Lot of people have asked us questions about our lifestyle as well as our cost of living such as- How much it costs to live in Goa? Or How often do you eat out? etc..These are very valid questions. However till now we were shying away from sharing our detailed cost of living in Goa, India  publicly primarily for following reasons:

• We are very private people.
• We were concerned about people judging our lifestyle. (I guess no one enjoys criticism)

Why the change of heart?

But over the years we have grown confident in our choices. More-so sharing our life through this blog has made us little more open. Most importantly through this blog we came into contact with a lot of good people that we feel the question about our expenses is NOT judgemental but sincere.

On this blog we have published stories of Anil and Mahesh where they shared their lifestyles with all of us. And we found their interviews very useful.

So now at this point we feel comfortable enough to divulge our detailed cost of living on this blog. Hoping that somehow it helps fellow F.I.R.E enthusiast.

But before we move forward and divulge our cost of living. i will digress into the philosophy behind our family’s spending.

Philosophy Behind Our Cost of Living

Q What is Your Approach toward budget and spending

A: When we started our FIRE journey we created an excel sheet and budgeted every aspect of our spending. Over the course of 4 years we have looked at our spending habits and have diverted our money where we get maximum satisfaction or return on our spending such as comfortable home, good food cooked by a cook, house help to manage house etc.. eliminate or reduce what does not really matter to us that much at this point- International travel, Frequent gadget upgrade, luxury car,Lots of clothes, shoes, eating out more than once a week etc… So now it is a way of life rather than a depravation.

Q Do you have a motto to save more?

A Yes and it is:

1. De-clutter your house, and mind.
2. Only buy what you need and buy it of high-quality.
3. Do not buy in a hope that you will use that item someday in future. We live in a highly connected digital world where if needed you can buy things from another continent. So, do not hoard things for a one off future occasion.
4. Don’t mindlessly add new stuff in your house. You need less than you think you need.
5. Look for satisfaction outside of shopping or collecting things.
6. Enjoy what you have, take maximum comfort out of your belongings. Cherish them!

Q What are you trying to achieve by doing this?

A We are trying to balance personal freedom, work, time, happiness and money. So that we can minimise the regrets in life.

Q. Is this the only way to achieve all that you mentioned?

A No, there must be many ways. But this works for us.

Q. Will you always maintain this Cost of Living?

A No. In future depending on our income, and other life goals. We may reduce or increase our spending. We definitely want to do some travel in the future. So, that will take much more money than we are spending currently.

So here goes…

Our Annual Cost of Living, for a family of 3 in Goa, India

……….DRUMROLL……..

Cost of Living- category-wise break-up

This is a cost of living in Goa for a family of 3. We have covered our biggest expense categories here:Some  other Important Categories which are not in the above infographic are:

• Insurances-: 4.2%
• Transport- 2.6% (Mainly fuel and car service)
• Clothes, shoes & personal effects- 1.4% 
• Gifts- 1.1%
• Entertainment- 0.4%

Cost of Living- Category Details

Rent : 22.6%

Rent is the biggest chunk of our monthly expenses.  Rent from our own apartment offsets 55% our outgoing rent. You can read more about our lifestyle Photos of our current lifestyle

We live 10 minutes from beach, surrounded by beautiful cafe’s, art galleries, joggers park etc..It is a very convenient location as everything from movie theatre, shopping mall, restaurants, our doctors is within 3-5 kms radius.

Pregnancy & Delivery expenses: 12.4%

We had our baby this year! You can read the detailed break-up here Our Pregnancy Expenses in Goa, India. Do check it out we have covered detailed costs in it. We tracked everything we spent during 9 month pregnancy- including tests, medicine, doctors consultation as well as delivery costs. Overall we had very pleasant pregnancy.

Home improvements before baby 8.7%

We anticipated our parents’ extended stay to help us with the baby. So we made guest bedroom little more comfortable, added a T.V so our mothers’ won’t miss their daily soaps:). The T.V is rarely used with baby taking up everyone’s time. since there is not going to be much resale value, it will sit on the wall laughing at us. Plus whats wrong with the Cable Tv programmes these days? hardly anything worth watching.

Groceries, Fruits & Veggies: 10.9%

The chart above does not including fruits/veggies and only shows 8% cost of groceries.We primarily cook north Indian south Indian and Chinese food at home and on occasion try the world cuisine. So we end up buying some expensive ingredients.

Maintenance, Repair, Replacement: 7.7%

The biggest spending here was a replacement Mac laptop for Sugandha & extended warranty for Naren’s Mac laptop.

Household help: 7.3%

We have a cook for all meals and she also does our laundry washing and ironing. Another maid for cleaning the house. A Japa maid to oil massage our baby for the first few months. A Car cleaner to clean our car daily as we do not have a covered car-park.

Yes! from doing everything ourselves in our previous house in a Goan village we’ve now decided (after serious considerations) to outsource all household work so we can focus instead on our business and giving the baby the parental attention he needs.

Kid’s expenses: 5.8%

This includes things we bought such as baby cot, cradle etc as well as vaccines, diapers all fall into this category. This expense category began since baby arrived in September, 4 months back. Biggest expense growth will happen here in the coming years!

Food & Drink a.k.a eating out: 4.7%

We managed to keep this moderate or so we would like to believe. It is a personal win for us. We wrote about our struggle with reducing eating out expenses in Developing Good Habits- My battles and learnings

Insurances-: 4.2%

It covers our life, health, home, car and accident insurance. We can not emphasis enough on the importance of taking appropriate insurances to protect your wealth.

Healthcare : 3.5%

This is the money we spent on Ayurvedic treatments/ supplement during Pregnancy. This was totally discretionary and something we believe would help us have a healthy pregnancy and baby. Besides this we did not have any other major health issues.

Transport- 2.6% (Mainly fuel and car service)

For the amount of driving we do this number appears big to us. How much do you spend on petrol?

Clothes, shoes & personal effects- 1.4% 

We both bought clothes and shoes. We are again proud of this low number. We are heading towards minimalism. We are focusing on buying good quality pieces that we can enjoy for long time to come. Suddenly I am realising how difficult it actually is to find good quality stuff that will last. But some brands that we enjoy and seems to last exceptionally well are: Cotton World, Arrow and Indian terrain.

Gifts- 1.1%

Gifts to family and friends on birthday, anniversary and visits. This usually also includes the donations we make to charities on our birthdays as a family tradition. But we did not make any in 2018, we realised this as we were writing this blogpost :-(. So this number should go up in future

Entertainment- 0.4%

We did not spend much on entertainment either. We saw two movies in the theatre and the rest is annual subscription for Tata sky (new connection) and Amazon prime. We did not have to try hard to keep this number low because where we live there is a lot of free high quality entertainment available.

Our Cost Of Living Implication for Early Retirement

Q: Your family’s expenses do not seem frugal at all!

A: Our first year expenses in a Goan village was almost 1/3rd of this. Expenses were low because we both did all the cooking, cleaning and gardening etc….We also made some bad choices to keep the expenses artificially low- we would delay car service, repairs to electronics etc to keep expenses low. We would cook Maggi noodles from home to the beach and bring our own beach umbrella instead of eating at a beach shack.

While it was fun to experiment in the early years of F.I.R.E we both decided not to artificially lower expenses just to keep our 25X target corpus low. In the end we’ll also have to live our post-retirement like pre-retirement for the corpus to work. So above lifestyle expenses are more realistic based on our comfort-level at this stage in our life.

On quora somebody rightly said one can live in even Rs 10,000/pm in India and for someone even 1 lac is not enough. A lot depend on your lifestyle and life events

This is a good lesson for anyone who has a plan of retiring to their native village or town to keep retirement expenses low in old age. Better to settle where you’ll have the appropriate support system needed for your life stage.

So, we recommend you to also find a sweet spot for yourself and have a reasonable goal for higher chances of success.

Q Is your target corpus 25X of the above annual expenses?

A: Yes and No. Not all of the above expenses will be incurred in Retirement especially Rent(or EMI) since we’ll be living in our own house by then. To know more about 25 X, read this and this.

Outlook for 2019:

• Kid’s expenses will grow. We did not anticipate expensive monthly vaccines. Expecting more surprises 😉  Might need to hire a nanny once our mothers’ return home.
• Our Chennai apartment’s maintenance will kick in after the association resolves pending issues with the builder. An extra 40K annually.

11 Recommended Budget Percentages by Category

This graph is by Well Kept Wallet. This chart is a % of earning. We have spent less then ideal in most category. Under food we are just about in the upper limit.

Also like any FIRE aspirant our saving rate is higher than ideal recommendation.

Source

Tell Us in comments which category do you spend way more than ideal?

Also feel free to ask us if you have any questions and share your ideas in comments on how you maximise your lifestyle while pursuing F.I.R.E?

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Sequence risk of returns also known as Sequence Risk can be one of the biggest risks in Early retirement. It is primarily the order in which the investment returns are received. The risk of market crashing right at the beginning of your retirement can have a great impact on how long your retirement assets will last.

Lot of our readers and we ourselves have always worried about such an event- what if things go wrong at the end of our investment journey or right at the start of the early retirement. We had no idea that our worry also has a financial term 🙂 – Sequence Risk.

Good thing is that now our and your worry has a name. We may find a solution for it as well.

TABLE OF CONTENT

What is Sequence Risk of Returns?

Most Early retirees have a significant part of their retirement portfolio invested in Equity Markets. Reason being that over a period of time equities have given inflation-beating returns. But these return assumptions are averaged over a period of time. This you may already know and we have also written about it in 12% return from stock market every year?. Returns from Equity markets are not Fixed returns like FD’s. In Equities one year you may get 25% returns (like 2015) and another year get negative returns of -38% (2009). The problem is we have no way of knowing which year will be up or which year will be down. And that is the biggest challenge. No one knows in which sequence market returns will occur. Also called as Sequence risk of returns or Sequence Risk.

Sequence Risk reduces your Retirement Portfolio

Sequence risk is the biggest risk for Early Retiree, not because the market will crash, as eventually markets do recover. But because of the fact that you will face your worst returns at the beginning of your portfolio. Withdrawing money during a significant down market early in your retirement has the tendency to create a situation where there is not enough remaining in the portfolio to participate in the recovery process and put the retiree back in a financially secure position.

Sequence Risk’s Impact Explained with an Example

Let’s go further with an example: Picking up a thread from our blog post Safe Withdrawal Rate- How long will your money last in retirement where we simulated an early retirement portfolio of 50/50 Equity and Debt and tested it under different assumptions. If you have not read that blog do read it before continuing with this post.

In this post we will take forward one of those assumptions. Put it through some extreme market volatility to understand how bad can things go.

• We assumed that the person retired in year 1996, with corpus of 3 crore. He withdrew inflation-adjusted expenses from his  portfolio irrespective of the equity markets highs and lows.
• In that example the retirement corpus lasted for 40 years.(refer the excel below).

However, Things would be very different for someone if the starting year market gave negative returns. So, for this experiment we replaced 1997 returns with below negative returns:

• -4% (same as year 1999) same 3 corpus lasted 39 years.
• -28% (same as year 2001) same 3 corpus lasted 32 years.
• -38% (same as year 2009) same 3 corpus lasted 30 years.

Originally published in blog post: Safe Withdrawal Rate- How long will your money last in retirement

Disclaimer: In the above Excel sheet, we have used actual data for returns & inflation from BSE & RBI only to simulate dynamic returns and not for any other purpose.

Conclusion

These results are disturbing, no sugar coating there. Imagine you are all set to retire early in XYZ year and the same year market dips and reduces your asset value. Forcing you to either cut your expenses, or postpone your retirement date till markets recover.

This is a possibility every Early retiree should be prepared for mentally. No one can control or predict the sequence in which market returns will happen. And that is the biggest curve ball markets can through at early retiree’s plan.

List of all market crashes in India. 

In the next blog post we will explore what options do an Early retiree have when something like this happens. Ultimately being prepared for Early retirement is the idea behind this blog.

If you have already thought about Sequence Risk and have some tips under your sleeves. Feel free to share them with us in comments. We would love to hear form you.

Lastly, Shout-out to any Tax experts reading this blog and is interested to help us. We want help with working out the tax implication on few dummy ER portfolios. Please get in touch with us. We would really appreciate your help.

As you guys know after sequence Risk, Tax is the biggest unresolved piece we have to work out.

We have already written about How much money I need to Retire Early In India and Safe Withdrawal Rate- How long will your money last in retirement. If you have not read them, we highly recommend you to do read them.

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Hi folks,

We have been writing for a year about early retirement and financial freedom. In the meantime this blog has grown and so has our family.  Thank you for engaging with us. We look forward to your comments after every blog post. 

Please tell us in comments what topics you enjoy reading the most and want us to write about. 

