If anyone asks you whether you will just idle away your time once you retire early in your 40s simply send them over to this list. Who knows maybe they’ll be inspired too!

I’ve optimised this list for personal happiness and focused on things you should be doing sooner than later before old age catches up and you realise you have less time & energy left to do the things that matter to you the most.

Top 10 things you can do in Early Retirement

You can pick one, two or all of them it is up to you now:-) as nothing is stopping you from living your dream life!!!

1. Spend more time with yourself

Pursue a hobby, learn to meditate, cook for your family, catch up on your sleep. Basically Figure out life at your own pace without having an obligation to work.

2. Spend more time with family

Especially if you have aging parents and young kids.

3. Work on your health and fitness

Almost all of us at some point or the other have compromised on our health while building our career. I did it. I pulled long hours at work, ate unhealthily and did not exercise. You can take this time to slowly work on building a healthy lifestyle by incorporating healthy eating habits and doing some form of exercise or sports regularly for ex: Yoga, Meditation, Swimming, Running etc.

4. Travel leisurely

Did you have a dream to travel slowly, absorbing a place by living like a local. Scratch that itch now by living in different places for a few months/years.

5 Work for passion

Almost all our adult life we worked mainly to pay bills. Now is the time you are free to pick any project for the passion of it. Earn money by only doing interesting work and refusing to do the aspects you did not like in your previous jobs.

6.Start your own business

If you always felt like being your own boss, try your hand at starting a lifestyle business to earn income doing something you like.

7.Volunteer your time at a non-profit

If lack of time was stopping you from helping a cause, go for it now! Volunteer your time at a non-profit of your choice or your kid’s parent-teacher association or the election campaign of someone you respect or mentor youngsters.

8 Go back to College to change your career

Maybe you always felt that you were working in the wrong field. Take this opportunity to go back to college to switch careers. You can even learn online these days to make a career change.

9 Go deeper in your spiritual or religious activities

A busy work schedule means less time to devote to soul-satisfying activities. With a more flexible schedule you can set aside more time for your spiritual & religious needs.

10. Take care of your finances

Work with a financial planner to ensure your investment goals, will, insurance etc are all on track. Help your old parents with their finances, health & retirement as needed.

Are you getting some more interesting ideas? Share them with us in the comments.

Working in isolation on your goals can sometime be lonely and demotivating. That is why we started our blog to share our story and form a community of like-minded people with a common goal of being Financially Independent and Retiring Early.

In addition to sharing our own F.I.R.E journey we also look forward to sharing the stories of our F.I.R.E readers on this blog.

This week we have the pleasure of a guest post from Anil, whose family has achieved 77% of their Early Retirement Corpus and is 4 years away from Financial Independence. Let’s find out how Anil and his family managed to achieve this in-spite of life’s ups and downs. Most importantly how they achieved their goal along with managing international travel alternate years and other household expenses (cook, maid etc).

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

Q & A 

Q1 SH: Tell us a little about yourself?

ANIL: I just turned the big 4-0 so I guess you can call me properly middle-aged. I’m a senior finance professional. Currently located in Pune and I really like it!

I’m married with a 3 year old daughter. Both my wife and I work though she’s just started working again after a 3 year break for the kid. Dad’s retired from a PSU job. Mom is a housewife. Neither my parents nor in-laws are dependents luckily.

My biggest influence is my dad. My grandfather died young and left him 3 sisters to get married and though I didn’t realize it at the time, he had to scrimp and save through most of my childhood to meet his responsibilities. When I think back about it, I realise that it left a huge impression on me – that money was never to be wasted, that it wasn’t so important to keep up with the flashy next door neighbor and that debt was always a crisis.

Q2 SH: What motivated you to work towards FIRE. Any trigger incident?

ANIL:  Nothing very specific but it was during a point in my career about 5 years ago when I was generally unhappy with work, was working crazy hours because the team was short staffed and had some personal stuff going on as well. I was having fantasies about quitting and walking away and discovered the FIRE community – specifically Mr. Money Moustache. The whole idea felt like it was talking to me.

Q3 SH: What is your target age to achieve FIRE?

ANIL: I set it at 50 when I first started but have grown increasingly convinced I can get there at 45 – partly because I did my initial calculations wrong and partly because of the effect stock market increases in the last 4 to 5 years have had on my portfolio.

Q4 SH: What is your target corpus and how are you saving up for it ?

ANIL: My target is 25X my annual expenses, but I did keep a separate allocation for my daughter’s education and marriage. Old Indian habits I guess. I’m 77% of the way there. Hurray! My portfolio mix is:

• 40% equity (in Mutual Funds)
• 40% debt
• 20% PF, PPF (which I guess you can also call debt)

The skew towards debt is due to a history of investing illiteracy which I’ll talk about in the later question. I’m targeting 60-40 the other way and I figure I’ll get there in 3 years with a combination of ongoing SIPs and STPs.

I also own a debt-free apartment in Mumbai that I’m not counting because though I don’t stay in it, theoretically, it is my primary residence. In the future, if and when I do decide to buy a place to live in when I settle permanently, I’ll use this house to fund it (and hopefully have money left over to further buff up my retirement nest egg)

Q5 SH: What is your savings rate, any specific saving strategies?

ANIL: Let me first say that I have always been a saver. I bought my first car at the age of 31; if I ate out, I preferred cheaper options; not a device fanatic etc. etc, However, I was not always an investor. To explain, I’ll divide my saving/investment life into phases:

Early career (23-27): Decent salary but living with parents so no responsibilities and only real expenses were partying with friends. I was saving close to 70% of my salary. However, I was investing like an idiot. I took all sorts of ULIPs, applied for every IPO and did my tax savings mainly in PPF but also NSC.

Responsibility (27-31): My father retired. He had originally planned to settle in Hyderabad where he owned a house but suddenly decided to continue in Mumbai when he got a post-retirement job offer. We initially planned to rent but I impulsively decided to buy when we saw a house we liked. At the time, the loan EMI was 50% of my salary. Savings…except for tax savings stopped and all my money went towards the house. At the same time, I moved cities, got married so responsibilities increased. Excluding EMIs, my savings rate was probably 10%. Including them though, I was still at around 60%.

Accumulation (32-35): This was the phase when the money really started rolling in. I got a 4 year assignment in the US with a good salary. My wife was also working for 3 of those years. We were in a small town so didn’t have heavy expenses except for travel. We were saving about 50% of our combined salaries and since they were US salaries, it was a pretty good saving. However I was still really stupid about where the money was going. I had huge numbers sitting in my savings accounts in the US and even when I bothered to start FDs the interest rates were ridiculously low: 2% or so. I had some MF SIPs going on but compared to the overall savings I had, the amounts were too low to make a difference to the return

Working towards FI/RE (36-ongoing): Once I woke up to the whole concept, I started acting. Set my goals, made a financial plan, all my savings immediately were routed towards SIPs, got rid of my ULIPs, started STPs from my FDs etc. However, this coincided with some major life expenses – I had a kid, my wife took a 3 year career break to take care of our daughter, I relocated to India and a new city with associated expenses. My saving rate dipped but I’m proud that even through the worst of it, I still maintained a 25% savings rate and if I include PF 30%+. Now that my wife’s back working, we are back above 50%

Q6 SH: Who influenced you or people you follow? 

ANIL: Mr.Money Mustache is the main one but as I got into it, I did follow a few others here and there. In India, it’s the usual suspects – Subramoney and Freefincal.

Q7 SH: How are you managing your saving rate with a young Kid?

ANIL: It’s not easy. I think the important thing is that we prioritise spending on what really matters to us. We send our kid to an expensive pre-school and daycare, we have lots of house help – maid, cook etc., we take foreign holiday alternate years but we have a cheap car, the rent from our Mumbai house covers the rent for our Pune house with a fair bit left over and we’re careful in other ways. In the end though, I’ll be honest and say that we both have high paying jobs and even with a fair bit of waste in our spending, we still manage a pretty high savings rate.

Q8 SH: You mentioned you were “ruthless” about a few things in order to reach your target?

ANIL: Between my wife and I, we had 2 lacs a year going towards ULIPs sold to us by family members. We closed them out accepting whatever loss there was. Took some gutsy decisions on moving largish FD money into MFs. Sold out all the little shares I owned from years ago wholesale without bothering to overanalyze. Essentially, I simplified my financial life. The main thing though is my ruthlessness in adhering to a budget. It is a generous enough budget and I am very careful in sticking to it on a monthly/quarterly basis.

Q9 SH: What are your plans after you achieve F.I.R.E?

ANIL: I definitely don’t want to completely kick back and relax. My goals are a little different. If I think about my career, it’s definitely been a case of the Peter Principle (for those who’re too young to know of it – the law is that everyone tends to get promoted to their level of incompetence). I was a great financial analyst so I kept getting promoted quickly and now I have reached a level where I hardly do any actual financial analysis…most of my time is spent managing people. Any job that pays what I now earn doesn’t allow me much scope to get my hands dirty. My main plan after I semi-retire is to try and find a job where I can accept a much lower pay in order to get back to doing what I enjoy with reasonable work hours.

Q10 SH: What is the one piece of advice you want to tell our readers based on your journey?

ANIL: I’m no expert and god knows I’ve made my share my mistakes on this journey but if I had to share just one piece of advice, it would be – “Start early”. Starting early made up for all the goof-ups I made over the years. Though I invested badly, the power of compounding covered up the errors and today I stand 4 years away from financial independence. I know I’ve been lucky in now having much responsibilities in those early years but I also made sacrifices – all my friends were buying cars – I used public transport to get to work; stayed with my parents; partied responsibly etc. That’s paying off now.

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 on habit.of.saving@gmail.com. We love to hear from you.

The most difficult question to answer while planning for early retirement is- How much money I need to retire early? We have spent a fair amount of time thinking about the most optimal early retirement corpus number. In the end, we figured out the most straight- forward approach is to equate the retirement corpus to (X) times your annual expense. (X) being the number of years of expenses you want to save.

In this post, we will help you estimate how much money you need to retire early in India. This is a rough guideline that we have used to calculate our own early retirement corpus.

TABLE OF CONTENT

How much money do I need to retire early In India?

In this approach, the corpus you need is 1. Your INFLATION adjusted annual expenses (MULTIPLIED BY) No: of years of expenses, you want to save.

Step 1: Calculate your Inflation-adjusted annual expenses

Take your current annual expenses and adjust it for inflation depending on when you want to retire early.

For Eg: If you are age 30 and have an annual expense of 12 lakhs, and plan to retire by age 45, assuming an inflation rate of 6% you will need 28 lakhs in future value.

Current Age: 30

Current Annual Expenses: 12 lakhs

Retirement Age: 45: years to retire 45-30= 15 year.

Inflation: 6%

Annual Expense at the time of retirement= 12 lakhs * 6% inflation for 15 years= 28 lakhs per year.

Step 2: Establish how many years worth of expenses you want to save: 

This is the most debated subject in the Early retirement community: How many years of expenses must be saved before hanging up your boots?

The conundrum is you save too less, you will exhaust your retirement corpus before you die.  To save the fattest corpus possible- you need to work much longer. How to find the right amount to live happily on after you retire?

A blogger named Mr.MoneyMustache (MMM) is a rockstar in the F.I.R.E community for having confidently declared himself retired early at age 30 in the year 2005 to raise their young baby. 13 years later he is about 43 years old now. That is a lifetime in the F.I.R.E community and hence he is a role-model for Early Retirement.

He recommends an early retirement corpus of 25 times your annual expenses at the time of retirement, also referred to as 25X.

What is 25X based on 

MMM says:

Take your annual spending, and multiply it by somewhere between 20 and 50. That’s your retirement number. If you use the number 25, you’re implicitly using a 4% Safe Withdrawal Rate, which is my own personal favorite number.

 

So where does this magic number come from? At the most basic level, you can think of it like this: imagine you have your ‘stash of retirement savings invested in stocks or other assets. They pay dividends and appreciate in price at a total rate of 7% per year, before inflation. Inflation eats 3% on average, leaving you with 4% to spend reliably, forever.

Source

• MMM’s theory of 25X for Early Retirement is based on the Trinity Research Study for traditional retirement spanning a maximum of 30 years.
• Early Retirement enthusiasts claim that if you can live on an above-inflation return of 4% from your 25X retirement portfolio, your corpus will last forever. Share on X
• Not sure if 4% withdrawal rate right for?  Read our blog post Safe Withdrawal Rate- How long will your money last in retirement.

It is essential to understand how 4% safe withdrawal works. So we recommend you read the above post.

Our take on the 25X approach

There was once a naive time in the past when we believed this simplistic math because we desperately did not want to work in unhappy jobs ever again.

25X seemed like the shortest target we had to reach. But after coming across the following limitations, we’ve become a bit sceptical about the 25X target.  And more conservative in our approach:

• The Trinity Research Study quoted by the F.I.R.E community is a study done for traditional retirement. It shows that a retirement corpus will last for 30 years with a 4% safe withdrawal rate even if there are market downturns. But we are not aware of any such study done for Early Retirement which by definition lasts for more than 30 years throwing a big question mark on whether 25X alone is enough to retire early and live off for say 40-50 years.

• High inflation in India eats up most of the investment returns. Even headline inflation is 6% so our lifestyle inflation must be much higher. Share on X
• Unforeseen old-age healthcare expenses and inflation in health insurance premium.
• Broken public amenities in India require you to spend extra for private backups

As a result of the above reasons, we’ve changed our attitude towards this math, work and early retirement in general.  It is better not to have a corpus that is “just enough for living expenses” dependent on unpredictable market returns.

Safest Approach

We now believe that the safest approach is to target a corpus of annual expenses (times) the number of years you expect to live after early retirement. Assuming zero real returns i.e. investment returns just meet the inflation.

Points to consider:

• Sooner you want to retire- more no: of years you will live on your retirement corpus and bigger it needs to be.
• If you are rigid about not wanting to work again then go with the exact number you get after the above calculations.
• But, If you are flexible and willing to do some part-time work to cover some part of your expenses you can quit the job with much less corpus. keep reading to know how.

25X corpus is better suited for a traditional retirement around age 65 because 25 years of expenses work out to a life expectancy of age 90, the age till which most people expect to live. Share on X

Our Practical Approach : 25X Corpus + Active Income

Don’t worry if a corpus of 50X or 6 Crore by age 40 seems like a really large number!

If you are like us and want to use early retirement to make a career shift, start a business or even travel the world we recommend a more practical plan.

This approach balances your desire to live your life at the earliest and the hard truth that you need a safety net before embarking on that life. Here goes:

1. Age 30-45: Target 25X within 10-15 years to become financially independent first. This is very much achievable with a savings rate of 50%.  Start early in your 20s if you can.
2. Age 45-50: With 25X of expenses as the safety net, you can afford to quit your job and figure out how to make money from your real interests in life. A new venture can take 3-4 years of focus before it starts covering your living expenses.
3. Age 50-65: Once your new venture succeeds, invest any surplus to grow the 25X to give yourself a really secure old-age retirement. You have another 15 years to grow the 25X into say 40-50X.

This approach allows you to pursue your passion early in life using a reasonable safety net of savings.

If the thought of “working” after Early Retirement puts you off, I recommend re-reading the section above on inflation in India that convinced us that working on something we like from a position of strength is better than running out of money and being forced to work from a position of weakness.

So yes! we recommend 25X corpus as the Early Retirement Target. but not to live off of it for the rest of your life. but to use it as a safety net for a few years when you make the leap into the unknown.

(source) 

A word on Opportunity Cost: 25X vs. 50X

Most F.I.R.E aspirants don’t seem to recognize that their Life is passing them by as they try to build the largest corpus possible before quitting jobs they don’t like.

The downside of trying to save 50X in 10-15 years is that you have to earn a lot of money sacrificing your prime youth in the process. That is the opportunity cost of trying to build a huge “war chest” before taking even the first step towards your dream life.

To put it bluntly: If you don’t feel confident with 25X you may not feel confident even with 50X.

We are grateful to Mr.MoneyMustache for helping us understand that Early Retirement is possible with the help of reasonable savings, can-do attitude and some active income after retirement.

But his passionate followers make the mistake of assuming that his 25X corpus recommendation is the “maximum” corpus needed. When in fact it is the “minimum” needed to balance the opportunity cost of living the life you want versus slogging till age 60.

I’m quoting his exact words below to explain this better (I’ve bolded the most important sentence) :

… you don’t have to be insanely conservative, working for year after year to ensure a gigantic starting nest egg before daring to retire.

 

…Once you quit a full-time job, you just need a small positive savings rate to stick around and keep trickling into investments. This will automatically become a cash snowball as you go about your daily retired life. By the time you’re old enough to need it, it will be bigger than you can possibly need.

Source

We hope this post helped you to come up with your own early retirement corpus target that works best for your lifestyle and future plans.

Please feel free to ask us your questions in comments.

Also, we would love to hear in comments what is your early retirement corpus target and why.

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Recommended Reading:

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

Sequence Risk Impact on Early Retirement

Tips For Starting A Business After Early Retirement

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It is very comforting to read success stories of people, especially if you have a similar goal as them. We love to learn from the experiences of people who have already achieved Early Retirement. Today we will share 4 of our favorite Blogs on Early retirement with you. They are U.S centric blogs. Since the FIRE community is much older and active in the USA it is only obvious that some of most enriching blogs are from there.

You may find understanding the maths in these blogs bit tricky, because of different currency, social context and financial markets. But still there is a lot of knowledge in these blogs that we feel can help and motivate any FIRE aspirant.

Mr. Money Mustache (MMM)

MMM is a cult in himself and for a reason. He retired at age 30 from his job as software engineer in year 2005 to raise his baby boy. He talks about his finances and his lifestyle on his blog, since year 2011. He is now 43 and still going strong, famous for his badassity and redefining early retirement with a young family. He is married with one kid and lives in Colorado, USA.

Why we love MMM: His style is a mix of frugality, smart investing and DIY projects. He lives a pretty awesome lifestyle and on a closer look you will realize that he is much more than an Early retirement Guru. He is a life-optimizing machine- from grocery bills, to biking routes, to laundry frequency- he optimizes every aspect of his life and shares it all with his readers on his blog.His writing style is free, thought provoking and amusing at times when he refers to his targets as Car Clown, complainy-pants and consumer suckas.

What they do after Early Retirement: Mr. MMM spends time building things (renovating house, office building etc), sharing his story on his blog, bartering his skiils for a holiday in Hawaii and other stuff :-). And Mrs. MMM runs a successful 5 figure e-commerce shop.

Blog Name: mrmoneymustache

One of our Favorite blog posts by MMM: The Shockingly Simple Math Behind Early Retirement

Frugalwoods

Frugalwoods If you dream of retiring early to the woods- take a page from her. She retired to a homestead in Vermont USA. A queen of extreme frugality and a fine example of how one can live a fulfilling frugal life without endless compromise and achieve financial freedom. She makes frugality appear fun and a obvious way to live life. She is an author and a mother of two. On her blog Frugalwoods she writes about her monthly finances, living frugally, raising kids on a budget, life in a homestead and throws frugality challenges. She lives with her husband and two daughters in a homestead in Vermont, USA.

Why we love Frugalwoods: She makes frugality look possible, her perspective on using old/second-hand stuff from clothes to furniture is pretty convincing, and we love to read her posts on raising her beautiful family on budget.

What they do after Early Retirement: Frugalwoods writes on her blog, authored a book and had a second daughter after achieving financial independence. Her husband is a techie who works full time from their homestead.

Blog Name: Frugalwoods

One of our Favorite blog post by Frugalwoods: The Myth Of The Gross Used Things Though we may not bring ourselves to buy & wear used clothes from a thrift store, we agree with the rest of the stuff 🙂 Especially buying used furniture and hand-me-downs for kids from family and friends.

Retireby40

Joe retired at 38 from his engineering career to become a Stay At Home Dad. As he progressed in his career he realized that the job was not a right fit for him and he had to get out of there. He started a blog to share his journey and keep a tab on his progress while he was still working. He is unique in sharing the dilemma about his job and his exit strategy from the corporate world on his blog. He is married and has a son and they live in Portland, USA.

Why we love retireby40: Joe focuses and shares information on building a passive income through real estate, dividends, P2P lending etc.. He also shares daily challenges of a stay at home parent, raising a kid and managing monthly budget after early retirement.

What They Do After Retirement: Joe is a Stay AT Home DAD and a blogger. His wife works full time, but has a plan to join him in Early Retirement in the next 2 years.

Blog Name: Retireby40

One of our Favorite blog post by retireby40: 6 Years After Early Retirement Update

GoCurryCracker

Who does not dream of retiring early and traveling the world. That is exactly what GoCurryCracker are doing after quitting their hi-tech jobs. They retired in their 30’s to travel the world and travelled 29 countries in first 3 years. They felt there is more to life than a good job, buying a house & working for 30+ years. From the start they saved and invested a big part of their income to fuel their dream of financial independence and world travel. They stayed in smaller houses, used bike instead of owning the car, ate home cooked food and only bought what was needed to save money.

Why we love them: They write about a nomadic life on the road with a child and cost of living for each country they visit. We also love reading about how to travel for free.

What they do after Early Retirement: They travel 🙂 also, Winnie pursues photography and Jeremy writes on his blog Gocurrycracker.

Blog Name: GoCurryCracker

One of our Favorite blog post on GoCurryCracker: 10 Years and A Day

Also we want to give a special mention to Earlyretirementextreme.He is among the first few to achieve and write about FIRE. We may not relate to his extreme saving and ultra simplistic lifestyle but have tremendous respect for his view on life and FIRE. If you have a minute more, do read his Manifesto.

That is all from us for now! In the weeks to come we will share the list of of our favorite bloggers in India.

Do share your favorite bloggers and why you like them with us in the comments. We love to hear from you.

F.I.R.E is an acronym for Financial Independence and Retiring Early. There are a lot of U.S bloggers who write about their F.I.R.E journey. Most of these blogs assume that the readers are already familiar with the concept. We’ve been on this journey in India for over 5 years and to be honest we find ourselves questioning the basics and math behind F.I.R.E  every year because we don’t want wrong assumptions made in our 30s to affect our quality of life in old-age. Like for example:

• Does F.I.R.E mean you no longer have to work ever again in your life?
• But what if your money runs out before you die?
• What about other unforeseen emergencies that cost a lot of money?
• Will you regret quitting work when faced with such situations?

You get the drift….so we want to clarify this F.I.R.E concept to the best of our understanding.

In this blog post I will share what is the general understanding of F.I.R.E globally and where our family’s approach differs from the globally accepted approach. Please remember that this is a complex topic and it will take multiple blog posts to fully cover its complexities. Treat this post as a very basic primer and read the rest of our blog to fully understand the details.

TABLE OF CONTENT

What is Financial Independence and Retiring Early 

F.I = Financial Independence. When you don’t depend on a job to meet your monthly expenses then you are financially independent. This is possible if you invest your savings in assets that generate a passive income equal to your monthly expenses. Assets like Real Estate, Stocks, Mutual Funds, Fixed Deposits etc. If your monthly expenses are Rs.1 lakh and you receive rental income of Rs.25K, interest income of Rs.25K and dividend income from stocks of Rs.50K then you are financially independent.

R.E = Retiring Early. If you achieve financial independence at an early age say in your 30s or 40s then you can declare yourself to have retired early. Typically people retire from active work at age 60. So if you have enough money to never work again in your 30s or 40s then you have achieved Early Retirement.

Difference between FI & RE 

The above definitions are as per the FIRE reddit group.

