Home ⇒ Financial Freedom ⇒
Published: November 4, 2022 at 6:00 am
A reader asks, “I am 30 years of age. We are a family of 5 ( blessed with a kid two months back). I am the only earning member. My house is in Ahmedabad (native), and I work in Bangalore. My monthly expenses are about 50k currently. Expenses for the kid might increase after a few years due to education”.
“I manage to invest more than Rs. 2 lakhs a month. Rs. 50,000 in PF + NPS. Rs. one Lakh in equity mutual funds and Rs. 50,000 in fixed deposits. My current corpus is invested as follows: 14 L in PF, 7 L in NPS, 14 L in MF, 16 L in FD and 3.5 L in PPF. Please tell me if I am on track for FIRE (financial independence and early retirement). By when can I achieve FIRE?”
Your savings rate is impressive! The savings rate is the amount invested each month divided by the monthly gross income expressed as a percentage. In your case, it is 80% even with net income (2 L divided by 2.5L). So you are certainly on track to achieve financial independence. Also, expenses for your kid will not increase after a few years. It will increase much sooner than that! So it is crucial to review the plan each year.
Early retirement is a different ball game, though. We recommend vigorously starting planning for a second career less demanding than your current employer. A lack of work-life balance is often the reason for chasing after FIRE. See: Are we seeking work-life balance in the name of early retirement?
Financial independence gives you options. You can afford to choose gainful employment that is closer to your heart and more fulfilling. However, this requires careful planning and preparation. See: How to build a second income source that will last a lifetime.
We will now use the freefincal robo advisory tool to determine when the reader can achieve financial independence. Once the essential inputs are keyed in, the retirement age is lowered until the investment amount required is close to the Rs. two lakhs a month mentioned by the reader.
Assumptions:
If we set the retirement age as “40” (this does not mean literal retirement. It just refers to the minimum of becoming financially independent.)
The outputs are:
The only catch is the low equity exposure currently. We recommend quickly increasing this exposure to 50-60% by deploying future and existing investments (by liquidating some FD) into equity. For actual retirement at 40, the equity exposure will have to be reduced to about 40% in the last 5-6 years. However, this is not necessary if a secondary source of income is available.
If the reader is uncomfortable with a sudden increase in equity exposure, he can gradually increase it, but it would also delay financial independence. If he can increase equity exposure to 50-60% within the next two years, then there is a good chance of achieving financial independence in about a decade. that is by his early 40s.
However, we would like to emphasise again (1) review the above calculation each year after taking into account current expenses and changes in circumstances and (2) never quit your current job unless you have tripled checked your financial independence status (with SEBI registered fee-only advisors if necessary) and ensuring you have a robust source of secondary income.
You Can Be Rich Too with Goal-Based Investing
Your Ultimate Guide to Travel
How to earn one lakh a month passive income?
Passive Income Automation: An Example
How to turn your social media comments into passive income!
Passive income examples that work in more ways than one!
Passive income is a crucial part of your retirement plan: How to get started
List of Fee-only Financial Planners
Create a start to finish financial plan with the freefincal robo advisory template
What we can learn from Petrol, Diesel historical price inflation data
Do not expect returns from mutual fund SIPs! Do this instead!
Do Not Invest Rs. 50,000 in NPS for additional tax saving benefits
If you have some information relevant to freefincal or have a question, you can send it to letters [AT] freefincal.com
Note: We do not accept paid/free guest post requests. We do not work with professional content writers or marketing agencies. We do not participate in link exchanges or brand campaigns Such emails will be discarded.
Increase your income by getting people to pay for your skills! (675+ members!)
Learn how to manage your portfolio regardless of market conditions! (2800+ members!)
Bhaskarapuram, Mylapore, Chennai, Tamil Nadu 600004
We do not provide investment advice!
Connect with us on social media
Get our free e-books!
Watch My Talks
Mutual Fund Reviews
Tactical Asset Allocation (Market Timing)
List of Fee-only Financial Planners
⭐ ⭐ ⭐ ⭐ ⭐ Our Google My Business Rating is 4.9 stars! Check our reviews!
Follow us via:
Learn more about us:
