In this edition of the reader story, Abhishek shares his second audit with us. In Jan 2021, we learnt how he funded his marriage & is on track to financial freedom. In this follow-up, he presents an update on how he is halfway to FIRE (financial independence, retire early) by focusing on a high savings rate.
About this series: I am grateful to readers for sharing intimate details about their financial lives for the benefit of readers. Some of the previous editions are linked at the bottom of this article. You can also access the full reader story archive.
Opinions published in reader stories need not represent the views of freefincal or its editors. We must appreciate multiple solutions to the money management puzzle and empathise with diverse views. Articles are typically not checked for grammar unless necessary to convey the right meaning and preserve the tone and emotions of the writers.
If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail dot com. They can be published anonymously if you so desire.
Please note: We welcome such articles from young earners who have just started investing. See, for example, this piece by a 29-year-old: How I track financial goals without worrying about returns. We have also started a new “mutual fund success stories” series. This is the first edition: How mutual funds helped me reach financial independence. Now, over to the reader.
Dear readers, I am Abhisek, I am an engineer by profession with 10 years of industry work experience. We have been living in Bengaluru for the last 4.5 years.
From the very start, I focussed on maintaining a high savings rate, increasing it from 65% in my first year of job to 80% in 2019. This is the primary metric which I track. I believe if I can keep this in check, the rest of the things should be taken care of automatically over time. Having said all this, let’s dive into the details.
1. Emergency Fund:
Emergency Fund = 3X monthly expenses in FDs + 1.5X in SB account.
I remember Pattu Sir’s statement “ Rich people do not keep an emergency fund. They sell stocks”
- Over the years, we have been able to build a decent corpus.
- Both of us are salaried. So there is some cushion on that front as well.
- We have a combined credit card limit of almost 9 lacs. This gives us up to 45 days of liquidity.
- More than 70% of our total asset base is liquid in nature and we can convert them into cash in the bank within a few minutes to 1 week’s time, depending on the exact product of choice.
Due to the above reasons, we reduced our cash component and diverted the remainder into growth assets.
2. Life Insurance
As my wife and I both are earning, both of us have gotten individual pure term plans.
- My cover: ITerm from AegonLife. Bought in 2014. Sum assured 80 lacs
- My wife’s cover: ITerm from AegonLife. Bought in 2018. Sum assured: 1 Crore
It is not enough to replace (in case of death) our retirement corpus and other long term goals. But it is more than enough to cover our foreseeable liabilities including an ongoing home loan.
3. Health Insurance
We are covered by our employers and can manage a hospitalization of up to 15 lacs through them.
We added a family floater policy from HDFC Ergo this year. It is an Optima secure policy of 1 Cr base sum insured. This covers my wife and myself.
Why get personal health insurance?
- To cater to a hospitalization cost more than the employer provided insurance
- In case of a switch to another employer where health insurance is absent or lower
- We are planning for early retirement from corporate employment. So we decided to start it sooner to get a reduced premium while we are health-ier
Long term Goals:
- Retirement by 50 years of age. Financial freedom in 2035. And move out of corporate work
- Bought a house in 2023
Early Retirement
My initial calculations have been adjusted to account for higher expenses due to enhanced lifestyle, child related expenses, and added buffers on all the amounts to “hopefully” make it more robust than before.
Meanwhile, we also realized the following.
- We do NOT need to wait till 70X corpus (my original FIRE number) to leave corporate employment. We have scaled this down to a range of 35-40X now.
- We cannot stay idle at home from an age of say 45 years till we die. We will always involve ourselves in productive work, thereby having some active income. It may not be as high as we have in our regular corporate jobs, or even enough to cover all our expenses. But it would give us a sense of purpose, productivity, and social engagement.