So the key difference is that once you are Financially Independent(F.I) you may decide to continue in your career but you may get picky about what kind of jobs you choose because you are no longer dependent solely on salary income. Example: You may decide to work for a startup to learn a lot in a short period of time so you can become senior management faster than at a corporate job. You don’t mind the risk of the startup going out of business because you are financially independent. You will also take tough decisions at work without caring about your monthly paycheck as you are no longer dependent on it.

With Retiring Early(R.E), you are planning to quit your current career altogether and branch out into other activities that you are passionate about. Example: working for a non-profit, traveling the world, taking care of family etc. Note that with Retiring Early the opportunities for earning money are much lower because you will be spending time and money in non-remunerative activities. Naturally if you plan to Retire Early  and never work again you need a much larger corpus than if you were to be simply financially independent.

Why are they referred together as F.I.R.E

The reason it is called F.I.R.E is because the path for both is similar : Saving a large amount every month to reach your target as soon as possible via frugality and/or high income. Only difference is the target corpus needed and what you plan to do after you achieve it. Some people want to achieve F.I as a backup but they don’t want to quit working. Not all people hate their jobs.

Now the Retiring Early part is tricky because no one seems to have done it yet in the F.I.R.E community.  By that I mean, no one has retired in their 30s or 40s and lived till age 90 by simply living off their saved-up corpus with no extra income and blogged about it for 50 years. That’s right! this concept is so new that it has not been tested in real-life yet.

Another important issue is that one person’s lifestyle might not be suited to another person. Are you willing to Retire Early to a village with no modern amenities? If not then your corpus amount needed will be significantly higher.

Philosophy of the Financial Independence and Retiring Early (F.I.R.E) Movement

Why does one need F.I.R.E? We have written a detailed blog post on Top 5 Reasons to be Financially Independent and Retire Early .

But to condense it here I would say quest for F.I.R.E is based on maximising quality of life, happiness and work-life balance.

In that sense F.I.R.E is less about not having to work ever and more about having the freedom to pursue your dreams in life. It means that you can design your life without taking money into consideration.

At a more philosophical level F.I.R.E also forces you to look at another important life questions that only you can answer for yourself:

• What would you do with your life if you didn’t have to work for money?
• How much is your freedom is worth to you?
• Once you achieve freedom through F.I.R.E what do you plan to do with your life?

Our Key observations on Financial Independence and Retiring Early (F.I.R.E) concept

There is a wealth of knowledge available on F.I.R.E online that helped us establish our understanding on this subject. However, mostly all the bloggers have their own personal  touch to this concept and what they mean by F.I.R.E. Few things we noticed which are worth mentioning at the outset are:

1. F.I.R.E is still a nascent concept

It is still a nascent concept which attracts lot of controversy on its viability even in the U.S where a dozen people have already retired early and actively blog about how they are managing their expenses and investments after achieving F.I.R.E. So it will be interesting to see how all the theory pans out in real life in next 20-30 years. It looks promising but we feel it will not be without a few bumps on the way.

2. There are different flavours of F.I.R.E

There are so many variations of F.I.R.E that it is easy to get confused or dogmatic and hesitate to get started. For example:

1. Mini-retirement

If you are F.I you can afford take a break from working to take care of your old parents/young baby or travel the world and then join the workforce after a few years. Notice how this bends the definition of Financial Independence(F.I) I gave earlier.

2. Part-time retirement

You are R.E but you work as a consultant or freelancer only for certain months of the year say during tax season or you run an online store that you operate only during Diwali/Christmas season.  This bends the definition of R.E I gave earlier.

3. Permanently Retired aka Never work again:

This is the holy grail that attracts most people to Early Retirement. I’ll discuss about the viability of this in my next blog post.

We recommend that you not waste time debating the “exact” definition but instead focus on your day-job and achieve Financial Independence first with 25 times annual expenses as the initial target while also figuring out a side-income based on your passion that can fund your expenses. This way you’ll have two layers of protection : side income and saved-up corpus. Plus since the side-income is based on your passion you might not feel like it is work.

3. Almost all F.I.R.E people we know have active income

Almost all the people we know who have achieved FI or RE have not stopped working for money completely. Some have taken time off to travel, raise a kid, or just explore life but all of them have figured out some passion that generates side income which not only covers their expenses but continues to add to their net worth. We find this approach smart and practical as you get your freedom to explore your life along with some side income to support your expenses fully/partially.

4. How viable is it in India

We are confident that the concept is solid and can be practiced in India. But not without  major modifications to the core idea. The idea of this blog is to share what works for us in India and what does not. We will keep sharing our observations with you as we go about it.

What Financial Independence and Retiring Early (F.I.R.E) means to us

Financial independence offers us the freedom to pursue our life goals and dreams. Turns out we are in a unique situation where we are already doing that and saving up for F.I.R.E at the same time! Once we were debt-free, owned a house without loan, and had 7+ years worth of expenses we quit our jobs to pursue our dreams in Goa. 3 years into the business we are our own boss. Our business covers all our expenses (we still live frugally), we work on our own terms, and also have location independence. If we could reinvent ourselves with just 7 years of expenses  saved up imagine what you could achieve with 25 years of expenses saved up.

Disclaimer: With 7 years of safety margin we did feel a certain pressure and insecurity about the future. In the first 3 years when the business did not cover our expenses fully we lived very frugally. But it did serve its purpose and now we want to increase that safety margin to 25X.

So, are you tempted to F.I.R.E too? Share you views in the comments below.

Feel free to ask us if you have any questions on this concept. We would love to answer them to the best of our ability.

Why should you be interested to be Financially Independent and Retire Early (F.I.R.E)? When my husband first introduced this concept to me I asked him the same question. why should I miss out on fun now for later?

I was in my late 20s and the future seemed rosy and under control. I did not immediately see the need for us to talk about our finances and investments so early on in our courtship. Also, statements like “save for a rainy day” or “save now for future” were something I was used to only hearing from my grandmother. I thought “Saving” is not a subject to discuss for us cool young people. No one was talking about saving, instead EVERYONE I knew was buying things on debt, banking on their future earning potential without any hesitation.

To me, debt and EMIs seemed a natural solution to all the future problems that Naren was talking about.

So you must think what changed so drastically that only after couple of years from our first conversation I am writing this blog post? trying to convince you how Financial Independence and early retirement can improve your life.

Actually, nothing drastic- I just had to scratch the surface of my life to see how in-spite of doing well in my job I could not see myself keeping the same pace at work forever, plus I missed the freedom and autonomy: I could not experiment much with my life, my bucket list was growing longer. How much can you do in 2 weeks holiday per year( not all of us are lucky enough to even take that).

For the first time in my adult life I could see that I can do something about most of these issues. And that is how slowly and gradually I became a FIRE convert :-). So, today I will share with you some compelling reasons to consider F.I.R.E as a solution to your problems as well:

TOP 5 REASONS TO BE FINANCIALLY INDEPENDENT AND RETIRE EARLY (F.I.R.E)

#1 Because why not

Resist the herd mentality. There are 1000’s of people who have done it and they share how they did it on their blogs just like us. Financial Independence and early retirement may not have been possible in India 30 years back because people did not have such high-paying private jobs, investing in the equity markets was not easy or trustworthy and F.I.R.E role models were almost nil. All that has changed now. The secret to achieving F.I.R.E in 10-20 years is very well-known now to anyone who wants it:

• Save and invest atleast 50% of your income
• Spend smart:  saving a ton each month forces you to optimize your spending
• Stay Debt-free : Save and buy even big-ticket items instead of taking a loan
• Earn more if you are not able to save more
• Don’t feel pressured to follow the wasteful spending habits of your peers

#2 Freedom

I like being my own BOSS. Freedom is a very basic human need. In our personal life also we crave freedom in our work, in how we spend our personal time and  in having freedom of speech. I personally wanted to just explore who I was and what made me happy when I quit my job. F.I.R.E gives an opportunity to be your own BOSS, to claim your freedom to explore your life and interests with confidence and security. It did for me! Take a few minutes, and imagine all the things you will do if you had freedom and time

#3 Courage and Peace of mind

Personally I perform really well in crisis and stressful work environments. But I also love peace and tranquility in my day-to-day life. Knowing that we have no debt + 1 year emergency fund stashed away and that we are on the road to F.I.R.E gives me a peace of mind in this ever chaotic and changing world. I feel prepared to handle any life crisis that life may throw our way with confidence. I know I have something solid to fall back on and it gives me tremendous courage and peace of mind. Should all of us not strive for it?