Most FIRE aspirants want to work in a field of deep interest to them after achieving their target corpus. Starting a Lifestyle Business based on one’s passion is a common post-FIRE goal for many as they understand that it is a terrible idea to disturb the compounding of your retirement corpus by withdrawing from it for monthly expenses before actually retiring in old age.  In fact most of the Early Retirees from the U.S are making money post-FIRE from blogging/writing books about FIRE, selling products online, consulting or running assorted businesses. So let me talk about how to prepare yourself for the plunge after you achieve your target FIRE corpus.

It is now 5 years since I started my small software business. The best part is I now get to learn all the things I wanted to learn in my previous jobs like strategy, marketing, customer support etc. The bad part is I was not prepared for the ground realities of starting a business despite my background in the same tech domain and working as an early employee at a tech startup. So I want to share some of my learnings in retrospect so you can learn from my mistakes.

TABLE OF CONTENT

Lesson 0 : Being an employee is much easier than being a business owner

You might think that taking orders from your boss at work is stifling. But wait till you start taking orders from a hundred different bosses a.k.a customers once you start a business. That’s the view from the other side of the green grass! An employee just needs to do their assigned work, can take weekends & holidays off and be assured of a regular salary. As a small business owner you have to do all the unassigned work, cover for any employees who are on holiday  and  ensure regular salary payments from out of irregular business income on top of ensuring business growth & customer happiness. This means working insane hours every day including on festivals, holidays, weekends and weeknights. So if your goal is to have a relaxing and predictable lifestyle post-FIRE I don’t understand why you would start a business when you can be an employee!

Lesson 1: You need capital to start a business. Your FIRE corpus does not count.

We had 7 years of expenses saved up when I started the business in 2013. That freed me up from needing a regular income while getting the business off the ground. But I could not grow the business through hiring or marketing because I was using profits from the business for household expenses. That left us little money to re-invest in the business and grow profits.  For the longest time I was proud of making money without investing money like “other” people in non-digital businesses. But now I realise that I should have saved separately for business expenses like hiring & marketing.  Otherwise you will get caught in a classic trap where you are not making enough money because you can’t hire people to grow the business AND you can’t hire such people because you are not making enough money. Income from business in the early days will not be enough to hire people or cover other necessary business expenses.  So such expenses have to be initially funded from savings until you become profitable.

Even if you plan to start a one-man business like consulting you will have business expenses big and small  like air travel, laptop, shared office space, software subscriptions, high-speed internet, freelancers to help you with custom client needs, up-skilling courses, “no-cost” projects for potential clients etc.

In conclusion: Your FIRE corpus is only a safety net. For business operating expenses you need to save extra as per your business plan.

Lesson 2: Don’t start a business without spouse’s support

Will your spouse agree to the extra hours you work on weekends bringing in very low income in the early days compared to your day job? What about the life goals of your spouse like having a baby or buying a house? If you don’t get them on board with multiple serious conversations way before you quit your job, your business will be in serious trouble. In my case Sugandha was very supportive of me and shielded me from prying questions about how much money I made in my business in the early days 🙂

Lesson 3 : Best if your spouse stays in their job to meet expenses

We were taken aback by the massive lifestyle downgrade of starting a business especially since we had both quit glamorous jobs that provided a lot of perks. Our downsized lifestyle reminded us of the time we were struggling to get settled in our careers in our 20s. To prevent this type of shock and related stress, I recommend that your spouse continue in their job until you establish yourself in the business after a few years. This way you are not worried about meeting household expenses while also trying to get the business to make enough money.

Lesson 4: It can take even 2 years to get the business up and running

The first year will most likely be a washout as you run around setting up the business and be too busy to measure ROI. Only in the 2nd year you and everyone will wonder how the business is doing after 1 year and you will become very focused once you observe the lack of forward movement! At my day-jobs I used to day-dream about how hard I would work once I quit the job and started working for myself. In reality my productivity actually decreased a lot in the first year as I got overwhelmed with business to-dos and life events. Instead of working harder, I got lazy cutting myself all kinds of slack.  At one point I even started doing consulting  & working on other startup ideas instead of focusing 100% on the business just because I thought I had a lot of free time now. If you have free time without turning a profit then it means you are not working enough 🙂 No one was watching me so when I cut myself slack then naturally the business did not grow as fast as it did in my day-dreams 😉

Lesson 5: You need a good amount of luck if you are doing this the first-time

SavingHabit.com used to be a startup idea of mine. I converted it into this blog after the startup idea failed like the 20 ideas before it. I lucked into my current software business (more details on this in Lesson #8). This business was the only one that continued to grow even when I neglected it chasing shiny startup ideas. If you want to make guaranteed money then focus on providing better solutions in plain old boring industries where people are already paying money for sub-standard solutions instead of brand-new , world-changing, pie-in-the-sky ideas.

Lesson 6: Once established your business can give you double-digit returns!

There was a brief period in the business when profits were steadily increasing  that it felt like I was giving myself a raise every month. I could now understand the attraction of running a business…. answering my own rhetorical question from Lesson Zero on why anyone would punish themselves by starting a business. Running a business can be extremely rewarding personally and financially if you are willing to put up with all the stress, hard-work, uncertainty and constant threat of losing everything you built overnight. Because every time I felt like I had “made it “, without fail some major problem would threaten the entire business because I was not paying enough attention to customers and competition.

Lesson 7: Hire People to help you

There is no need to do everything yourself from customer support to marketing to technicals even in the initial days. Trying to do everything to save money will only delay your business turning profitable. Some people like to know a little bit about everything so they can better manage the people they hire. Especially if you are setting up a lifestyle business you need to hire people to handle the daily & holiday workload so you are free to focus only on growing the business while enjoying a decent quality of life. Of-course you need money for all this which is what I pointed out in Lesson #1.

Lesson 8: Set up the business while still working in a job

The best way to set yourself up for success is to get the business to profitability while you are still working in your day-job as long as there is no conflict of interest.

• This way it is easier to convince your spouse by showing real revenue numbers.
• You won’t waste 2 years of your life this way like in Lesson #4.
• Also if the venture fails to take off you will still have your day-job to fall back. Nearly all my failed startup ideas were started while I was still working and boy! was I glad I had a job to go back to after those failures.
• Most importantly your job will provide the cashflow to afford all the mistakes in the early stage. After you quit your job you will start counting pennies for expenses big and small and won’t feel like spending freely even on essentials.

