Even though there is a set definition for financial independence, the term does encompass certain goals, like no longer having to depend on others to meet their financial needs and living without debt. In the opinion of Kavan Choksi, financial independence also implies having the financial cushion to afford a certain lifestyle, as well as working because one wants to, not because they have to. With careful planning and discipline, it is possible for people to achieve financial freedom.
Kavan Choksi discusses a few important steps that help people to become financially independent
Financial independence implies diverse things to distinguished people. While some believe that it implies making ends meet without assistance from others, to many, it means to meet financial obligations while saving enough to comfortably retire. No matter which of the beliefs holds true for a person, there are steps one can follow to achieve financial independence. These steps include:
- Set realistic and specific goals: As financial independence can mean different things to different people, one must first try to gauge what it exactly means to them. One must be specific about what they want, the amount of money they shall need to achieve their financial goal, and the time frame for saving that money. The more specific goals one has, the greater would be the likelihood of reaching them. People should try to set financial mileposts at regular intervals while ensuring that there is a reasonable amount of time provided to accomplish each step. Breaking down a long-term goal into smaller steps can be pretty effective in measuring progress and staying on track.
- Build a budget: To reach financial independence, one needs to craft a proper budget. Budgeting shall involve assessing the income, subtracting expenses, and exploring how to use the difference to reach the financial goals. It is not always necessary to have a high-paying job to become financially independent. Rather one must put emphasis on spending less than what they earn. People must also distinguish between the things they want and the things they need. It is important to analyze spending, identify unnecessary expenses that can be eliminated, and put that money toward long-term financial goals.
- Develop a debt strategy: No matter whether one is with credit card debt, student loan debt, or a mortgage, they need to prioritize paying off the debt to gain financial independence. The high-interest debts should be paid off first, as they cost the most over time.
- Create an emergency fund: Life is full of both surprises and shocks. No one can exactly predict when their car may meet with an accident, they will experience major health issues, or when they will be impacted by a natural disaster. All these situations can, however, end up causing a major financial burden. Hence, one must have a dedicated fund for emergencies that aids them to weather the storm and steer clear of accruing credit card debt or withdrawing from savings accounts to cover emergency costs.
As per Kavan Choksi, people should make financial independence a priority right from a young age in order to lead the latter years of their life comfortably.