#4 Family Harmony

The fact is through out our lifecycle the ability to work (no: of hours) keeps changing. It is highest in 20s, as one usually has single-minded focus on career, has time and energy to pull overnighters and long working hours. But that gradually changes once you get married and you want to spend quality time with your spouse and fulfill other household and social obligations.

The biggest change in your ability to work (no of hours) happens after you have a baby.  You need considerable amount of time, physical and mental energy to raise a baby. Then again you get your time back in your 40s when your kids are grown up and are independent and you again have more time to focus on your work.

Naren and I saw considerable decline in our work hours starting from the early days of our pregnancy: doctor’s appointments, health issues, prepping the house for baby, making big purchases and life decisions took considerable amount of time. Most of us live in a nuclear family and most often both the partners are working and also share equal responsibility towards household work and parenting. Our current work culture does not accommodate this fact of life. Especially in highly competitive careers where most of us are ambitious to do better in life.

In middle of big life changes such as Marriage and having a baby add in time crunch, massive EMIs, other debt, no emergency fund and you have a perfect recipe for personal stress and marital disharmony. 

Knowing all this in your early 20s would you not like to plan your life so that you can avoid these pitfalls and be in a position of strength so that you can enjoy the most beautiful transitions in your life.

#5 F.I.R.E helps your money to work for you

Just making more and more money to fulfill your financial goals is not the smart answer. You may convince yourself that you deserve it, you work hard. But you also deserve stress-free life, quality time with you family, flexibility to take care of your aging parents and pursue your dreams. If you only depend on your income to meet all you financial goals you are missing  out on maximizing on your hard earned money. Through FIRE we plan to create enough financial assets that they act like a third person earning for us 24X7. Money never stops working, never sleeps. So take advantage of this fact.

Through FIRE we plan to create enough financial assets that they act like a third person earning for us 24X7

#6 (Bonus) Environmental reasons

This is a BONUS reason. Last but not the least and a major motivator for me to retire early. Being a millennial I enjoy the countless consumer choices that life offers us in the 21st century. However I also feel a knot in my stomach to see how much we waste. When I compared my life to our parents generation I knew that I was consuming much more than I needed and I was not any happier for it. Our incessant need to upgrade our lifestyle, to treat ourselves to feel worth-it and keeping up with Jones’s makes us spend way more then we actually need to be happy in life.

F.I.R.E not only gives you freedom to live your life but also helps you live a more conscious and environmentally friendly life.

So, what are you waiting for! Share with us in comments what is your top most reason to be Financially Independent and Retire Early. 

A positive attitude towards work is important for your happiness in life. However, working in a one-way-street fashion for others while ignoring your needs can make you unhappy at work. Get your life back using Early Retirement.  In this article, I will share with you how my Early retirement journey has helped me be true to myself and perform better at my work. I hope it can help you to achieve happiness at work.

TABLE OF CONTENT:

How you can get your life back using Early retirement

When you finish saving up a large corpus for early retirement as soon as possible you can leverage the bargaining power of your financial independence to make your job and your boss work for you as hard as you work for them. You will find yourself growing supremely confident even with just 5-7 years of expenses saved up.  That’s what happened to me! Read on to know more..

Stop working from a Position of Weakness:

During my corporate career of about 10 years, I found that I did not have much bargaining power with my employers regarding flexible work schedule, choosing to learn new skills I was interested in and getting a raise without job-hopping or threatening to quit. On the other hand, employers have a lot of control over an employee’s time even on weekends and weeknights. The job rut keeps the employee so busy that their skills get rusty and companies then use that as the reason not to give a raise/promotion or even fire employees. Share on X

My track record for negotiating a better job profile at my previous jobs was very poor because I would always settle for less than what I actually wanted.

The reason I could not negotiate better: I was solely dependent on my salary:

I had no cash-flow other than my salary. I was paying installments for my house. If my negotiation failed I couldn’t just quit the job. Also, finding another job requires you to upgrade your skills in your spare time after a whole day’s work since your day job is not giving you the exposure you need. Sometimes learning new skills is only possible by taking up a lower salary at the ground level of a startup or quitting your job to learn new skills or doing an MBA at your own time and expense. All of these options are not possible if you don’t have other income sources to tide you over for a few years especially when you have a family by now or loans to repay.

In short : Employers get that and have the upper hand as they know that you can’t just “up and leave” immediately even if you feel like it. You are more likely to “put up” with a bad situation since you think you have a “bird in hand”.  All employers know this about their employees and that’s why employees don’t get a fair deal.

Working from a position of weakness is extremely damaging to your career, net-worth and self-worth:

My reluctance to negotiate hard for a fair outcome led to:

• lower salary increments
• career stagnation
• working long hours project after project
• not getting the exposure or bandwidth to learn new skills
• visiting my aging parents only once a year
• increase in stress and a decrease in health etc.

Ultimately I decided to achieve financial independence so I did not have to “put up” with employers who kept shortchanging me on money, skills, time and respect.

How my Early retirement journey helped me get my life back:

It has been 5 years since I left corporate life to start a business of my own working from home. In these 5 years working for myself, I’ve realized that I did not have a problem with working long and hard.  In fact, I have more responsibilities now than when I was an employee only responsible for my work. I only had a problem with all-consuming jobs where only my employer’s needs were being met but my needs were not being adequately met. In the book Drive: The Surprising Truth About What Motivates Us , the author says that people are motivated by 3 needs beyond money :

1. Autonomy — Our desire to be self-directed. 2. Mastery — The urge to get better skills. 3. Purpose — The desire to do something that has meaning and is important. Share on X

CLICK BELOW TO BUY DRIVE ON AMAZON↓

If you are stuck in jobs that do not satisfy these 3 needs then I don’t blame you for dreaming about Early Retirement.

Even though I did not plan it this way,  I found to my pleasant surprise that growing my small business at my own pace has given me all of the above in addition to money and I’m happier as a result. I’ve never been more at peace with myself in a work setting before.

• I live and work from Goa, the beach destination of India (Autonomy)
• I set my own priorities for the business and how I get things done. (Autonomy)
• I work from home so there is no commute and I set flexible work schedules including time for a quick power nap in the drowsy afternoons. At previous jobs, I had to fight the afternoon drowsiness with coffee & walks because you can’t be seen sleeping at your desk! (Autonomy)
• I have time to learn new and difficult skills as they become necessary (Mastery)
• Of course, the flip side is that I’m responsible 24x7x365 for customer support & tech issues even on weekends & vacations, unexpected deadlines, competitors, business growth, marketing, programming, etc. While all this was initially stressful for me as I only have a computer programming background, I have now accepted all this as part of learning how to run a better business. Also, this is making me more “Zen” about life in general since running a business has daily ups-and-downs like the stock market. So if you are in it for the long haul, you have to learn to reduce your stress and anxiety about short-term downturns. (Mastery)
• The business is helping our family achieve financial independence so there’s purpose & meaning as well. (Purpose)
• So overall I feel that I have a better work-life balance.

If I can make this lifestyle last for the rest of my life I would actually consider that to be early retirement! I got lucky but a large part of the luck happened because I had the staying power to go without making much money for the first 2-3 years in business as we had savings that would have lasted for 7 years. You too can create a lifestyle business if you save up a lot of money which is the point of early retirement I keep repeating through this blog. I could have been happier in my previous jobs as well if they had offered the same job satisfaction as my current lifestyle business.

“I had the staying power to go without making much money for the first 2-3 years in business as we had savings that would have lasted for 7 years”

3-Steps to F.I.R.E your bullshit job and F.I.R.E up for your Dream Job:

1. Start your journey towards F.I.R.E (Financial Independence & Retiring Early) to put yourself in a Position of Strength.