How I started my business while still working: One day  a co-worker of mine left the company where I was working to join his relative’s business. I was curious so I googled the industry and found people charging a lot for simple solutions yet offering pathetic customer support. I decided to replicate one such software solution as a personal challenge. I then reached out to a former colleague specialising in marketing offering a cut of any profits. After a month of  frenzied coding I had the software up and running. I would wake up early in the morning and code for 2 hours before leaving for work and code for 2 hours at night post-dinner after getting back late from work. We priced the software for cheap once ready. After a month of trying different approaches to market the software there were still zero sales. I was so disappointed after 2 months of hard work that I was ready to pull the plug and shut everything down. As luck would have it we had our first sale 2 weeks after that!  From there we grew in fits and starts. But the important point is that when I was sent out of my day-job later that year and landed in India,  I already had a tiny business that was making money however little.

As you can see above, Luck played a major part in my success. Also notice how I gathered skills needed for the new domain and a business partner while I was still in the day-job.  If you are in the right day-job it will expose you to great skills and great co-workers who will collaborate with you in the future. Take advantage of your day-job to save money and gather skills, network etc. You can even assemble the entire team needed for your business by using your salary income.

Bonus Tip:  Line up items like Life Insurance, Credit Card etc that require a high current income to qualify before you quit your job. Because you may not have a high business income in the early days. That is one of the big mistakes I made & regret.

Lesson 9: Find a Mentor

For the longest time I resisted asking anyone for business advice because I was afraid they would tell me something that I already knew I should be doing. Being loss-averse I was too cautious in trying out new ideas for the business and I did not want anyone pointing out the obvious flaws in my approach. Luckily a college senior of mine who specialised in marketing would call me up regularly on his own and inquire about the business and share his solutions. In retrospect I’m very grateful for his generosity with his time and advice. He’s been sort of an unofficial mentor for my business. I recommend actively seek out a mentor to whom you can frankly crib about the state of your business and seek active guidance. The right mentor is like a good gym trainer or a GPS-enabled map. They can help you reach your goals faster. If you don’t know any mentor then hire a consultant who is an expert in the business domain. Don’t hesitate to spend money for the right advice. To avoid hesitating save up money specifically towards such business expenses like I say in Lesson #1.

Lesson 10: Handle Stress positively

If you have read this far, you can see how the journey is a lot of ups-and-downs. Constant worry about the business can take a severe toll on your emotional well-being and spill-over to affect your near-and-dear ones.  In my case reading the book How to Stop Worrying and Start Living by Dale Carnegie helped me.

CLICK BELOW TO BUY THE BOOK ON AMAZON ↓

Also I practised letting negative thoughts slide by meditating for 5 minutes first thing in the morning daily. Sugandha was into Vipassana meditation so she helped me  with this mini-breathing exercise which is called Anapana I believe. This article Meditation for Lazy People is a good start.  Pick what works for you whether it is exercising or spending time with your family. But kill stress before it kills you.

Please share your tips in the comments below for those who want to start a business post-FIRE.

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In the blog post Our Plan to fund Kid’s College Education, we shared how we were able to start the SIP for our Kid’s College three months before his birth by practising delayed gratification. Delayed Gratification is an action where you resist the temptation of immediate reward for future reward. We believe that Delayed Gratification is one of the foundational principles of Financial Independence and Early Retirement. Since savings for the future only comes from money not spent on non-essentials today.

In our case, Naren is naturally good at delayed gratification but not me and it reflects in the simplest ways. For eg: I first eat what I like the most on my dinner plate whereas Naren would save his favourite for the last 🙂

This small habit is harmless, right? But what if this same impulse also makes you spend your money to buy things that you don’t really need or to take debt instead of saving-up to buy things.

BUT WHY BOTHER WITH DELAYED GRATIFICATION?

“Working is not instantly rewarding. It’s a long process, and it’s much easier to just feed whatever dopamine cycles exist in your brain in instant gratification ways. I get it; I do.” Greta Gerwig

Benefits of Delayed Gratification

1. Delayed Gratification is a Rational Thing to Do

Why would anyone not want to wait to get a bigger reward in future vs. lesser reward in the present?

Meh…because we are not rational beings 🙂 The human mind is wired to get things now. This psychology is based on the pleasure principle. But if you decide to live a more rational life, you can start with practising Delayed Gratification.

2. Delayed Gratification Helps You Achieve Big Goals in Life

Like how Rome was not built in a day, there is no such thing as overnight success. Big Goals take time and consistent effort over a period of time. One has to practise patience, self-control and numerous small trade-offs to achieve success be it at work, health or a personal goal of achieving Financial Independence. Delayed Gratification is the practice of choosing future goals over and over against any instant pleasure.

3. Instant Gratification promotes Procrastination

Procrastination is the most common reason for most of us not reaching personal and financial goals in life. And the habit of Instant Gratification is one to blame because it creates a instant reward and feedback loop.Since our mind in its natural state prefers to do things which get instantly rewarded, we end up procrastinating things that take effort.

You can Watch a fun Video by Tim Urban or read his blog. If you are a procrastinator we highly recommend it. 

We will share our own journey of overcoming procrastination in a separate blogpost.

Few Examples where we practised Delayed Gratification

In the past 4 years, we have made many trade-offs to stay our course. We are sharing a few of the key ones with you. For us these trade-offs are our successes and not deprivations.

Honeymoon vs. Saving for F.I.R.E

After marriage we started saving towards Early Retirement instead of taking a honeymoon. As you know I had quit my job and Naren had started a business when we got married. All this reduced our income to a fraction of what it used to be. Under such circumstances we chose to allocate all our savings to future SIPs towards FIRE, leaving nothing for travelling. We lessened the pinch by reminding ourselves that we moved to live in a honeymoon destination : Goa 😉

Also as a life philosophy we try to improve the quality of our daily life over enjoying 15-20 days of luxury. Coming back to life/work you don’t like can suck big time.

Super comfortable house vs. Comfortable Pregnancy

We allocated funds towards pregnancy and 1st year of childcare right after our marriage instead of using it to set up our new house. We bought bare minimum furnishings and slowly over 4 years bought stuff to make our house more comfortable. We would choose mental peace over physical comfort or material things any day.

That savings made our pregnancy and life after our baby super comfortable. Pregnancy and a New baby can be a bit stressful financially. The funds we set aside 3 years back made sure that both of us were stress-free as far as money was concerned. We could hire an extra maid without thinking twice and I could opt for Ayurvedic supplements during pregnancy etc. without having to pinch pennies. So we consider this decision a big win for our family.

