Wouldn’t it be a great option to achieve financial independence at an early age and retire early.
Over the past 2 years, as we were locked in our houses, this idea of working from anywhere has become a reality. I started actively exploring how people are able to retire early and continue leading their current standard of living. Here are some of the key points that I have learned over the past 2 years of research:
a. Understand your basic monthly financial requirement: This is absolutely critical. I meticulously analyzed my monthly spending over the past 2 years and have been able to zero in on a number that I need to earn to continue the current standard of living
b. Calculate your yearly additional expenses – you don’t want to miss out on your vacations and other yearly expenses like School fees, annual premiums, etc. Step A+ Step B will give you the yearly expenses. Remember to classify your expenses as “Must have” and “Nice to have”
c. Once you have your “Must have” yearly financial number – start analyzing your current source of income. Remove your monthly salary from this equation and check how much monthly income is being generated by your current assets like – houses to rent out, fixed income instruments, capital gains from markets, any alternate source of income, etc. If this number is greater than the monthly expense that you calculated in step B; you are very close to financial independence
d. Get yourself covered for those dark days – get your health insurance, and term insurance early in your career. They are relatively cheaper when you are young and trust me a 20K INR premium per year becomes insignificant in the long run. Many hang on to their corporate jobs for the health insurance and having independent health and Term insurance provides you that safety net
E. I factored my future expenses like kids’ education and other key events like kids’ marriage. I also baked in a contingency liquid fund; just in case. I worked out an excel model which captured my current assets and grew these assets at a conservative interest rate (Around 7%). This ensured that at no point in time in the future, did I end up having a negative cash flow even when these future expenses are deducted.
f. And finally, leverage the compounding effect of assets. Start investing (even in small amounts) when you are young. Do not get worried about the temporary ups and downs of markets. Stay invested and keep investing. Choose wisely instruments based on your risk appetite. Periodically check if your portfolio is diversified and always have a clear idea of your liquidity.
I have not reached the point where I have financial independence, but having built this excel I have a good idea of how many more years I need to work to attain financial independence.
If anyone is interested in this topic, feel free to drop a message and we can take this conversation further.