2. Once you become financially strong, negotiate confidently with your employer for what you want out of the job just like how employers expect you to constantly perform for them

3. Get them to respect your personal life, your need for keeping your skills up-to-date, desire to try different job roles and being paid adequately for the value you bring

In conclusion

 If that’s not possible then you can quit immediately and take the time to find a better job instead of putting up with a job you hate or you can even start a lifestyle business. This way you never have to retire from working to find happiness!

Next to read

Early Retirement In India- Beginners Guide

Health is “real” Wealth

Find out how much you need to retire early

I was an NRI

Starting with the recent budget , you have to pay 10.4%(including cess) long term capital gains tax (LTCG) on gains when you sell mutual funds or stocks after holding them for 1 year.

image source

What does this mean for your Early Retirement plans?

• Not the end of the world actually! If you are selling after holding for 25 years and your return was 12% then after paying LTCG tax your return falls to 11.54% : a negative impact of only 0.46%
• Deepesh from personalfinanceplan.in has done a fantastic job of showing the impact of the tax on different CAGR % for corpus held over different lengths of time.  I’m using an image from his article below:
• As you can see above, the longer you hold, the lesser the impact of the tax which is perfect for the Early Retiree. For example: At 12% expected return, if you hold only for 5 years then the return falls to 10.99% due to tax but if you hold for 25 years the return only falls to 11.54%.

What Should You Do?

• If you were expecting 12% returns from equity over 25 years then reduce your expectation to 11.54% and use the Early Retirement Excel calculator to calculate the increase in SIP required.
•  If you want to retire early at the same age as before this tax then you’ll have to increase the SIP amount. Just increase your SIP and don’t think any more about this tax.
• I’ve added a tab to the Early Retirement Excel Calculator so you can calculate the impact of LTCG tax on your expected returns %.

What Charlie Munger has to say about LTCG tax:

Another very simple effect I very seldom see discussed either by investment managers or anybody else is the effect of taxes. If you’re going to buy something which compounds for 30 years at 15% per annum and you pay one 35% tax at the very end, the way that works out is that after taxes, you keep 13.3% per annum.

In contrast, if you bought the same investment, but had to pay taxes every year of 35% out of the 15% that you earned, then your return would be 15% minus 35% of 15%—or only 9.75% per year compounded. So the difference there is over 3.5%. And what 3.5% does to the numbers over long holding periods like 30 years is truly eye-opening. If you sit back for long, long stretches in great companies, you can get a huge edge from nothing but the way that income taxes work.

Charlie Munger, USC Business School, 1994

 Impact on our family’s early retirement plans:

• It will take us 1 extra year to achieve our Early Retirement target if we continue our current SIP amount. I’m actually relieved that the tax impact is only 1 extra year 🙂
• Last month I posted that we had achieved 38% of our early retirement target. Our target is now reduced to 34% after factoring in LTCG. Remind me never to post a target achieved % before the government announces its budget 😉
• This new tax only confirms my belief that to deal with Life’s uncertainties like this new tax you need to keep working and saving whatever you can even after reaching your target early retirement corpus. Today capital gains is set at 10%.  Who knows, it may be raised to 30% over the next 25 years.
• The biggest positive impact is that this new tax has validated our approach of letting our early retirement corpus compound for 25 years instead of trying to live off of the returns every year which would incur a 10% tax every year!! In our approach we would only pay a one-time tax of 10% at the end of 25 years. Re-read Charlie Munger’s statement above to understand what a big difference this makes.

Special thanks:

1. livemint : for first planting the doubt in my mind that I might be over-estimating the impact of this tax.
2. phreakv6  : for the Charlie Munger speech that pointed me in the exact direction
3. basuvinesh  : for calculating the tax impact with a real example.
4. My wife : for giving me the simple idea to use Excel to calculate the exact post-tax CAGR %  when I was trying to wrap my head around its impact on our unique early retirement plans which was not getting covered in the mainstream media.
5. deepesh raghaw : for the image I used earlier. his calculations matched my excel calculator including munger’s example so I’m confident of publishing this article and the excel 🙂 I especially agree with his quote below:

Fall from 10% p.a. to 9.49% p.a. may not look like much. However, when we talk about many years of compounding, the impact is going to be sizeable.

I have read accounts where many experts have mentioned that the impact is going to be minimal. That’s clearly not the case. Most of us shifted from regular to direct to save this extra 0.5-1% p.a. of the expense ratio. Didn’t we?

Therefore, let’s not fool ourselves. There is going to be an impact of LTCG taxation. Let’s accept it and pay the taxes happily.

NEXT TO READ:

12% return from stock market every year?

Unhappy at work? Get your life back using Early Retirement

How to save money on domestic flights in India

Reduce your mobile phone bill : Save money on data usage

This Valentine’s Day I want to touch on a touchy topic with couples : how to convince your significant other to work together as a team towards Early Retirement.

So this post has a guest section written by my wife on her experience getting convinced about early retirement.

Typically one person is super-excited after having read about Early Retirement online. But then they find that their partner is not as excited… atleast not that excited to single-mindedly focus on this goal to the exclusion of other goals in their life. Well.. you can’t forcibly convince someone to do something  unless you want avoidable fights with your partner on this topic 🙂 You can however influence them positively. Influencing others requires that YOU be the change you want to see in others. So you need to lead by example.

MY WIFE’S STORY ON HOW SHE CAME ON BOARD:

While my husband was saving 50% of his monthly salary to pay instalments for his first house, I was busy spending most of my money on food, clothes, shoes and a high-flying lifestyle that I had discovered with my high-paying job. Saving money was not on the top of my mind. I was in a middle-management job at a start-up and everyone around me was  exhausting their monthly credit card limits. Thankfully I never incurred debt and even paid for my car upfront with some help from my dad. But I did not save or invest seriously before the age of 30. That is when I got married, pooled our resources and made some lifestyle changes which reflected both our views on money.

The Aha! moment

In the beginning I used to find talking about my spending habits with my husband very difficult. I appreciated finer things in life and unfortunately they are not cheap. But after dozens of conversations with my husband I began to see that I associated Money with Quality of Life in the Present rather than as an Enabler to fulfill certain Life Goals in the Future. This meant that I was working a stressful, 12 hours a day job not having autonomy over my time in the present but also not securing my future.  Being a single person I immersed myself long hours in work but I couldn’t imagine sustaining this once  I had a family of my own with my husband.

I was valuing money over my time. And after our discussions my husband made me realise that I can control my time and then my life if I control “MY MONEY”. In the end I could not deny that the true role of money in my life was to serve me so I could live a happy, fulfilling life. I had to master my savings, my spending, and the investments so that I get the freedom I crave for.

In summary, I’m glad for this lifestyle that gives us more time to spend with each other and doing things that are important to us.

MY SIDE OF THE STORY:

My wife & I had different opinions about money when we got married. I wanted to retire early so I could move on to doing more meaningful work while also enjoying more leisure time. My wife saw money as a way to ensure a good quality of life where emotional needs were also fulfilled in addition to the physical needs.

Even before we got married, I used to talk finances with my wife for the post-married life. We even drew up a spreadsheet with our “ideal” lifestyle (ex: house with swimming pool, international travel etc). Since I was narrowly focused on saving as much as I could for early retirement, I used to overrule her idea of “quality of  life” and focus only on the “bare basics” needed for sustenance like rent, food, insurance etc and strictly try to meet every month’s budget. At the same time I used to work long hours trying to maximise my earnings.

Naturally this approach caused friction & disagreements in the early days as we struggled to reconcile our two different approaches. For example: I remember once getting upset at the high prices in a gourmet store selling Thai food ingredients because my wife was planning to cook Thai that weekend. Ironically I did not realise that she was planning to cook at home towards my own goal of eating out less at restaurants.

To put it simply, I was being stingy instead of being frugal. 

