When you decide to retire, your retirement corpus should be large enough, to generate an inflation-protected income, for the rest of your life.
People who have reached financial independence can make it look easy. It is not so easy as it sounds like. It takes commitment and perseverance. The people who are the most successful at it, have compelling reasons for why they want it that way.
Having experienced myself, following are the 3 most important factors you should focus.
1. Save More
The key to retiring early is to start saving early, and to save a high proportion of your income. Later you start, the amount you have to save increases.
Even with common sense prevailing over spending, many people succumb to what is called, lifestyle inflation. The more money they make, the more money they spend, and their saving continues to remain the same/nil.
People often get into trouble with saving, thinking they have to stop everything they love, which is not true. Find a level of living that you’re comfortable with and then work on earning more without increasing your expenses.
Cut services you don’t use , free up more money for investments by cutting services you pay for but don’t use often. Analyze & take out all un necessary monthly expenses and turn them into monthly savings.
Don’t fall into social trap, your colleague buying a Duke to impress his girlfriend should not be a reason for you to buy the same.
Taxes can erode your savings, so it’s important to invest in a tax-efficient way. This means that you want to save into investments that can help your money grow tax-free, such as PPF /VPF/ELSS/NPS etc.
Prioritize rightly, many people make a mistake of buying a house by entering at a wrong price point. Evaluate your options of Renting v/s Buying a house. Anything more than 15 times the yearly rental value won’t make much sense to buy a house.
If you’re lucky enough to get a bonus at work, consider saving that immediately. If it’s not the money that you’re used to spending, then it will be easier for you to increase your savings rate without feeling any pain.
2. Earn More
In order to earn the kind of money where you can live on only half or less of your salary you need to focus on your career.
If you don’t work on your career pro-actively you are losing money big time
This career boosting exercise must start with analyzing future trends resulting in learning new technologies (AI, Machine Learning, Cloud , Security etc), new tools , earning advanced degrees & taking up certifications that will qualify you for higher paying positions.
Career in IT has become like the career of a Movie Star. Make the best use of it, when you are at your peak , especially during 30 to 40 years of age.
3. Invest More
Once you are in a right job, saving a high proportion of your income, you should focus on growing your money through compounding. You want to make sure your portfolio is well balanced, in line with your risk appetite & your future goals.
Majority of the people end up saving their money in Bank FD’s or Real Estate or investing in MF funds based on their star ratings on popular sites.
Majority of people that I worked with, don’t consider Insurance, especially health insurance as a must in their portfolio. They are contended with the health coverage (2L to 4L) provided by their company.
What if, you are fired from your job or your company closes or you are unable to continue, due to health/family issues and unable to find another job in time?
Medical expenses drain your savings faster than anticipated as it is expensive. Almost, all the Health insurance companies in India cover pre existing diseases from 2 to 4 year onwards. Some common diseases are not even covered in first 2 to 3 years. Some insurance companies don’t even give you health insurance if you are diabatic. Are you prepared for this?
There are all kinds of plans and investment options out there. Don’t sit back and not be informed. Engage with a trusted financial advisor so that you can understand what’s out there Or what are some gaps in your planning to be able to protect yourself and your family
Do get in touch with us if you need further assistance.