Obstacles to Financial Freedom (2024)

Financial freedom is not a wishful thinking or a distant dream. You have to work at it consistently and with perseverance. Obstacles are everywhere to pull you down from getting where you want to be. It requires determination to overcome the obstacles to achieve financial freedom.

Financial freedom is not about amassing millions of dollars to live off of. It is simply having more money coming in every month in cash flow from your investments, or your business, than going out in living expenses.

Here are the most common obstacles to financial freedom and tips to overcome them.

1. Wrong Notions

Most people think you can become rich only by inheriting or marrying the rich. But you can find numerous examples of rags to riches stories like Charlie Chaplin who shot to become one of the rich and famous. So is she case with Oprah Winfrey who is one of the world’s billionaires whose origin is steeped in poverty. These are exceptional cases but we can find a good number of examples in our own surroundings if we care to look deeply.

To be financially-free, think about your area of expertise. What you can offer to expand your means and increase your cash flow?

2. Lack of Direction and Clear Financial Goal

Most of us do not have a definite financial goal or vision. This is like being in the railway station not knowing where to go. If you don’t know the destination, how will you know which train to board? So first thing is to make your goals clear and realistic setting a time frame to it. Then you will get ideas on how to reach it.

For example if you are a trainer and you may want to own your own Coaching business in 5 years from now. By writing down your goal with a set time frame you make a commitment to yourself to achieving that goal. You will automatically be motivated to plan your course of actions towards reaching the goal.

3. Peer Pressure or Pseudo Status

Many a time you feel the urge to spend on unnecessary things and activities just to show off. Throwing parties, lavish gifting, opting for branded or expensive instead of the regular in vehicles, clothing, Jewelry, shoes etc. fall under this category.

This is a habit that is a slow killer of your finances and you may find that they eat up your potential savings that may add up to a sizable wealth through the years. Luxurious possessions need expensive maintenance and recurring expenditure and may create a huge dent in your savings making financial freedom a distant dream.

Actually this is a mindset problem that can be easily controlled with reasoning and mature thinking. Nothing is achieved with false status symbols. So take care and choose friends who add value to your life and not just to have fun and make you feel pressured to keep up with them in spending.

4. No Reserve Funds

A small percentage of the monthly income must be put in savings. This can come in handy when some unexpected expense arises, like ill health or an accident. If nothing happens, it will accumulate to a significant amount that will help you to plan for a long term goal like a house, vacation or higher education.

Do not fall prey to temptation and indulge in unnecessary purchases or entertaining labeling them as necessary evil. You may end up using credit for a genuine need later on which will lead you further down financially.

5. Procrastination

There is an old saying, “Tomorrow never comes.” Starting early is the mantra for building wealth as over the years your investments will bring ample profits. Whatever small way you can, start right away, as meticulous saving with a clear goal is the surefire way to build assets which will pleasantly surprise you.

Worry never robs tomorrow of its sorrow, it only saps today of its joy ~ Leo Buscaglia (Tweet this)

6. Indebtedness

Availing the loans facilities indiscriminately often results in lifelong indebtedness as interest rates are high and add up with the addition of charges and penalties for delayed payments. The other disadvantage of credit card usage is we end up buying more than what we require.

Thus you put obstacles on your way to financial freedom. Credit card spending should be curbed and kept to the minimum so that it is possible to envision financial freedom.

Some sane advice. It will be relevant to pay attention to what Warren Buffet, one of the world’s richest person’s word of advice the youth:

• Stay away from credit cards and invest in yourself.
• Live your life as simple as you are.
• Don’t do what others say, just listen to them, but do what you feel good.
• Don’t go on brand name; just wear those things in which you feel comfortable.
• Don’t waste your money on unnecessary things; just spend it on what you really need.
• Don’t give others a chance to rule your life; it’s yours to live after all.

Does Money Breed Money?

This could be true in certain cases where a person accumulates enough wealth which is large enough to expand and multiply. However, this is true only if the money is invested in the right avenues. If a billionaire makes big mistakes in money management it won’t take much time for him to step down to the millionaire club or become bankrupt altogether.

So believing that only people who have money can make more money is just another excuse for procrastination or shows clear lack of initiative. If you make an effort you will atleast start with a few hundreds or a few thousands, which can gradually grow and become a significant sum.

Wrong Influences

For instance Alex who joined a BPO straight from college had significant earnings, but he used to follow his college friend Romeo, when it comes to lifestyle and personal finance. Romeo was a part of high-class society and is often known to frequent swanky clubs and parties where only the elite crowd spends time.

Romeo’s interests also included spending time in farm houses, resorts, bars, etc. Alex also followed the same lifestyle of Romeo due to influence, but this meant that half of his salary (50% of Rs.25000) went towards entertainment expenditure.

As of now Alex is not affected, but recently Alex’s father retired from government service and had to live on a nominal pension. Alex realized his mistake and stopped his wrong ways when he discovered that Romeo (the son of a corrupt politician) also landed up in jail a couple of times for his alleged link with anti social elements.

Most people know that saving and investing is important. But they also try to brush it aside thinking that they can do this probably next year or when they get their next raise. Instead of waiting for an auspicious time one has to invest small amounts regularly and accumulate it for the future.

Regular savings will grow at a compounded rate and help you build wealth. There is nothing wrong starting small even at Rs.100. Discipline and consistency can help you save sizable amounts gradually over the years, when your salary and savings go up.

The Compounding Effect

Let us take a simple example of how budgeting and savings can help you build a huge savings over the years. For example take a person Mr.Mukund who manage to save just Rs.2000 per month. Assume that he saves Rs.2000 per month consistently over a period of 5 years and invests in safe avenues earning 10% return per annum. How much will he have at the end of 5 years ?

If we don’t even take interest in to account this savings would be worth Rs.1,20,00. See how thousands have become lakhs. Now if we take the returns in to account the total amount saved would be Rs.1,54,874. Which is Rs.34,000 more than pure savings. So there are two things to learn:

• Regular and consistent Savings
• Systematic Investing

Investing Early and Consistently

I will just use a small story to illustrate the power of compounding and its effects.

There are three friends who hail from Punjab namely Late Singh, Smart Singh and Balanced Singh. This is not a Sardar joke, but a nice way to illustrate different scenarios. Late Sing saves less and thinks short term, while Smart Singh plans things early and believes in long term investing. Balanced Singh is low on savings but is still consistent. Look at the table below to get a better idea.

(all amount in Rupees)

Age at Investment :Late Singh is habitually late to college and to his office too. He starts investing at the age of 27, while Smart and Balanced have started at the age of 22, so Late loses on the investment time or horizon. He does not allow more time for money to grow.

Savings & Consistency: All three of them earn the same salary but, Smart saves more. In fact the amount saved by Smart Singh is double that of Late Singh or Balanced Singh. While Late and Balanced Singh both saved just Rs.2500, Balanced Singh atleast started early.

Total Savings: Smart Singh becomes a millionaire at the age of 32, while Balanced and Late Singh lag behind. Late Singh is too poor, because his savings accumulated over 5 years is just over Rs.2.15 lakhs, which is less than 1/5th of what Smart Singh accumulated and is just 1/3th of what Balanced Singh Accumulated. In other words Balanced Singh is 3 times wealthier and Smart Singh 5 times wealthier. So the lesson is to start early and invest regularly to reach your financial goals.

Inflation and Investments

Mere savings will only take you up to a point, but inflation will erode earnings, so its good to always invest in assets that can help you beat inflation. The other obstacle to financial freedom is not investing in assets that beat inflation. Many people try to save cash under the carpet or just invest in bank deposits.

This is due to the extreme fear of stock markets, real estate, gold, etc. Mere fear or avoidance is not the solution. Instead one should find ways to minimize risk and earn reasonable returns. Fixed deposits can fetch around 8-9% interest per annum currently, but inflation is also at 9%, which means your net returns is zero or negative after accounting for tax on interest earnings.

If one just keeps money in the bank account the interest earned is a meager 3.5%, which gives negative real returns. Equities, gold and real estate are capable of generating double digit returns, but carry certain risk, which can be controlled by proper planning and diversification strategies.

Conclusion – Financial Freedom

The main obstacle to financial freedom is the mindset. Most people think about the current situation and feel that planning for the future is not important. Lack of resources can be a limitation, but that doesn’t put a full stop to savings and investments.

Remember that a journey of thousand miles starts with a single step or drops of water can make an ocean. They key here is to get started however small or trivial your savings may be. Like they say “well begun is half done”, this applies to financial planning as well. Starting early will provide you more time to plan and get closer to financial freedom, which will become a reality.