Do you live to work or work to live? If you haven’t asked yourself that question yet, it’s time you do! Show of hands for a life of ‘quality’ over a life of ‘quantity’ – we saw your hand go way up high!
The world around us changes every day, its gravitational impact evident in our day-to-day lives. We are an extremely privileged people; we talk about the years and decades gone by and compare it to what is possible now. We talk about it, often! But the question is what are we doing to truly take advantage of it the right way? We spend it constantly hesitant of the next step and even the step after that.
In a time where chest palpitations are so yesterday, we needn’t have to worry like we once did – at least not with the river of alternative paths that lie before us! This article is going to zero in on the financial aspects of our lives, showing us how we can accomplish a free state of mind through planning.
Why should finances and the constant worry of it stop us from living a little – scratch that, living a lot? With the best financial strategies out there, Credit Cards, Home Loans and whatnot, we have what we need right before us. It’s all about learning and steering our ships to work for us and not the other way around.
We’ll get you started.
What can you do in your 20’s to retire in your 40’s?
Work on Your Passive Income: It is said that when your passive income is more than your active income, financial independence is not too far away. If you’re good at something, basically, don’t do it for free! Even if you love your job, a passive income can help get you to your goals faster!
Practice the 50-70 rule: The popular FIRE (Financial Independence & Retire Early) movement became exceedingly popular in recent times. It spoke on these 3 points:
- Determine your saving percentage: Be prepared to save up to 50-70% of your total income.
- Calculate your retirement corpus: Multiply total annual expenses with 25 to find the retirement corpus you may require. For example, if your annual expenses are Rs. 10 lakh, you would require 10,00,000 x 25 = Rs. 2.5 crore as a retirement fund under FIRE.
- Calculate the time you will take to reach your goal: Minimise expenses and maximise savings to suit your financial needs. Stick to the plan with the end goal always in mind.
Look at the Bigger Picture to Retire Early Efficiently
Determine the Lifestyle You Want: Once you’ve defined the type of lifestyle you want, you’ll be able to determine how much money you’ll need to retire early. Here are some questions that might make things clearer –
- Where will you want to live?
- Will you want to travel? If you do, how often?
- What will your daily routine look like?
- Will you still want to work in some way to create additional income?
- What hobbies and interests will you want to pursue?
Study Your Current Financial Situation: Once you know the answer to these questions, it’s time to do some math:
- What is your current household income?
- How much money do you spend on expenses each month?
- How much money are you saving and investing each month? (If you’re not saving or investing yet, don’t worry – it’s never too late to get started!)
Close-in On Your Retirement Number: There are free retirement calculators to help you work out your number. If you’ve been saving for early retirement already, use a tool that allows you to put in specific details about your savings and investments.
Additional Reading: Learn Investment Basics the Simplified Way
Repair Your Roof While the Sun is Still Out
Look at these guidelines to help you plan your investments:
- If you are a young employee with no dependents, consider this:
50% equity scheme, 20% direct equities, 10% index ETF, 10% international fund and 10% liquid scheme. Your maximum investments should be in equity. There is a thumb rule: “100 minus your age” should be the proportion of your investment in equity. - If you are the only bread winner in the family and have two kids going to school, consider this:
40% in equity scheme/direct equity; 20% in index ETF, 15% in FDs, 15% in Debt scheme and 10% in liquid scheme. - If your income is a single income in a family with grown-up children (who are not financially independent yet), consider this:
30% equity scheme, 10% direct equities, 20% index ETF, 20% Bank FD, 20% debt scheme, 10% Liquid scheme
Experts say that the above methods are to be used as examples to outline your money map, there being no one set thumb rule that may apply. You can implement these pointers to diversify your own portfolio.
With the right way to handling your finances, retiring no longer has to be in your late 50’s or 60’s – it can be when you are ready! Our years around the sun are meant to bring us moments of joy which, when strung together, scream, “Yay, I’ve lived!” You were not meant to only pay bills in this lifetime, you know?
Go forth – the world is your oyster!