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How to accelerate your financial freedom?

Everybody wants to become financially independent. But very few actually get there. Why? There can be various reasons but I think that achieving financial freedom doesn’t just happen overnight. It requires one to have a serious plan and more importantly, to commit to that plan. But that’s easier said than done.

Personally, I aim to
achieve early financial independence.

If you were to ask me why, my response would be in the form of this quote by billionaire investor Charlie Munger:
“I did not intend to get rich. I just wanted to get independent.”

That for me is a goal worth having.

But let’s not discuss my thoughts on
financial independence and retiring early (F.I.R.E), because I have already written about it in detail in the past.

Let’s rather talk about you.

If you are beginning to get comfortable with the whole idea of financial independence or early retirement, then I am sure you would be wondering:
How much money do I need to retire early in India? Or
how much is enough for FIRE?

It would be best if there was a perfect formula for financial independence.

But there isn’t any.

Setting aside the right amount of money for regular retirement is a
tough nut to crack in itself. And here, we are talking about early retirement.

A popular formula, though, is
having a corpus equal to at least 25 times your annual expenses.

This may be enough for some people but may not be for many others. For some people, 30X or 40X may be a more appropriate size. It depends on a variety of factors like current age, age of early retirement, life expectancy assumption, inflation % assumption before and after retirement, return estimates before and after early retirement, and several other more serious factors such as the sequence of returns risk, etc.

But as I said, if you are just beginning your journey towards achieving financial independence, then the exact amount to target doesn’t matter. Instead, you can have at least some financial target set before you, for which I think it’s good to target a corpus of
25X, where X is your annual expense.

But what about the
‘secret’ that I mentioned in the title of this post?

Here it is…

If the X (i.e., Annual Expense) is small, you can save more and, in turn, reach the target of 25X faster.

Read that again and again, if you are still unable to understand its importance.

Let’s take a small hypothetical example to make this idea crystal clear:

Suppose your annual income is Rs 12 lac. And your annual expenses (i.e. X) are Rs 8 lac.

So, if we were to use the 25X thumb rule, then you would need 25 times Rs 8 lac – which is Rs 2 Cr as Early Retirement Corpus. And to achieve it, you will have Rs 4 lac every year (Rs 12 lac income
minus Rs 8 lac expenses) to save for the goal.

Note – I have ignored inflation, etc. for simplicity here.

it’s a double benefit of having a reduced target and higher savings capability.

It is like if your expenses are low, you will need a smaller corpus to support it for years to come. But if your expenses are high, then not only will the required corpus be higher, but it will also require more time and probably a higher saving rate.

And this is the real secret!

If you
save just 10% of your income, then you can forget about early retirement. It should be more like 30%, or 40% or even more than 50% of your income. I am able to save more than 50% as I aim to achieve financial freedom by 40.

Fingers crossed.

So that was the simple thumb rule for achieving financial independence and retirement early (FIRE).
We always know how much money we have but we never know how much time we have. So, we cannot entirely sacrifice the present. And yet, I believe that aiming for some degree of
financial independence (and not early retirement) via a high saving rate is a fantastic goal for most people. More so for those who see real threats to their jobs in the near future. You never know when you might be
forced to retire early or involuntarily.

Imagine that kind of financial freedom!

Views are personal: The author, Amit Sharma is a Mutual Fund Distributor from Jalandhar

Disclaimer: The views expressed are of the author and are personal. TAMPL may or may not subscribe to the same. The views expressed in this article / video are in no way trying to predict the markets or to time them. The views expressed are for information purpose only and do not construe to be any investment, legal or taxation advice. Any action taken by you on the basis of the information contained herein is your responsibility alone and Tata Asset Management will not be liable in any manner for the consequences of such action taken by you.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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