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Discovering FIRE: How to secure your financial independence

Financial independence is of crucial importance. (iStockphoto) ( )
Financial independence is of crucial importance. (iStockphoto) ( )

Summary

  • Attaining financial independence demands both time and discipline in investing

Becoming financially independent means you don't work for money and can buy time with money. Having time means to be able do what you wish to.

With FIRE (Financial Independence, Retire Early) in trend, most people see them as synonyms. However, I see it a little differently.

Being financially independent is a little different from an early retirement in terms of mindset. When you think of early retirement, you imagine relaxing and doing nothing. Such imagination is primarily thrilling because you have a hectic work schedule or you don't enjoy your work.

Being financially independent directs you towards doing something you enjoy, taking a break when you want, and joining back when you wish to, not because you need money but because you love doing what you do, which also has a monetary benefit as an acknowledgment of your value adds. However, in terms of money, being financially independent and early retirement is the same.

So, first, you must work on why and what you would do when financially independent. If that imagination is thrilling, that’s when you should plan for FIRE.

Goals You Need To Work On To Become Financially Independent

Here, I suggest dividing your goals into recurring and one-time.

Recurring Goal: This includes all the needs that continue to occur regularly. Example-

Living expenses- Household & lifestyle expenses

Child's school fee (before graduation)- If your child is still in school

Car purchase (optional)

One-time Goal: Child higher education, Child marriage, retirement, etc

Apart from the above, you must have an emergency fund, own a house, and be debt-free.

Here, I list all possible goals you may consider for becoming financially independent.

Financial Goals
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Financial Goals

Goal 1: House Purchase: Present value = 1.1 crore, Future value = 2.46 crore

Goal #1
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Goal #1

Goal 2: Child Education: Present Value = 50 lakh, Future value = 2.78 crore.

Goal #2
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Goal #2

Keeping three must-have goals in mind, Sunil needs 9.96 crore after 15 years to become financially independent at age 45.

Apart from this, keep an additional amount parked for emergencies and a safety net. Hence, a round figure of 10.5 crore.

Steps To Work Towards Financial Independence:

Set clear financial goals

Define what financial independence means to you, the lifestyle you want to live, and the amount of money you'll need to achieve it.

Become debt free

It is essential to be debt free. Utilize your bonus, income tax refund, or any windfall income to prepay your debt/loans. It is suggested to prepay high-interest debt first, like credit card due or personal loans. You can also do a comparison; if clearing a long-term loan is more beneficial, that will majorly depend upon when you started the loan and the interest rate. Prepaying in the initial stage of the loan becomes more advantageous.

Live below your means

Avoid lifestyle inflation by keeping your expenses the same even after salary increments; this will help you to save and invest aggressively.

Take professional advice

Financial independence is a critical decision; do not hesitate to seek professional help to make an informed decision.

Be patient and consistent

Attaining financial independence demands both time and discipline in investing. Stay dedicated to your goals, detach yourself from the outcome, and don't get carried away with quick money and other investments.

Financial independence is a journey, not a sprint. It requires a long-term commitment to being patient and consistent. Start early, be consistent, and lastly, believe in the process to work towards achieving your financial independence. 

*Sunil is a hypothetical case

Salma Sony is a SEBI-registered investment adviser and founder of salmasony.com.

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