Cute Small Flat vs. Big beautiful sea facing apartment

We saw and fell in love with a beautiful sea facing apartment in Goa 🙂 See photos below. We could see how living in this house would add so much beauty to our daily life. But sadly the rent of this place was over 3 times our current apartment. We could only afford to live in this house for a year or two using some of our savings. The temptation was very hard to resist but then we decided to rather wait till we could afford it without impacting our other long term financial goals. Another life philosophy we have is to secure our current lifestyle permanently before making lifestyle upgrades. This is another way of looking at the 25X target for FIRE.

So, we will revisit the below house 5 years down the line!!!

Frequent Gadget upgrades vs. Saving up to buy Long-lasting gadgets

We only recently upgraded our Mac laptops after using them for almost 6 years. This was only because AppleCare refused to repair our old laptops since they are now “vintage” models 😉 While I bought an iPhone last year for its better camera to take travel & baby photos, Naren is still using his 4-year old Moto phone. Don’t peg us as misers because when we do buy we spend extra on high-quality electronics that don’t require frequent upgrades due to poor quality builds. We saved up and bought all our electronics instead of using EMI. We fully intend to make our new laptops last for the next 6 years 🙂

Securing Kids College Fund vs. replacing 7-year old Hyundai i10 Car

We want to replace our automatic car (1100 cc) with something more powerful. It is a good city car on a good weather day but it fails to perform on a highway or on a hot day. We have to shut our A.C to overtake any vehicle 🙂 This activity helps us improve our teamwork 😉  as one of us would drive and the other would handle switching A.C off and on. But it does take the pleasure away from driving experience.

Anyhow we have decided to wait another 2-3 years and divert all the funds (gifts to us + Gift to Kid + our extra savings) towards our kid Kabir’s college fund. This was a fruitful decision because we already have accumulated 1/5th of his college fee in current value (20 lakhs).

How To Practise Delayed Gratification

Don’t know how to Practise Delayed Gratification? Worry not

If delayed gratification does not come naturally to you, it can be developed like any other muscle. Use your imagination and visualise your future goals.

Choosing delayed gratification requires the ability to envision your desired future if you forego your current desire; if you cannot paint a vivid picture of your future, you have little motivation to plan for it. Source 

Marshmallow Experiment: Study on Delayed Gratification

In 1960-70’s a Stanford University Professor with fellow Psychologist conducted a series of studies on delayed gratification called the Marshmallow Experiment. In these studies kids were given one marshmallow and offered a choice to eat that one marshmallow or to wait 15 minutes and then get another marshmallow. Only 1/3rd of the kids could wait 15 mins. In follow-up studies of the same children as adults, the researchers found that children who were able to wait 15 mins tended to have better life outcomes, as measured by SAT test scores, educational attainment, body mass index (BMI), and other life measures.

This study hence claims that people who are able practise delayed gratification have a higher chances to succeed in life.

A fun video of marshmallow experiment:

So, what do you think about practising Delayed Gratification to further your goals? share with us in comments.

If you are already pro at practising Delayed Gratification share some tips with us in comments.

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Some of us dream of traveling the world after retiring early but are apprehensive that just banking on retirement corpus may not be enough when you want to travel the world. Traveling is an expensive affair!

Naren and I also have such a dream!!! We are into slow travel- we dream of living in different countries around the globe for extended periods of time (at-least 5 different countries in our lifetime). We started with Goa- as it keeps us close to our families and gives us home advantage while we strengthen our financial position. In the future we are tempted to move our base to other Asian countries first and then maybe Europe 🙂

A while back I was asked on Quora what can one do to retire early and travel the world and this blog post is inspired by that question. In addition to building a retirement corpus our strategy to travel the world is by building a skill that can generate income by working from remote places and having some passive income.

As you know by now we ourselves are Digital Nomads living in Goa now for last 4 years. We have created flexibility for ourselves to work from anywhere in the world. But we still have to work on optimising some other ways that will allow us to travel and live in different countries.

If you have a similar dream and goal, read on:

1.Figure out your target retirement corpus that accounts for traveling the world:

Retiring early to live in your country is very different from retiring to travel or live in other countries. So to figure out how much money you need to retire and travel do some research and estimate the costs of travel to places you want to cover and average living costs in those countries. You do not have to be exact, do a rough calculation. One blog that will help you with this is Go Curry Cracker! – Retire Early. Travel the World. This couple retired in their 30’s and since then have travelled the world with their Kid.

They wrote a blog post on Costs of 4 months in Europe. Below is the snapshot of their total costs- which comes to ~ 19.4 lacs (@1 USD = 67 INR, in 2016). They optimise a hell lot while traveling… It is very reasonable for a family of 3 to cover 10 countries:

Roughly speaking, we spent a month each in Spain, Italy, and the UK / Ireland, and a week or less in the Netherlands, Portugal, Czech, Germany, Denmark, and Iceland; 10 countries in total.

Go curry cracker

Once you have figured the approximate costs of travel to places you want to go to, especially in first few years after early retirement  you will have more clear goal and confidence to s

2. Learn how to generate passive income:

The key to retiring early and travel is to create a stream of passive income that will keep generating sufficient cash to cover your monthly expenses partly/ fully while you travel. There are various ways to generate stream of passive income, few examples are:

• Investing in rent generating real estate.
• Building a business that can generate income with little or no work- eg some people travel and blog/ vlog about their travel, which generates income. One such Indian success stories is Travel and Photography Website. You can also freelance for travel magazines or websites etc. If travel is your passion all this may not even seem like a work to you.
• Airbnb your place or room at your house while you are travelling
• Become a silent partner in a business- Build a side business where you can become  a silent partner in exchange of passive income once you retire to travel.

These are only few example, but some solid ones, start exploring these and see what suits your temperament.

We Personally have a mix of  the following in our portfolio:

(1) have rent generating real-estate

(2) we have a blog that you are reading :-),

(3) we had an opportunity to invest our time in the past for a very small stake in a company.

2 & 3 are are not generating income at the moment, but we are hopeful in future some money will trickle from these endeavours. hey! remember every rupee counts.

We continue to keep looking for more such opportunities.

3. Learn to hack travel miles, hotel reward points through credit cards

Again a ton of money can be saved if you learn to use travel rewards program, airlines credit cards to earn free miles and free hotel nights.

We exchanged our old citi credit card for Citi Premiermiles credit card this year, and have ~19,000 miles (10,000 miles were kind of starting bonus, 7,000 miles were rolled over from old credit card, ~ 2000 miles were earned in last three months). We pay annual membership of INR 3000 for this cards and have other benefits and perks as a card holder.

