Early Retirement Interview_ Mahesh

Second in the series of Early Retirement success stories we have Mahesh an IT professional from Pune who shares his FIRE journey with us. Mahesh is 5 years from achieving his FIRE Goal. He is a a fine example of someone whose investment style is conservative and has relatively less exposure into Equity investments. He has used real-estate and other debt instruments to create major chunk of his retirement corpus.

Thank you Mahesh for sharing your journey candidly with all of us at Saving Habit (SH).

Q&A 

Q1 SH: Tell us a little about yourself 

MAHESH: To provide a quick introduction I am a typical IT professional who is now in middle management, shy of the milestone age of 40. Both my wife and I work though she is at a junior level due to a 5 year gap in service.

We have 2 kids and are currently located in Pune. Similar to Anil, thankfully we don’t have any other responsibilities like care of parents or in-laws. We are a God fearing, manage your own thing kind of a family. I don’t get influenced by the bling all around me on social network.

Q2 SH: How did you get into F.I.R.E(financial independence/retire early)?

MAHESH: I guess I got into the early retirement planning since the age of 31 after my return from onsite. I decided to purchase a house after that and had a huge loan on my head (More than 60% of my take home at that time). It was kind of adventurous on my side to take that kind of a risk since I already had a debt free house. My second kid was soon born and I realized that I am too much dependent on my job and if God forbid anything goes wrong my entire family will be impacted and I will be solely responsible for it.

Very soon I came up with my first xls template ( my latest version is 12.0 🙂 ) which detailed – Salary, Fixed Expenses, Dynamic Expenses, Future Bulk expenses, Savings and most importantly retirement corpus goals.

 So in a way I started working towards F.I.R.E without formally knowing the concept. My target age to achieve F.I.R.E is 45-47 years. My wife is not a 100% believer in the F.I.R.E concept but she does understand its importance so her contribution and support is on a best case basis. She insists that we need to relax and not think too much about the future. I appreciate her point of view as well, just to be clear.

So for us we have a perfect combination of one person who is a FIRM believer of F.I.R.E and other person who likes to take it one day at a time. None of us are however unscrupulous in our spending.

Q3 SH: What is your target corpus and how are you saving up for it?

MAHESH: My target is 25X annual expense at the age of 45-47 with a separate bucket of 70L for kids.  I am also planning, at a best case to add a 5% buffer on top of the 25X target.

  • My current expenses – Fixed and Dynamic is roughly 85K per month which corresponds to 10.2L per annum.
  • So the target is 2.5Cr or 2.67 Cr including the buffer. ( For all future correspondence my target wlll be 2.5Cr)
  • I have an additional home which I plan to rent (already renting) in the future as well.
  • Considering Point 2 and Point 3 I have met 43.6% of my target as of now
  • Right now I am saving 50% of our total in-hand income
  • My home loan is greatly reduced now – 99% because of 2 reasons
    • I was fortunate to travel onsite the second time and make some money
    • I sold the bigger house and bought a smaller second house which was ofcourse cheaper

My investment strategy is very simple

  • I am no longer investing in real estate. Right Now 80% of my investment is in non-equity (PPF, PF, FD’s, Govt Schemes etc)
  • As I move ahead this will change to 60-40 (Non-Equity/Equity)
  • For all calculations I have kept an interest rate of 7.25% for reasons mentioned above. I would rather be conservative.
  • Once my LIC policies start maturing from 2021, I should see some acceleration in my savings.

Q4 SH: How are you managing your saving rate with two Kids?

MAHESH: In Pune the school fees are very high. Thankfully both my kids’ go to semi-aided (but very good) schools. I cannot disclose the names of the school. Hence the tuition fees are not very high.

We do a lot of on-line shopping which saves me money. Also I very rarely go to Malls, theaters where binge spending can occur. I instead have Netflix and Cable which allows enough options to kids.

