Wknd tips: How to retire while you are young, not at 60 or 70

It is important to understand why financial independence is such a big deal and what it is.

By Suneeti Ahuja-Kohli

Published: Thu 18 Feb 2021, 8:19 PM

Last updated: Fri 19 Feb 2021, 9:00 AM

It was in the early ‘90s when Vicki Robin and Joe Dominguez published their book. The authors introduced a term to the world of personal finance — FIRE, which stands for Financially Independent Retiring Early. In the last two decades and more, FIRE has evolved into a movement and attracted people from all across the globe.

The authors, Vicki and Joe, argue that people can retire early. They don’t really have to work for 40 years before they can hang up their boots to enjoy life. The authors suggest saving and investing almost half of the monthly income for at least 10 years to retire comfortably. Some people can achieve a sizeable corpus earlier as well. It depends on how one invests their savings. This is way more than the traditionally advised saving ratio of about 10-15 per cent of monthly income.

Now, I am not a big fan of retirement; I enjoy what I do and would probably continue to work as long as I can. Personally, the biggest takeaway from this book and the lives of many people who are a part of the FIRE movement is: how can one attain financial freedom sooner rather than later.

Saving and investing almost half or more of your income during the first decade of one’s work life, when most people are usually on their own, without the responsibility of supporting a family, is still doable. We have many examples of this already. But what can people in their 30s, 40s, and later years do to achieve financial independence?

Before answering that question, it is important to understand why financial independence is such a big deal and what it is.

Financial independence basically means you do not have to rely on your monthly or primary source of income to sustain yourself. Your investments generate enough returns for you to support your lifestyle. Arriving at such a point can also make you time-rich and allow you to work on projects and things that you are perhaps more passionate about.

It all sounds good but achieving such a state needs discipline and redefining your relationship with money. Most of us have an emotional connect with money. We tend to spend more when we are happy and even when we are sad. Having a budget, a plan, and identifying areas of investment help.

A good starting point is to identify how you spend your money. Stop using it to buy stuff that has no value and satisfies impulse. Learn to save. Once you have saved up enough, invest that money in assets that will give you returns. Choose property, stocks, bonds, fixed deposits, index funds, etc. Read about different asset classes, get in touch with a financial adviser, discuss with friends, or perhaps get involved in online communities — educate yourself through online tutorials and books.

Consistent investments through your work life will eventually help you reach a point when income from your assets will be enough to sustain your lifestyle. At that point, which can be sooner than the traditional 60-65-year mark, you can choose whether to continue working full-time or not.

What you and I do for money dominates our working hours. Life is what can be fit into the scant remaining time. Let’s change it and take charge of our money. The change won’t happen at the snap of a finger. It will take years, but it will be worth the effort.

Stop working, start living

  1. Start by saving at least 10 per cent of your monthly income and bump it up over the months and years.
  2. If you have already built up some cash reserve, invest them in different asset classes based on your investment horizon and risk profile
  3. Take stock of your investments every six months to a year
  4. If some investments are not giving good returns, re-evaluate your options and direct them to fresh avenues
  5. If you are unaware or get intimidated by investment choices, get in touch with a financial adviser, or start educating yourself through books, online tutorials, investment communities.
  6. Building wealth takes time. Do not get swayed by investment choices that you do not understand. Invest in learning, go the Warren Buffet way.

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