Slowly over the next 3 years we achieved a compromise between our approaches that was possible only because we loved & respected each other. I realised that aspiring for a good quality of life like my wife wanted had hidden benefits that cannot be quantified in money alone. For example:

• Hiring a cook freed up time for me to exercise in the mornings. Earlier we cooked all meals ourselves.
• When we moved from a 2BHK to a 3BHK rental I found the extra space more conducive to my work productivity since I work from home.

My wife also figured out that enjoying a higher quality of life did not always have to cost a lot. For example:

• Instead of a house with a swimming pool she got us a swimming pool membership at a 5-star hotel nearby costing only Rs.6000 per year.
• Instead of an international vacation she plans luxurious vacations at domestic destinations. We drive there by car saving on flight tickets which we splurge on the stay instead.

Right now we are at a happy balance where we try to achieve both our goals by saving as much as we can and living a life of quality while still staying within budget. I have added some suggestions below based on my learning from this process of give-and-take.

SUGGESTIONS BASED ON LESSONS LEARNED:

1. Lead by example.
   • Cut out the waste in your own life first : cigarettes, eating out, impulse purchases etc. Let them see you invest the savings. Follow this blog regularly for tips.
   • You don’t need your partner on board to get started. You go ahead first and let them follow at their own pace  by watching you.
2. Find out what makes them tick.
   • Use that as a way in to influence them. My wife was motivated by freedom to pursue her interests as much as I was. She was not in any hurry to retire early but saw the benefits of savings which enabled her to quit her job for a few years to explore her interests. Having tasted freedom for a couple of years she indulged me in my early retirement plans so we could be free permanently.
   • In the case of MoneyMustache both him and his wife imagined being able to spend more time with their baby in the early years when the baby was growing fast.
   • This process of discovering what drives your partner is beneficial to your relationship as well because you will help your partner also achieve their dream.
3. Be willing to change yourself 
   • As you can see above both my wife & I made changes to our attitudes to accommodate the dreams of the other person.
   • Your progress will be slow in the beginning but it will gain speed soon with two people working towards the same goal now.
   • If you are not willing to change yourself then you won’t have much success trying to convince your partner about early retirement.
4. Be Patient.
   • Don’t expect them to make drastic changes just because you had an overnight epiphany. Same goes for you. Don’t make drastic changes that you’ve not at-least given a week to think over to ensure that you can sustain it long-term.
   • Remember that it took us 3 years to get to our current happy equilibrium
5. Focus on Habits rather than results
   • These days I don’t micromanage & fret over my monthly expenses like I used to do in the early days.
   • We’ve incorporated many good habits like cooking at home, using the outdoors & internet for entertainment, saving up to buy only high-quality products etc that our monthly expenses stay within the budgeted range more or less.
   • So focus on the more difficult long-term behaviour change rather than the easy short-term results or exact budget numbers. It will take time but is more sustainable because neither of you will feel deprived of the good things in life.
6. Increase your income.
   • Target that promotion or change jobs. Sock away the extra income in SIP.
   • Show your portfolio to your partner every quarter to show the money growing.
   • Just make sure not to increase your expenses with the extra income. Easier said than done! but hey it is a valid suggestion 🙂
7. Inspire them.
   • Send them positive stories of others who have retired early.. make sure that the role-model appeals to your partner’s aspirations & goals in life. Some role-models below:
     • American Male writer (married with kid) : Mr.MoneyMustache
     • American Female writer  (married with baby) : FrugalWoods
     • Indian Male writer (married) : How to Retire Early in India – SavingHabit.com
     • Indian Male retired early around age 50 :  Rajshekhar Roy
     • Indian Male NRI (married with  kid) :  I created 1.5 crores in last 7 yrs

     • American Female Lawyer (single) : An Interview with the Lawyer who Retired at 33

RECOMMENDED READING:

How do I get my significant other on board for F.I.R.E

Image Source

You’ve heard the saying “The Rich Get Richer”. It is usually uttered in a negative manner to hint that only the rich get richer and the rest only get poorer. In this blog we do not pull other people down for their successes. Instead we try to learn from others who’ve done well and apply it to improve our life.

Source: Quickmemes

An Early Retiree is also a “Rich” person who has accumulated a lot of capital by aggressively saving their salary for 10-15 years. So let’s try to understand how “The Early Retiree Can Get Richer” by listing out the many ways in which the Rich use their accumulated capital to their advantage.

You can implement some of these strategies even now before fully accumulating your retirement corpus.

Table of Contents:

• The Early Retiree pays no interest for loans
• The Early Retiree pays no tax on stock market profits
• The Early Retiree gets huge discounts on purchases
• The Early Retiree travels for free
• The Early Retiree earns higher interest than F.D

The Early Retiree pays no interest for loans

I bought my apartment using my savings. I did not take a home loan. If I had taken a home loan the apartment would have cost double from paying the bank EMI interest.

As an Early Retiree if you save up and then buy an apartment using savings you enjoy the same privilege enjoyed by rich people who pay the entire cost upfront from their bank accounts instead of taking loans.

See the EMI Calculator below that shows how EMI interest is almost 50% of the total loan repayment. For a house you purchased for Rs.50 lakhs you’ll end up paying Rs.1 crore with interest over the course of the loan repayment period.

The Early Retiree pays no tax on stock market profits

The Early Retiree pays ZERO TAX in India on stock market profits if they’ve held the equity shares or equity mutual fund units for more than 1 year.  Even dividend income from equity shares is exempt from tax in India.

Assume you have accumulated a corpus of Rs.1 crore which generated a 12% annual return last year. That is Rs.12 lakhs annual profit on which you don’t have to pay any tax. You could use it towards purchasing other non-financial assets like a house, car, gold, kid’s education etc without taking any loan EMI.

A PLEASANT SIDE-EFFECT: 

By using tax-free stock market profits to buy other assets as part of your annual portfolio rebalancing you are actually diversifying your portfolio into real-estate, gold, F.D etc. thereby reducing the risk of capital loss in your portfolio if you had instead kept all your investments in only the stock market.

Successive governments in India have considered imposing a long-term capital gains tax on equity shares and equity mutual funds but for now there is no tax. Leverage it to your advantage by retiring early 🙂

The Early Retiree gets huge discounts on purchases

Real Estate discounts of 10-30% at BANK AUCTIONS :

I personally know of a person who bought a flat in a prime residential area for a great bargain through bank auction.

Banks like SBI regularly auction off properties where the borrower has defaulted on their home loan. The bank is primarily interested in recovering the loan amount they are owed and not in ensuring they get the maximum market value for the house.

This is a great opportunity for the Early Retiree sitting on cash or easy to liquidate assets like equity & F.D.  Being liquid is important to participate in bank auctions because you need to deposit 10-15% of the bid amount upfront to prove that you are a serious bidder. If you win your bid then you have to pay the full amount within 15 days.

See :

• BankEAuctions.com : List of ongoing auctions and bid prices
• Properties sold by banks through e-auctions are generally offered at a 10 to 15 per cent discount
• Bank Auctions – The Cheaper & Smarter Way to Buy Your Dream House

Health & Car Insurance Discounts:

ICICI Lombard Health Insurance offers a 35% discount on the annual premium if you opt to pay a deductible of Rs. 1 lakh. The insurer is telling you: “Hey! if you pay out of your own pocket for upto Rs.1 lakh in expenses then we’ll will give you a 35% discount on the annual premium”  

For an early retiree sitting on a huge savings corpus, paying Rs.1 lakh on rare years won’t pinch them that much. On all other years they enjoy a low premium! That’s what rich people would do. Since your health insurance premiums only increase as you grow older this is a great way to keep those costs down.

Same principle applies for car insurance too. Opt to pay for minor dents & repairs yourself to lower your premium.

Don’t file a claim for minor issues so you can get a no-claim bonus the following year.

Source

The typical Early Retiree pays off their credit card bill in full every month and therefore has a great credit score.  Because they have a great credit score they are eligible for credit cards that give fantastic travel points which they can use to get at-least one FREE domestic round-trip flight for two every year more than making up for the annual fee charged by these cards. They also travel in style like rich people by getting access to airport lounges while they wait for their flight.