The only place where I do allow a little bit of splurge are eatables. So the kids never feel any pinch in their quota of ice-creams, chocolates and healthy food. Burgers and Pizzas are thankfully not very popular with them.

Since my family has traveled abroad due to onsite there is no immediate urge to travel abroad for holidays.

Q5 SH: What are your plans after you achieve F.I.R.E?

MAHESH: I definitely want to work when I achieve F.I.R.E. Though I am very clear I will be out of the rat race. Similar to Anil I want to go back to basics. Too much of management is taking a toll on the happiness quotient. I will work even with a lower salary.

So if I get a job where I can manage even 50% of my Monthly expenses I will be happy.

Q6 SH: What is the one piece of advice you want to tell our readers based on your journey?

MAHESH: There are 4 specific points which I want to highlight:

1- Start early. Power of compounding is very potent so use it. I doubled my PF contribution from day 1 of my job.

2- Don’t spend your “priority” money on artifacts which loose value. E.g Cars, High end mobiles, Expensive gadgets etc. if it is impacting your saving targets

3- Don’t over complicate your financial planning. Keep it simple. Plans like PF, PPF, Sukanya Yojna, LIC, Tax Free FD’s are good. Purchase Blue Chip Shares.

4- I am not very fond of Financial advisors. Who ever I have met gave me information which is available on the internet and to meet their commissions. Take their advice ONLY if you are not confident of your knowledge.

E.g: I have a very smart friend of mine who has planned his LIC policies in such a way that he will get approximately 2 Cr when he reaches age of 60. Not exactly F.I.R.E but he is very clear of his plan.

Q7 SH: Share few strategies that worked for you?

MAHESH: 

  • Started saving early
  • I got to spend roughly 6 year at onsite
  • My first house was purchased for 15L in 2002. This was the best investment
  • Wife’s income is a definite supplement.
  • No responsibilities of parent and in-laws as of now

Q8 SH: Any mistakes you regret?

MAHESH: I have a huge list  but here are the main ones:

  1. I used the PF after I left my first company to repay my first home loan – HUGE mistake
  2. I repaid (99%) my second home loan. I should have maintained a 15-20L Loan – Mistake because now I am getting taxed a lot.
  3. Should have invested in Blue Chip shares much earlier e.g in 2006 we all know how much they have moved up
  4. Bought a second car – Took loan from in-laws and repaid them with interest
  5. Purchased a bigger house and then sold it to purchase a smaller house. Lost a lot of money in brokerage, registration, basic maintenance etc

Q9 SH: Feel free to add what you said about sharing more details on income/expenditure

MAHESH: I have given my approximate values of expenses per month in Pune in the above section. I will be happy for the readers to give me their inputs on this from a 25X target point of view.

Out of 85K roughly following is the breakup – All are averages per month.

  • 8K – Maids and Helpers
  • 5K – Petrol
  • 8K – Day Care
  • 8K – Groceries
  • 10K – Medical + Vehicle Insurance Premiums
  • 5K – Life Insurance Premiums
  • 7K – Society Maintenance
  • 8K – Eat Outs
  • 6K – School Fees
  • 5K – Shopping
  • 5K – Misc Expenses
  • 8K – Utilities – Electricity + Mobile + Cable

 Eventually when my wife quits her job I am sure some of the above expenses will reduce but then we expect other expenses to crop up as kids grow older.

 Q10 SH: Elaborate on how you plan to save for your kids education

MAHESH: The marriage expenditure in our community is not very high, thankfully. In fact I will even encourage them to go for court marriage. Hence I have planned a total corpus of 20L the marriage of both my kids. Being conservative.

For education I am planning for their education upto post-graduation. So 50L in total for both of them. I am not considering out of country education. If it comes to that the kids will have to bear some expenses

Sukanya Samruddhi Yojana is a good tool where I have already met 40% of my target. Equity market (Blue Chip stocks) will further aid my savings here.

Q11 SH: Any other financial goals 

MAHESH: NOPE !!

