definitely a goal that must be consistently kept in mind. Setting this goal is important for keeping your perspective on the overall income and the amount you can invest to achieve financial independence. With the power of compounding, your investments will grow substantially before you hit late 40s, giving you the true sense of financial independence.

Some of the tips here include greater exposure to high risk - high return avenues like equity, protecting your life and health with adequate insurance covers and acquiring essential assets in life in a planned way in the earlier years. A thumb rule for % of your portfolio invested in equity is 100-age e.g. for a 27-year-old 63% of the overall portfolio should be in equity. Investment guru Warren Buffett advises that investors should never put money in instruments that they do not understand – thus, educating oneself is important to understand the risks and benefits associated with each option. Moreover, you should allocate funds which you may not need and to options that suit your risk appetite.

Spend as required, not more: Want is a perennial truth about life, especially one's financials. Financial discipline is a key asset when it comes to managing income. An easy way of doing this is by gathering your family's expected expenses, bank statements etc., everything you have that shows money coming in or going out. Write a frugal budget with the entire family to manage your money. A family budget is the best way to take care of most of the personal expenses and spend as and when required and not otherwise.

Don't accumulate debt: Be it a loan or debt via credit cards, financial prudence demands less accumulation of debt as you grow older in life. Credit card loans can swell into a huge debt given the high rate of interest. If you have any revolving debt on your credit card, pay it off immediately. Failure to pay your dues on time will have an adverse effect on your credit score and adversely impact your ability to take loans when required. One must clear off all short-term debt before considering investments

Maintain a healthy credit score and report: A credit score is a three-digit number (usually between 300 to 900) which tells you how likely you are to be accepted for credit in the future. This is crucial for your future credit needs. A credit report is a document that shows your complete credit and financial history –current accounts, borrowings including whether you've kept up with repayments. Your credit report and credit score represent your financial status, stability and accountability. You are entitled to a free credit report once a year from any one of the four credit bureaus like Experian. It is advisable to check your credit report thoroughly and reach out to your bank should there be any discrepancy.

Be consistent: Nothing builds your investments like a consistent allocation of funds into a well-planned and balanced array of options over a period. With the help of rupee cost averaging, small funds can grow into life savings as you progress towards your retirement. The success of systematic investment plans (SIPs) is a perfect example of consistency which helps you even out the market volatility and economic cycles over the years.

Pay attention to your investments: Many investments are vulnerable to market conditions and economic scenarios; hence you must monitor their progress; if need be, you may have to nudge your investment manager to switch to better performing assets or funds. The same is applicable as you age and your priorities change; you may want to cut down equity exposure or switch to more balanced funds. Some of the underperforming assets can be liquidated to pay off high cost debts. Thus, assessing your balance-sheet periodically is vital in your quest for financial independence.

Putting all your eggs into one basket is not a prudent move, hence choosing and investing in a plethora of assets - such as real estate, gold, debt instruments, stocks and emerging options - will balance your portfolio and give you the freedom to lead a comfortable life once you retire or decide to pursue other goals in your life.

The writer is managing director, Experian Credit Information Company of India