Simply swipe your monthly expenses on these travel credit cards and pay them off in full every month. Paying each month’s bill in full means you don’t even have to care about the interest rate charged by these cards.

The Early Retiree earns higher interest than F.D

The Early Retiree has accumulated a large retirement corpus. Some of it is in F.D. The Fixed Deposit (F.D) gives him only 6% interest today and trending lower. Say family member or friend who is trustworthy needs a loan for business or kid’s education.

1. SBI charges a really high 13% interest for Personal Loans even for someone with the highest credit score. See personal loan interest rates table below.
2. My bank F.D today gives only 6% interest
3. Instead I can loan my friend the money at 9% interest if I trust them to repay or against collateral.
4. My friend gets it for 4% less than what the bank charges him and I get an interest rate 3% higher than what my bank pays for my F.D Win-Win

Source

Here’s a good article on the Precautions to take while lending to friends and family

If you would rather not risk your friendship or relationship over lending money then there are RBI-regulated P2P lending portals are available in India. So the Early Retiree has more options to lend her money and get higher interest.

Conclusion:

Let’s “ALL” get Richer through EARLY RETIREMENT! 

In my earlier post on early retirement in India, I assumed an average return of 12% from investing in equity. A lot of people new to equity investing assumed that this 12% is a guaranteed rate of return like a fixed deposit which is not correct. You can find this misleading way of talking about equity returns even in popular personal finance publications.

In this post I’ll help you visualise stock market return correctly so you can also understand the risks involved in equity investing.

Imaginary F.D returns versus Stock Market returns

See below example that compares Rs.100 invested for 5 years in a 12% F.D  versus stock market.  I have used imaginary F.D & equity return % to make a point.

The F.D rate is guaranteed so your investment grows at 12% every year. But the stock market returns are not guaranteed and they go up and down but at the end of 5 years Rs.100 invested in the stock market gives you the same ending value as the F.D maturity amount in this imaginary example. So you can say that in this imaginary example the stock market gave you a 12% average return at the end of 5 years.

Real-life example

The 12% return I assumed in my early retirement blog post was based on a 20-year average of the Sensex from 1996-2016 and not the “year-over-year” return. Stock market returns go up and down sometimes wildly.

See below for the year-by-year returns of the Sensex from 1996 to 2016.

Highlights:

• Look at the “% Returns” column. You don’t see a straight line giving 12% year after year like a fixed deposit
• What you see is annual returns going up and down and in some years even negative returns.

Hmmm… the market returns fluctuate every year. How to calculate returns?

Enter CAGR: Compound Annual Growth Rate. CAGR  is nothing but the annual interest rate required for lumpsum ‘X’ to grow to lumpsum ‘Y’ over a period of ‘n’ years.

Since the stock market returns are volatile, a simple way to calculate returns is to take the starting year value and calculate what “FD interest rate” would have given the ending year value.  So according to the above table Rs.1 lakh invested in 1996 would have returned Rs.8.63 lakhs in 2016 which is an average return of 11.38%

Don’t worry there are online CAGR calculators: http://www.moneychimp.com/calculator/discount_rate_calculator.htm

Will my equity corpus double every 6 years at 12% return as per Rule of 72:

The Rule of 72 is easy to apply when you get a steady 12% return every year like a F.D

But when you get non-straightline returns like the stock market, your corpus will not double exactly after 6 years @ 12% average return.

Look at the Sensex returns table above:

• Rs.1 lakh  invested in 1996
• Doubled to Rs.2 lakhs in 2004  after 8 years
• Doubled to Rs.4 lakhs in 2006 after just 2 years
• Doubled to Rs.8 lakhs in 2014 after 8 years

So Rs.1 lakh doubled 3 times after 18 years just as the Rule of 72  predicted for a 12% average return. If there are years when the markets are down then the doubling takes longer. That’s the main difference between stock market and FD returns. You have to account for years when the market is down while investing in the stock market.

P.S:

CAGR way of calculating returns % works only for lumpsum investments. For mutual fund SIP returns you’ll need to use XIRR.  If you look at your mutual fund portfolio statement, your mutual fund-house or MF aggregators like CAMS & KARVY report XIRR returns only.

Real-life case study: Headline news about all the 45-year old mid-level managers at TCS/Cognizant/Infosys getting laid off because their industry considers them obsolete and who probably won’t get another job at the same salary for at least another 3-4 years. An emergency fund of just 6-months to 1 year will not help in this case. These folks have been forced to take early retirement.

I’m a practitioner of early retirement. But after 5 years on the path, I have realized some important lessons. The typical dream/misconception of early retirement is to “sit and eat” from the retirement fund alone from age 40 to age 90 which is a span of 50 years. it is hard to pull off as life throws too many curveballs. It is possible if key variables work in your favour.. definitely not a myth as there are real-life success stories 🙂

 My Alternative solution for Indian conditions

1. Finish saving up for retirement by 40 or 45 (use the early retirement calculator).
2. Once that is done, switch to doing enjoyable work to cover expenses until “real” retirement of say 65.
3. Let compounding double your early retirement corpus every 7-10 years from 40 to 65.  See Rule of 72

My alternative definition of early retirement is simple, which is also known as COAST F.I.RE: Finish saving up for retirement as early as possible ideally before you turn 40 or 45. Read my article Early retirement in India along with Early Retirement Calculator to ascertain that amount for yourself and how it works for you to finish saving up for retirement as early as possible. But don’t stop working until you retire old in your 60s. Until then don’t touch the retirement fund. The earlier you finish saving up for retirement the longer you can let compounding do the work for you instead of SIPs for 30 years that depend on keeping your job year-after-year. See Rule of 72 to understand how compounding will double your early retirement corpus every 7-10 years from age 40 to age 65

It is a process, break it into stages

Once you finish saving up for retirement as early as possible, guess what: you don’t have to put aside those monthly SIPs anymore. That means you can work for a lesser salary at jobs that are more fulfilling and less stressful but fully pays for your monthly expenses supporting kids & elderly parents. most people who want to retire early simply are tired of the job stress and deep down are not averse to working if there is work-life balance.

Use your Retirement Fund If the situation arises

If you ever lose your job before your old age like the TCS/Cognizant/Infosys mid-lifers: you can use a small portion of your retirement fund to fund monthly expenses for even 3-4 years while you re-skill and find another job after which you can replenish the amount you took out during the jobless period.

Why I think this middle Path of Early Retirement Is the solution

I believe this middle path strikes a balance between the cheerleaders of early retirement who replace the stress of a job with the stress of money running out and the nay-sayers who by not saving atleast 50% of their income are going to be forced into early retirement anyway in their mid-40s.

MMM quotes to support the Middle path to Early Retirement

Even Mr.MoneyMustache who I look up to, earns money that covers his expenses meaning he has not touched his retirement fund yet and actually advocates earning while “retired”: 

MMM: Since year 10, several more years have passed, and because the rental house pays all bills and we still do some work on the side when the boy is in school, the investment gains and income have just been building on themselves. We also paid off the mortgage on the primary house.

http://www.mrmoneymustache.com/2011/09/15/a-brief-history-of-the-stash-how-we-saved-from-zero-to-retirement-in-ten-years

And in the comments section MMM repeats:

…. Retirement accounts are about 20%, all the rest is in the form of paid-off main and rental houses, and non-retirement accounts. As mentioned in the article, even one rental house pays all the bills, so everything else is just safety margin.

MMM September 17, 2011, 1:17 pm

MMM: Although I will never lose my love for an efficient and simple lifestyle, I’ve actually got a secret plan to get quite a bit richer over the next 40 years. It’s secret, because I don’t want this blog to become one of those Big Income Big Spender (BIBS) blogs that everyone else writes. But it’s not complicated – the trick is simply that I’ve been maintaining a positive savings rate, even in retirement.

http://www.mrmoneymustache.com/2012/05/14/first-retire-then-get-rich/ “

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