(Photo: iStock)
(Photo: iStock)

Opinion | Accelerate your way to financial independence

If you have several loans to pay off, consider a debt-laddering strategy

Manohar (55) is the president of an established software company with branches in India and overseas. He has been meticulously saving for the last 20 years and met us last week. He was toying with the idea of early retirement to pursue his passion of farming in his home town. Manohar’s financial goals were met three years ago and we have been focussing on wealth preservation ever since.

Suresh is semi-retired and has been working on contract basis for the last five years because of his love for design and film making. His financial goals are over 200% met and he is tired of his commute to work.

Pramod, a dear friend, who is a lawyer by profession, is a connoisseur in food, and wanted to take the plunge and pursue his dream of opening a restaurant. I always told him he was in the wrong line of work! His food preparations during the weekends, kept him busy cooking and kept our stomachs happy. He is two years away from retirement and his goals are almost met, but we know that if he pursues his dream, he would earn far higher and most importantly would pursue what he is most passionate about.

Neeta has been working with an NGO but she wants to do something smaller near her home and help the children of drunken member families to get educated.

These real life stories of people who have attained financial independence can go on. The point is, every individual has a passion, a calling and if they plan their finances well, what more can one ask for than to pursue one’s dream and be paid for it.

Financial independence is the status of having enough income to pay one’s living expenses for the rest of one’s life without having to be dependant on others. There are many ways to reach financial independence. The sure shot and most boring method is to plan your savings and investments early, stay the course and invest for the long term. And then there are ways to accelerate financial independence.

Passive income sources

Rental and second business inflow stream: The most widely used way to sustain during retirement is devising income streams that are passive and non-dependent on your work for regular living needs. Overseas Assignments: Earning in foreign currencies is a way to hasten your retirement. However, one must ensure they invest more when they earn more.

Pay yourself first

If one is able to invest 30-45% of one’s earnings and continue to maintain the savings over a 30-year cycle, the impact of compounding works wonders. Timing the market, intermittent savings, withdrawals and re-directing savings can have a huge negative impact on the portfolio.

Avoid Debt

If you have several loans to pay off, consider a debt-laddering strategy. Not all loans lead to creation of an asset; so choose wisely when you take a loan. In the last two years, there has been a trend of spending over savings, especially among millennials. And finally ask yourself these questions as you prepare to take the leap into your golden years. How long will you live? The official life expectancy of India is 69-70 years of age. However, 75% of people are living until 85 years. Women live approximately five to ten years longer after their husbands pass on. So, have you built your retirement kitty to take care of this longevity? Are your reserves enough? Ask yourself if you have carefully planned inflation-adjusted income distribution strategies to provide for changing macro factors like reducing interest rates tax reforms and inflation changes. Are you covered for medical emergencies? Medical insurance along with a critical illness policy is important. But what happens when one is hospitalised for medical needs outside the scope of insurance? Do you have an emergency corpus in place? How have market investments fared to sustain your longevity? When there are continuous years of market downturn, what are the portfolio hedge techniques being used? Besides organised income schemes like annuities, what other options you have for sustenance—retirement corpus, part time work income.

Manohar, Suresh, Pramod and Neeta are happy and satisfied to have followed their passion. Shouldn't you, too?

Dilshad Billimoria is director, Dilzer Consultants Pvt. Ltd

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