The meaning of financial freedom is fairly simple. It basically implies to a state where a person has full control over their financial situation and is able to make choices based on personal preferences instead of worrying about monetary limitations. As Kavan Choksi says, financial freedom makes it easy for people to take important decisions like changing jobs, going on a world tour, starting a business, or retire, without worrying about their finances.
Kavan Choksi marks the methods that help people in reaching financial freedom
Achieving financial freedom or independence is way beyond having enough money to meet the needs. It is the state where money no longer dictates important life decisions. Achieving financial freedom is an important life goal, and empowers people with the ability to maintain and improve their lifestyle effectively.
The following methods can help people to achieve financial freedom:
- Manage the debts: Debts are among the biggest obstacles to achieving financial freedom. Paying off their debts in time can help people to maximize their savings in an efficient manner. People should try to pay off the debt with the highest rate of interest first, no matter whether it is a mortgage loan, student loan, or credit card debt.
- Build an emergency fund: It is not easy to predict unexpected events like having to stop working because of some medical issue, or getting the house damaged due to a natural disaster. By setting aside a substantial sum of money in an emergency fund, people would be in a better position to avoid taking on new debt. An emergency fund should ideally be equal to 3 to 6 months’ worth of salary of a person.
- Save 50% of the income: While this seems like a radical idea, it is definitely not impossible for many. In fact, there are several people across the world that follows the concept of saving half of their after-tax income. Such people invest these savings in planning early retirement, repaying debts, and building emergency funds. Having a super-saving plan in place allows people to repay their debts way before reaching retirement age without paying add-on interest.
- Learn Budgeting: The concept of budgeting essentially complements the habit of saving. Budgeting maximizes the savings of a person and helps them to identify varied activities on which they can save money. The 50-30-20 budgeting rule is often practiced by people to save enough money to progress toward financial freedom.
- Earn passive income: Passive income is a type of an income that people tend to automatically earn with very little effort to maintain. Having a passive income is among the most progressive ways with whose help one can become financially independent. Passive income can be earned through multiple means, like the stock market, rental property, and so on.
As Kavan Choksi says, among other things, people should try to make smart investments to achieve financial freedom. If they manage to build a good investment portfolio, they would be able to multiply their money a lot faster than any source. Investments work on the power of compounding that can build a large amount of financial corpus.