What will ~19000 miles get us? One person’s round-trip to our home town from Goa (Delhi/ Chennai). We are expecting that in a year we will have enough points to cover one round-trip for our family to visit our parents.

We have also optimised travel by staying in Airbnb, it brings down food costs considerably if you have access to kitchen in your airbnb.

We have yet to try hotel credit cards/ reward program. But it is something we will try when we start travelling. If you have other ways to hack travel, do share them in comments.

4. Pick up skills to become a digital Nomad

Digital nomads are a type of people who use telecommunications technologies to earn a living and, more generally, conduct their life in a nomadic manner. Such workers often work remotely from foreign countries, coffee shops, public libraries, co-working spaces, or recreational vehicles. This is often accomplished through the use of devices that have wireless Internet capabilities such as smartphones or mobile hotspots. Successful digital nomads typically have a financial cushion. The digital nomad community has had various events established to host members of it, such as the Nomad Cruise. Digital nomads may vary depending on status; common types of digital nomads include refugees, affluent people, younger people, and entrepreneurs. People who become digital nomads often do so due to positive reasons, such as financial independence and a career that allows for location independence Wikipedia

Naren is a software engineer, so for people like him sky is the limit but others like me without technical computer skills also have ample opportunities There are lots of online businesses that you can manage while traveling the world- like starting a blog or youtube channel, a online course about something you are passionate for, or an online store selling on Etsy or other e-commerce platforms.

Affiliate marketing is another avenue. When you travel you will experience wide range of services and products most of them will have some sort of affiliate or referral program. You can make money by referring the services you like on a blog.

These are few things if you start working on can help you turn your dream of traveling the world into reality. That is our endeavour at least.

If you know some more ways that can help us and other fellow readers please share them in comments. We love to hear from you!

OTHER POSTS TO READ:

How much money I need to Retire Early In India

Safe Withdrawal Rate- How long will your money last in retirement

Featured in Mumbai Mirror for How To Retire at 40

Our Top 10 Financial Mistakes #FacePalm

This September, It is 4 years since we made the big Move- or so many big moves- Started our journey towards F.I.R.E, got married, became digital nomads. I quit my job and we made Goa our home.

We did so much in the last 4 years, today we both feel like very different people and we can’t stop but share this journey with you as best as our memory allows 🙂 You may be surprised by the fact that till 4 years back  our life plans were totally fluid. Naren had introduced me to MMM but we had not started our FIRE journey yet. We were poles apart in our spending habits and views on personal finances.

These past 4 years were nothing short of a roller-coaster ride that we enjoyed thoroughly, as we learned a lot about ourselves, about each other and these 4 years have been the best teacher to us.

Also we are guilty as charged for writing lengthy blog posts with lots of math, so here is some fun and light reading 🙂 We will share the past 4 years journey in 4 parts. This is a photo-heavy post, please bear if due to a slow internet connection they take a bit more time to load.

TABLE OF CONTENT

2014, YEAR ZERO: Year of Big Changes, Contemplation and Travel

Mid 2014. By this time Naren had returned from US after working there for a decade and had started multiple projects and was working remotely. I was on 3 months sabbatical from work- living in a small village in the hills of Himachal Pradesh, taking part in an intensive yoga course. I have some great memories of that time- those months were filled with beautiful scenery, leisurely walks, great food, 4 hours of yoga every day, reading and enjoying my new-found freedom from work. (Illustration by Sugandha:-))

We would sit for hours in cafes in this small village and talk about the kind of life we both wanted and how to make it possible- at this point we had made a very rudimentary excel sheet with all our assets and our monthly expenses.

Big Decision No:1- Sugandha to continue the Job or to Quit?

The next big decision we had to make at this point was whether I would go back to work after sabbatical or quit my job?

Lot of people wonder why I quit my job at such a young age, It was not an easy call since it was the best job I had in my whole working career. The thing is I do not like to do things half-heartedly. So once I felt that a corporate career and hectic life were not what I wanted for myself for the rest of my life, I started thinking of alternatives. While I did not have a straight-forward answer back then, I knew I won’t find one sitting in my office. So I took a leap of faith to explore the unknown. Fortunately I had a financial safety net to fall back on and I thought even if I failed I will again start from scratch. It is easy to be optimistic when you are 29 :-). Looking back I can see the risks involved with taking such a drastic step. Things could have gone either ways.

At 33, I am glad I took that step that early on because I don’t have the courage or energy to take such a drastic, risky step at this stage in my life. Now I want a more settled and predictable life that we are building for ourselves.

I was still only half way through my sabbatical so we decided to tick off one item of our bucket list- A road trip to Leh, Ladakh via Manali.

Road Trip to Leh and Ladhak

The road trip took us two days from Manali to reach Leh Ladhak. We camped by the river the first night. The whole time we were simply in awe of the scenery- you have to see it to believe it. But the roads were not that good and the two day journey was not very comfortable. But what the heck! we were too excited to let that affect us.

The region is a high altitude cold desert, because of the Himalayan range on one side which does not allow monsoon clouds to enter the region

We ended this trip in awe of beauty of this region.

Back to Delhi Via Kashmir

On the way back  to Delhi we made a de-tour via’ Kashmir. Leh to kashmir  by road is overnight journey with fantastic roads. I remember we reached Kashmir on 14th August. I had never ever seen so much military personnel walking on the roads. Later we got to know that because of Independence day they were on extra vigil. The Upside was we had Dal Lake to ourselves.

We flew back from Kashmir to our concrete jungle for couple of days.

After we came back, I decided to quit my job. I met my boss and colleagues and informed them of my decision- I got a mixed reaction. They had already given me a 3 months sabbatical to think over it (Very generous of them, they are without doubt one of the most talented people I worked with), so we were able to wrap up things pretty quickly.

Big decision 2- Where to live?

Next big decision we had to make was where to live since both of us were now location independent? At this stage both of us were like free birds, ready to fly! we were so excited about the possibilities. We were keen to stay in the hills but decided against it because of geographic isolation and infrastructure. Both of us required high speed internet. After a lot of research and eliminating places we had a winner in Goa. We decided to take a trip to Goa to check it out.

Recci Trip to Goa

I had been to Goa once before and for Naren it was the first time. We had already shortlisted 5-6 villages in Goa via internet research that we wanted to check out Aldona, Parra, Assagao, Benaulim, Moira and one or two in South Goa that I do not remember now. We started with staying in an AirBNB in Aldona- One of the most picturesque, idyllic villages in North Goa.