Q12 SH: What is your solution to real-estate problem facing our generation? 

MAHESH: Few observations of the new generation who I see in my company:

  • Many spend on high end mobiles
  • Purchase costly Vehicles (1L and above)
  • Party hard outside. People in Pune know how costly alcohol is at restaurants
  • Splurge on clothes, cosmetics, gadgets etc

Now, I am not judging them. They have all the right to spend their money how they want. But my advice to individuals who come from Middle class background and want to be financially stable is this (and I have talked to many of my team members)

  1. Invest in real estate at your home town, especially for folks who come from Non-Metro, Category B cities, Nagpur, Indore, Solapur, Kolhapur, Satara etc.
  2. Individuals can approach their parents for a loan for the down payment rather than wait for it to accumulate. They need to repay their parents with interest ofcourse !
  3. For Team members who are from Pune they save a lot of money on rent – use it to pay up for Home EMIs
  4.  Control the expenses – target atleast 50% savings.
  5. Put your savings in schemes which you cannot touch, PF, PPF, LIC, Long term Tax-savers FDs.
  6. If you are really savvy invest in Equities – I usually don’t advice this since I myself am not savvy about markets and shares. But yes it’s a great option if you get your steps right
  7. Purchase LIC, Medical insurance policies much earlier when the premiums are lower due to age

 

If anyone of you out there who has achieved or is close to achieving financial independence and wish to share your story on this blog with other readers. Please write to us. We love to hear from you.

Feel free to share this blog post with your friends and family who are interested in FIRE. 

15 COMMENTS

    • The post is pending approval from SH. This blog is a safe place for people to share personal information about themselves to help others achieve Early retirement. Your comment appears to be mocking the writer who has given his time to write and share his journey with others.

      We would encourage you to exchange information and ask questions. But not be sarcastic or demeaning to the other person.

      A healthy tip to engage in online community- first share your name, at-least first name, then only write what you would tell a person face-to-face.

      • Your comment is well taken. I was only showing my concern about extremely high expenses (as per me) in some of the categories which will surely hamper his ambition of RE. Rest assured even I am the one who is targeting to RE at 45 and thus a regular visitor to your blog as it is amongst the few Indian blogs for RE.

        My name is Bhavesh, but I write as B in blogs.

        You may please edit my comment and post. I have no issues. I would love to hear from Mahesh about my concerns and how he plans to address (if at all). It may turn out to b useful to me and others.

        • Thank you Bhavesh for being so open to our feedback. That’s really awesome of you. We appreciate it very much… we will edit few things and post it.

  1. Hi Mahesh,

    Just read this article in detail. I strongly believe that 25x savings is insufficient in India. This figure is for western countries where inflation is around 3-4% and hence this figure of 25 times. Regarding the correct figure.. even I am trying to figure out. But i think it is better to consider 40 times. No less. Always consider 10 to 15% more than your monthly expenses for estimating future amount, as a cushion.

    Pls give your views.

  2. Hi Anil & Mahesh !!

    Great to read that your are on track to FIRE !!. I Believe I am on track too..like both of you I am just touching 41 and plan to work on my own rules from 45., God Willing !! However unlike both of you I am not an IT guy.. I am an Engineer (Surprised ?)

    I have been an investment conscious from the day I started working in 2001, because of the “not so conformable” past of my family.. it turned out to be blessing in disguise..

    I wish both of you and all other FIRE community ALL THE BEST. I too plan to share my story here, soon.

  3. Hi Mahesh,

    Thanks for detailed insights about expenses . Could you also please share some details like how did you handled made investments and any suggestions for a newbie who is planning to start the Journey towards financial independence

    Thanks
    Amrut

    • Hello Amrut,

      Glad that you thought my post was useful to you. I think I like to keep it simple. But a few tips which have worked for me and which i thought i should have implemented much earlier in my “earning” life.

