There is no magic wand but to earn decently, save & invest well and keep expenses low. Doing this, you may reach closer (at your own pace, depending upon your pace!).
However, before beginning the journey towards financial independence, there are certain prerequisites, that you should take care of. While following these won’t automatically take you closer to financial independence, not following them can be detrimental to your journey.
- Clear off your debts. Especially the (unnecessary?) loans like car loan, credit card bills, personal loans, gold loans etc. (On home loan, if you have one, you can decide based upon your repayment capability now & possible tax benefits you are getting.)
- Assuming you have cleared off your debts, ensure that your future lifestyle is debt free. Be wary of loans. Whatever you need, spend out of your savings and not with (easy access to) credit.
- Invest money. Let your money grow. I would suggest a good mix of debt and equity (capital protection + high possibility of capital growth). If you have lot of spare money, then real estate may also form a part of the mix. To be financially independent, your investments (and ensuing passive income) should be able to take care of your day to day expenses.
- Have control over expenses. Especially lifestyle expenses, which increase with lifestyle inflation. Your “magic number” for financial independence assumes a certain lifestyle and lifestyle expenses. Lifestyle trap can be a sure shot way of never achieving financial independence.
- Get sufficient insurance. If you are covered under company provided insurance, get a personal insurance cover too. You don’t want unnecessary expenses (especially medical) to wreck your financial plans. So it’s better to plan out for eventualities & be aware of the expenses that can set your financial plans back.
Once you have ticked the above check boxes, your journey towards financial independence can be (hopefully) smoother. Just to reiterate, these steps won’t automatically make you financially independent. But these steps can take care of some stuff that can be major stumbling blocks in your journey towards financial independence.
Have anything else in mind? Do share.