Most young people in their late 20s or early 30s think they have come up with the perfect financial plan: work till the age of 40, save enough money during that time and retire rich.
Sounds simple enough. Right? No! Here are a few reasons why it is not right. Firstly, when we start earning more, we also get used to a different, better lifestyle. We get addicted to new comforts and luxuries. Hence, climbing the income ladder makes us vulnerable to an inflated lifestyle which prevents us from breaking free.
Secondly, our understanding of financial freedom is always a little fuzzy and keeps on changing in tandem with changes in circumstances and financial status. The biggest mistake we all do where it pertains to financial freedom is attaching a very large number to it ( 25-50 times of current annual expenses). That number is so big that we struggle to make any meaningful progress in the first three to four years and lose motivation. Alternately, as our financial status improves, the earlier number looks too small, given our changing life patterns.
The above two reasons are good enough obstacles to our coveted ‘retiring rich’ dream. That is why only a few manage to retire at the age of 40. But even those few people have no clue about the most difficult aspect of retiring early. We think quitting our job and chilling out is easy, but we realize that it is not so only later. Most people who retire at an early age experience a void in their lives. The happiness of quitting a job and having all the time in the world appears to be thrilling at the start. However, that dies down soon. Why? Because, eventually you get bored. Our mind gets used to everything after a while and everything just looks like a mundane routine-exotic vacation, new houses, cars, gadgets, and everything else.
Happiness is a journey, not a destination. Hence, drawing fixed and definite targets to achieve financial freedom often turns out to be illusory. Rather, choose a lifestyle that can keep you happy—doing what you like best. In doing so, even if it takes you a little more time to achieve financially freedom, you have a lot of fun along the way. And because you have so much fun, you do not check every day or every year whether you have become financially free or not. Why do you think Warren Buffett and Charlie Munger, in their 90s, have not retired yet? Do you think they are working for money? Of course Not! They are still working because they love what they do.
Don’t get me wrong. I am not saying that saving for retirement is not a good idea. It indeed is. But the most ignored part, and arguably the most important one, too, is what you should do after retirement. It should be something that makes your life more fulfilling and also pays your bills. So, saving for retirement is necessary but not a sufficient condition.
Technology and the internet have opened up a lot of opportunities for us. Rather than dreaming of retirement obsessively, a good way to approach your life is to figure out how you can reduce your 100-hour work week to 80, then 60, 40, and eventually 10-20. Having a balanced life with proper attention to health, wealth, and wisdom does a much better job than being obsessed with the notion of “I will work until I attain the age of 40, save enough money by that time and then retire rich.”
Finding the answer to the quintessential question as to what we want to do in our life to bring satisfaction to self and livelihood for dependents rather than when and with how much money; should be the prime consideration before we start evaluating any such plan of retirement.
Ankit Kanodia is founder of Smart Sync Services, a Sebi registered investment advisory firm.
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