      1- Start saving early. There are numerous example which show you the value of a 1000 rupees saved in your first year of job to its value in the 10th year.
      For E.g – I starting opting for the Voluntary PF which my employer provided me from the first month.

      2- Do not compromise in the saving amount per month. So if your goal is 20K per month push that amount in the savings kitty which you cannot touch even if that means making coffee at home rather than having it at CCD or Starbucks.

      3- Either invest in an SIP or create your own SIP in the equity market. I missed this in my plan. I don’t necessarily regret it but i know i could have saved more. How much % of savings in equity is purely about you. Me being slightly conservative would recommend 50-50. Though there are a lot of success stories where colleagues have invested 80% in equity and made very good savings.

      4- Real Estate – There are very divergent views on this. So my take on this is invest it by reviewing your personal portfolio. Having said that cities like Pune have very high real estate rates and will most likely remain stagnant. So if you want to invest do it in your hometown where rates can increase in the future.

      5- Don’t complicate your saving strategy. Keep it simple. Keep 6 months of take home salary as a buffer. Nowadays the job market is very flaky especially for mid level employees like me.

      Also Small Family, Happy Family 🙂 Invest in your health. Preparing food at home is not only cheaper but MUCH, MUCH healthier.

      My personal point of view !

      Hope it helps and good luck to you.

      Cheers,
      Mahesh

  4. Thanks a lot for the good post, Mahesh. Truly inspiring the way you have tracked your expenses, and planned out the future projections. Just like you and Anil, I’m also treading slowly towards the F.I.R.E path, expect to reach there in 2-3 years – god-willing.

    A couple of doubts regarding your expenses – you have considered both the premium payments (investment) and school fees in the annual expenses, and then projected that to arrive at the 25X figure. But, once the kids schooling is done, we will not be incurring those expenses, right? (you already have a separate corpus for higher education). My understanding is that we have to consider only those expenses that we will incur during retirement phase, add a buffer ~10% for safety, and then project it to either 25 or 30 times – to arrive at the retirement corpus. Have you purposely done this, so that this amount acts as additional buffer?

    Also, Anil has brought up a very good point regarding recurring expenses – which may not come annually. Examples are home furniture replacement, home maintenance including electrical/plumbing, car/bike purchase etc – these type of expenses might occur once in 3, 5 or 7 years, but it will be good to have a % of corpus for that as well. Since the retirement phase can span 30 – 40 years, we might need these expenses multiple times.

    Once again, thanks for the good information and wishing you and family all the very best for a peaceful and happy life.

    • Hello Vinod,

      Thanks for reviewing my strategy. I will try to respond to your queries below.

      There are 2 reasons why i have considered the Premium and School Fees expenses for future planning (in fact i have also added Day care expenses).

      1- I agree that in the future these expenses will go away or reduce significantly however some more expenses will creep up as we change our lifestyle. Kids will demand more pocket money, if i decide to stay in my hometown i may have to travel to Pune atleast once a month , some medical premiums may increase etc. So bottom line new lifestyle new expenses

      2- Yes some of it also has been added to act as a buffer. For example for the last 2-3 months i have been managing my monthly expenses at a cost of 75K per month. Mainly cooking at home, increase car-pooling etc

      Related to Anil’s queries which you also enquired, please refer to my response to his query.

      Thank you once again for showing interest in my write-up. I am happy to note that you too are progressing well with your plan.Wish you and your family all the best.

      Cheers,
      -Mahesh

      • Thanks Mahesh for the reply. Good plan and good strategy from your side !! It is always better to plan a little extra, just in case something goes wrong when we stop earning.

        In my case, I’ve considered 2 scenarios to arrive at expected annual expenses in retirement, and extrapolated that to the required retirement corpus (33X for F.I).

        First scenario is the floor rate – where all current expenses are taken (minus daughter’s education) to arrive at minimum annual expenses. No compromise has been done to the existing life-style. This is because, except kids education, assume all other expenses to continue as is during the retirement phase as well.