We explored Goa for a month, stayed in south as well as north Goa to get the vibe of the place. Ultimately we zeroed down to where we began- we decided to stay in Aldona.

We finalized the house lease and felt a big burden lift from our head. It was a cute 2 bedroom brand new duplex, semi-furnished. We got a good deal on rent for 14,000/month!!!!

Few days later we joined our friends in Jodhpur for Rajasthan International Folk Festival (RIFF).

Goa to Jodhpur

RIFF is an annual festival organized to promote traditional folk music and arts held at Jodhpur in October. It was my second time attending this music festival. This 5 day event is a total immersion into music and arts. Artists gather from all over india and the world and play from dusk to dawn at multiple music venues in and around Mehrangarh Fort.

In my opinion it is the most well organized music festival that I have ever been to in India. The crowd is great and the facilities are managed well. But for some reason I could not find our pictures of this event, so I am using some from the internet that represent my experience of RIFF.

Source

We enjoyed ourselves a lot and I also used this opportunity to shop for my wedding dress from Jodhpur. After this we went home to do prep for our wedding.

Biggest Event of the Year

November, 2014: The year zero was concluded with a big bang- Our Wedding! We both wanted a very simple wedding but our parents could not contain themselves and went full out. Thank you Mom and Dad 🙂

We celebrated this new beginning with our family and friends and felt very lucky to be where we were in our lives.

Fun fact: Naren is from Chennai and does fantastic bhangra. He floored the North Indian Side of the family with this one performance.

By the end of year Zero few key things were clear to us

1. We wanted to live a quiet life outside of metros– We both love quiet, greenery, long walks in nature- which is not possible on a daily basis in a big city.
2. We both wanted autonomy– We both enjoy work but do not enjoy 10-12 hours work days or stressful work environments. We both felt a need to do something meaningful to us, something more than a job,  and to create a balanced life, where work is important but not over and above our personal and family life.
3. We were ready to downsize our lifestyle– We lived these 3-4 months with one backpack each (including winter gear) and we did not miss a thing. We got a lot more confidence in experimenting with a more frugal lifestyle as we tried to land back on our feet.
4. We found our answer in F.I.R.E- We realized that if we want to experiment with our life and keep our freedom, FIRE is a way to go. Both of us were convinced more than ever to make F.I.R.E work for us so that we can have the lifestyle we want forever. So, debt free, with 7 years worth of expenses saved, and a 2 BHK apartment to our name we decided to give it our all to this experiment and see where it takes us.

Our expenses in year zero: year 2014

We both were very aware that we do not have monthly pay-check anymore, so wherever possible we tried to be frugal. But we had fair bit of expenses on travel and setting up house in Goa

Unfortunately we started using Spendee and tracking our expenses from August, 2014 so we only have record of last 5 months. During this period we spent total of 4 lacs .  Below is the snapshot of breakup from our app.

As you can biggest spending was on flight, hotel stay, one-time house set-up, cabs and eating out.

Isn’t it awesome to go back and see where you money goes!

We will share what happened in next three years- our mistakes, learnings and fun things too in 3 separate blog posts over next few months!

If you want to know any more specifics feel free to ask us in comments and feel free to share this blog post with your friends and family.

Last Monday Mumbai Mirror did a story on Early Retirement- How to retire at 40, it featured three Indian families, we were one of them. The article has a good perspective of a mid-40s person who walked away from a successful corporate career to pursue his passion of writing. We are in our mid-30’s not retired fully but pursuing F.I.R.E while also doing what we like to do and living a semi-FIRE lifestyle. In this blog post we will share that article, it is an interesting read. We will also share 6-Steps To Kick Start Your Early Retirement Journey, in case you have not started already.

Please remember it is a process, a long one that too. But do not get intimidated. Remember.

“Journey of a thousand miles begins with a single step”-Lao Tzu

Take that step today!

Table of content

Mumbai Mirror Article- How to retire at 40

Here is a snapshot of the article. Full article is at the end of the blog post.

It is always difficult to condense how to retire Early for a short article like this, but we think it covers some of the most important pointers for anyone who is just starting out or wants to start out.

We received  couple of e-mails from the readers of Mumbai Mirror and we were very happy to see that there are so many people who are interested in Early Retirement. But for some reason a lot of readers shared that they are unable to take the first step towards their Early Retirement Journey.

So, for all the old and new readers if you are inspired by FIRE and want to retire early, but are not able to start the journey. Here are few key steps you can take to get started:

6-STEPS TO KICK START YOUR EARLY RETIREMENT JOURNEY:

STEP 1. Write down how Early retirement will improve your life

If you need some more external inspiration- read our blog post Early Retirement is the necessity these days,  Top 5 reasons to be financially Independent and Retire early. We have a another post that addresses how to come out of unhappy work environment – Unhappy at work- Get your life back using Early Retirement that you may find useful.

STEP 2. Share your Early Retirement Dream with your family and get them onboard

Do not get discouraged if your family does not come on-board immediately, share your ideas, lead by example and give them time to come around. We have a blog post on How to convince your partner about Early Retirement that you may find useful while talking to your partner and family.

STEP 3 Calculate your Net Worth

Make a list of all your assets- House, Car, Investments, savings, gold etc and deduct all the liabilities (ie. all outstanding debt) from it and you will get your Net Worth. Use this number to track your progress every year. If you are wondering why is it important?

“If you can’t measure it, you can’t improve it.”- Peter Drucker

STEP 4. Figure out your monthly Expenses- see wherever you are wasteful and make cuts

There are some great tools that help you to track your expenses. We have been using a free phone app called Spendee to track and control our monthly expenses. We have also written a blog post Track Spending to Find Saving  that you may find useful. Some of the readers highly recommend another phone app walnut and perfios ,a much more comprehensive money management tool. Check them out and use them to track your monthly expenses.

It is amazing to see how tracking expenses for a year or more gives you deep insight into your spending habit and helps you save money on wasteful spending. We have been tracking our expenses for over 4 years and we can see our family’s spending habits and also our family’s year-over-year inflation.

STEP 5. Make a plan to clear out your debt and say NO to new debt

We have written a blog post on How to Pay off your Student Loan in the Shortest Time possible but it is applicable to all sorts of debt. Read it and you may find it very useful in reducing your debt. If you are an impulsive buyer, who maxes out their credit cards every month and pays only the minimum due please read Simple trick to save more money : Use Cash!

STEP 6. Create an achievable goal for monthly savings towards your early retirement

Set a monthly saving rate that works for you. We recommend saving at-least 50% of your income if you are targeting Early retirement. If that is not possible immediately start with what you can and slowly and steadily increase your saving rate.

