There have been reported that 76% of Malaysians do not have enough savings to last them for 3 months if some unexpected events (loss of job, accident) happened in their lives. Most of us believe that because we have a job that is paying us every month, we are safe. Thus, many people do not save much.
But it may not be true. The current Covid-19 pandemic is a very good example. Covid-19 pandemic basically put most of the economy in the world into a standstill and many companies are unable to sustain in paying the salary of its employee. Thus, there are many people that have lost their job or would experience some pay cuts.
Without enough savings, many of these people are in a very bad situation.
It is only with the correct financial know-how that we are able to overcome this and the concept of financial independence is the know-how to overcome this situation.
The basic of financial independence is to be able to have a nest egg that would be enough to sustain the required expenses in case of losing the ability to earn, whether because of losing a job, accident, or even loss of life.
The simple steps to financial independence are as follows but it does require certain discipline to make it a success:
1. Understand where your money comes from or where it goes. A full record of the most recent income and expenses will give a good idea your financial situation.
2. Minimize/eliminate debts, especially lifestyle debts such as credit cards and personal loans.
3. minimize spendings by spending only on needs instead of wants, though some wants is acceptable but not excessive.
4. increase income by buying assets or starting a side hustle that will generate long-term incomes.
By knowing your financial situation, you will be able to eliminate debts and lower down the spendings. This will help to lower the required amount of passive income, and thus making financial independence easier to achieve. By increasing the income, especially passive income from income-generating assets, there will be a time when it is okay no matter what type of economic downturn that you may face.
So, in my point of view, financial independence is something that everyone should strive for. Even if you are not there yet, the benefit of eliminating your debts and increasing your incomes will benefit you greatly.