        Second scenario is with added buffer – this takes into account all current expenses (including education). The education expenses currently come to 15% of annual expense, so this is as good as having 15% safety net. As you said, we may incur unexpected stuff, so having extra buffer might be helpful.

        Daughter’s higher education, marriage corpus will be outside of retirement stash. Similarly, we will have some additional corpus for furniture purchase, house maintenance, other emergency cash etc.

        First goal is to reach F.I for floor scenario – which will give some peace of mind :).
        Second goal is to reach F.I for the buffer scenario.

        Me and wife are both in IT field, and in the early forties. So, it is the need of the hour to be safe as early as possible.

        Cheers,
        Vivek

  5. Hi Mahesh – I see what you mean about our situations being similar. I think it’s a great example of how different approaches but similar mentalities can lead to great outcomes.

    A couple of comments on your data

    – I think you’ve done a great job in terms of estimating your recurring expenses but I wonder if you’ve thought about the big annual expenses. For example my estimate of my recurring monthly expenses is Rs.120,000 i.e. Rs.14.4L annually corresponding very closely to your list of expenses (including 5k for miscellaneous) but I have 2 buckets of Annual expenses – Travel @ Rs.3L per year and Capex Rs.2.4L per year (could be anything from large functions, furniture purchase, jewellery purchase, home repair etc. etc.). This therefore totals up into Rs.20L annual expense and appropriately translates into Rs.5Cr stash required at 25X. This only came to me when I realized I was meeting my monthly expense budget but missing my annual one year on year. While we’re working, this is covered by the annual bonus etc. but when we retire, it’ll need to come out of the passive income from our savings

    – I’d also caution that 25X is based on a 50-50 equity debt mix. I think Naren has covered it in another article. If you’re planning a slightly more conservative strategy, it may make sense to be a little more conservative in your corpus multiple assumption as well. I know you’ve said you’ll continue working after FI/RE but the objective of this exercise is to cover all bases

    Just my 2 cents. I just have to say I appreciate though how you’ve managed to get where you are going completely against what is conventional wisdom in the FI/RE community (no Real Estate, dominantly equity investments etc.). Kudos to you and your family.

    • Hello Anil,

      Thanks for your comments. It always helps when a fresh pair of eyes reviews the strategy.

      I acknowledge your queries. This has been part of my thought process though i must admit i should have explained it in my questionnaire.

      In my case the “Annual” expenditure is mainly around house maintenance, furniture and a few functions.

      1- I am considering Travel as a luxury hence will do it only if i am able to surpass my financial goals. Thanks to onsite i was able to travel both to the east and west of the globe, this goal is not very high on my to-do list.
      2- W.r.t to Gold i started investing it from 2005 to 2010. This is outside of my target and targets have been achieved. I think i will no longer be purchasing any more gold.
      3- Now the most important point around house maintenance, furniture etc yes for me too it costs anything between 1 to 2L per year. I may inherit some “asset” in the future. I have not considered this asset in my plans as well. I plan to use this asset to address this cost of 1-2L. This asset is by no means super significant but it will, at the very least help me tide over such costs. In case i sell that asset then even better. But since it is not mine as yet i will stop counting the chickens so soon.

      In the worst case scenario if the asset depreciates or worse does not come to me sooner then i will have to increase my corpus. But this is a worst case scenario for me.

      Appreciate you acknowledging my slightly different approach to FI/RE. Yes I am fiscal conservative and have old ways of saving (Real estate). Learnt it from my grandfather who told me – Mahesh, never sell real estate – Its a different scenario all together now. Because i do agree that if the real estate asset is getting maintenance heavy – sell it.

      I come across many discussion forums which strongly suggest – with good reason – both options. Selling a real estate asset v/s using it as a fixed income source.
      Only future and individual circumstances will tell what is right. Right now i am going with the latter as long as i can maintain them without impacting my lifestyle.

      Happy discussions !

      Cheers,
      Mahesh

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