Remember the great Hindi saying of Kabir,  start right away- no better day than Today!!!

“KAL KARE SO AAJ KAR, AAJ KARE SO AAB, PAL MEIN PARLAI HOEGI, BAHURI KAREGA KAB”

Mumbai Mirror- How to retire at 40 Complete article

For online version, click here

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. 

With lot of discipline and hard work you spent a decade or two saving up for your early retirement. Now how to be sure if you have saved-up enough or not? Safe Withdrawal Rate answers this particular dilemma: How much can you spend in Retirement based on your savings.

Any Retirement planning whether Early or Traditional has two phases: (1) asset accumulation phase followed by (2) post-retirement spending phase. When we started planning for our own early retirement we discovered the FIRE community used a thumb-rule called 25X for accumulation phase and 4% safe withdrawal rate (SWR) for post-retirement spending phase. We also started our FIRE journey with these assumptions, but we now understand these rules and their limitations much better and we will share them with you in this post.

In our earlier blog post How much I need to retire early In India, we shared our views on how much to save to retire early and our opinion on the 25X strategy. In this post we will share our views on the post-retirement spending phase for which the most common thumb rule is the 4% safe withdrawal rate.

FUN ALERT🙂 WE HAVE DONE OUR OWN LITTLE EXPERIMENT BASED ON HISTORIC DATA AVAILABLE IN INDIA TO SEE THE VIABILITY OF 4% RULE. THAT IS ALSO A PART OF THIS BLOG POST!

TABLE OF CONTENT

Challenges with planning the post-retirement spending  

It is a complex exercise to plan for post retirement spending because of reasons such as: Inflation, one’s life span, Market volatility, unforeseen expenditures. The longer you plan to live on your retirement corpus the higher is the risk of things going wrong.

This is where Safe Withdrawal Rate (SWR) comes into the picture, since it is a conservative estimate of how much you can safely withdraw annually from your nest egg without exhausting it completely before you die. SWR approach balances between you having enough money every year to live comfortably after retirement without depleting your corpus prematurely.

Is there a universally excepted Safe withdrawal rate that one can use?

Most of USA literature swears by 4% Safe Withdrawal rate.

Origin of 4% Safe Withdrawal Rate 

The 4% safe withdrawal rate is not proven to last forever 100% of the time. and that is what happened to people who retired in year 1966, their money just about lasted for 30 years.

It’s really important to recognize that the word “safe” should be taken with a grain of salt since it’s based upon what’s happened historically. If markets behave differently than they have in the past, what was safe in the past may not be safe in the future.

William Bengen- In an interview

How 4% Safe Withdrawal Rule works 

• Assume your annual expenses at the time of retirement is Rs.12 lakh and your retirement corpus is 25X = 3 crore (25 times Rs.12 lakhs)
• As per 4% withdrawal rule, in the first year you will apply 4% withdrawal against your retirement corpus of 3 crore. So in your 1st year, withdrawal would be Rs.12 lakh (4% of Rs.3 crore)
• Second year onwards, forget about 4% and never look at it again. Instead take the previous year’s consumer inflation and add it to the previous year’s withdrawal to calculate your annual withdrawal amount.
• For example: say previous year’s consumer inflation is 8%, you then add 8% of Rs.12lakhs = Rs.96K to the withdrawal. So, the second year withdrawal would be Rs.12lakhs + Rs.96K= Rs.12.96lakh (Rs.12,96,000)
• Each year you simply increase the withdrawal according to the inflation rate so that your lifestyle keeps pace with inflation.

Applying 4% SWR to Indian context

We ran our own little experiment based on William Bengen’s study. We assumed:

• 50/50 stock/debt portfolio
• Person retired in year 1996 with 25X corpus of 3 crore, based on Rs.12 lakhs annual expense.
• Withdrawal Rate is 4% rule in all scenarios

FIRST SCENARIO: Actual returns for first 22 years, Assumed returns after 22 years (1.5% Real Rate Of Return)

• We used actual numbers for equity+debt returns & inflation in India for the past 22 years from 1996-2017. Since data is not yet available beyond year 2017, we assumed static returns for simplicity: Equity returns @ 10%, Debt Return 5%, Inflation @ 6%.
• The reason we’ve used base year 1996 is because the first major revamp of the BSE Sensex happened only in 1996 not to mention various stock trading scams in the early 90s. You can read the timeline with commentary here and here.
•  Under these assumptions 3 crore lasted for 40 years.

*Why Real rate of returns?: One of the major factors that affects any investment returns is nothing, but INFLATION. This is invisible, but eat away the real growth of any investment and eventually you may find that the investment has actually grown very less or the growth has been only negative (if inflation is higher than the generated returns). The inflation adjusted returns is called as “Real Rate of Returns”

Source

SECOND SCENARIO: Assumption 2% Real rate of return*

• Under these assumption 3 crore lasted for 34 years.

THIRD SCENARIO: Assumptions 3% Real Rate of Return

• Under these assumption 3 crore lasted for 42 years.  

FOURTH SCENARIO Assumption 4% Real Rate of Return.

• Under these assumption 3 crore lasted for 64 years.

The excel sheet has 4 tabs, use arrows buttons at the left bottom of the excel to see all 4 scenarios. You can even download this sheet by clicking download  button on bottom right of the excel sheet. YOU CAN CHANGE THE NUMBERS TO TEST YOUR OWN ASSUMPTIONS AFTER DOWNLOADING THIS SHEET

Disclaimer: In the above Excel sheet, we have used actual data for returns & inflation from BSE & RBI only to simulate dynamic returns and not for any other purpose.

Overall we feel more relaxed after running these numbers.

Our conclusion

• We advise readers to be bit conservative rather than being overly optimistic while planning Safe Withdrawal Rate. Also keep revisiting the assumptions every 5 years as more and more data will be available and you will also be closer to the retirement date.
• We highly recommend fellow FIRE enthusiasts to plan for active income after early retirement even if it is part-time work just in case the need arises.
• In our previous blog post How much money I need to Retire Early In India we said that we are targeting 25X as a starting target but will be most comfortable hanging our boots fully when we reach 40X. Regarding Safe withdrawal rate we will monitor how the next decade plays out, but at the moment we are considering anywhere between  2-3% safe withdrawal rate for post retirement withdrawal.

Watch out for

1. Bad sequence of returns
2. Tax implications on post Retirement withdrawal income

In our future posts we will write about how bad sequence of returns and tax can impact early retirement plans.

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

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