Assumptions in Retirement Planning
- Salary hike 8.00%
- Inflation 8.00%
- Rate of return post-retirement 9.5%
- rate of return pre-retirement 9.5%
- investment increment per year 8.00%
At the end of FY 2024, we are at 20.8X. The recent stock market rally did have a big hand in this, but I am not complaining. 🙂
Asset portfolio Mar ‘24:
| Asset | Current | Target |
| Equity | 65.08% | 65% |
| Gold | 7.32% | 12% |
| Debt LT | 25.91% | 20% |
| Debt ST, cash eq | 1.68% | 3% |
| Total | 100.00% | 100.00% |
Notes:
- The equity target is 65%. Coincidentally, it ended at same amount without much rebalancing efforts
- Gold’s target is to increase it gradually to 12% of the portfolio. Intention is to smoothen the portfolio due to non-correlation with equity. I expect gold to end up around my inflation expectations of 7-8%. (Including the 2.5% interest from SGBs)
- Debt LT is primarily EPF, with smaller portions in PPF, NPS, and a small SBILife policy.
- Debt ST is SB account cash and FD amount which I covered in EM fund section
I participate in my employee stock plan and ESPP covers that amount. It is starting to grow into a sizable section and I intend to limit it to 25% of my overall portfolio till I see good industry prospects.
As I already mentioned, the only metric I track and measure is the savings rate. Below is the month-on-month savings rate for the FY so far.
Average savings rate: 69.61%
Savings rate of FY2024
|
Apr-23 |
86.76% |
| May-23 | 29.18% |
| Jun-23 | 29.18% |
| Jul-23 | 28.71% |
| Aug-23 | 26.43% |
| Sep-23 | 203.16% |
| Oct-23 | 78.13% |
| Nov-23 | 54.95% |
| Dec-23 | 75.10% |
| Jan-24 | 87.93% |
| Feb-24 | 83.58% |
| Mar-24 | 52.27% |
| FY 2023-24 | 69.61% |
- Sep-2023 has an absurd savings rate as it includes some amount from the previous 3 months. We were thinking of prepaying a part of our home loan but later the rates reduced from 9.2% to 8.4% for us. So we decided to invest the amount instead in equity to get a better RoI.
- Savings rate this year is lower than previous years due to home loan EMI outflow. But we are happy to end up at around 70% mark.
2. Buying a house
We were in a lot of confusion on this, but finally gave in and bought a flat by a Tier-A builder in Bengaluru. So far project progress looks good., and it is expected to be ready in another 1.5 years. Here are the numbers.
- Home cost: 122 lacs
- Stamp duty and registration : 8 lacs
- Down payment : 25 lacs
- Loan amount is 98 lacs.
- Tenure: 20 years
- Current Rate of interest: 8.4%
We have done 1 phase of prepayment of the loan when the rate had climbed to 9.2%. Our plan is to prepay whenever the rate goes to above 9% as post tax this number is not easy to beat. Currently as it is at 8.4%, we are investing the excess amount instead of prepayment. Again, this is a tactical play which has worked for us so far. Fingers crossed, we will know the result of this tactical play only in hindsight.
Summary:
- Current FI situation : 20.8 years. ⇒ Retirement corpus exceeds FY2024 target
- Current Emergency fund : 4.5X monthly expenses ⇒ Keep it around this till we near the FIRE date.
The year of 2023 was nothing less than a dreamy year in terms of returns. We put a bulk of our income into investments that helped to scale our portfolio to new heights.Thanks to the market makers, and a lot of luck on our side, we are happy with the outcome so far. But again, this is only one year and we are on a long journey.
Handling the rising EMI might prove to be a challenge over the next 1-2 years, but we will strive to push our efforts on savings rate, invest with discipline and enjoy our life on the way to FIRE.
Key takeaways/learnings:
- Personal finance is more personal and less finance. The goals I had as a bachelor changed once I got married and we decided to plan our future together.
- Life is more than numbers: Last year we agreed upon the fact that real estate purchase does not make financial sense and would delay out FIRE plans. But later after multiple discussions, both of us agreed to go for a flat purchase. At times, other social and emotional benefits outlast the financial benefits.
- A frugal life helps in multiple ways. Please don’t confuse this with being cheap. We pictured our life together, and now we know where we want to spend more and which areas do not attract us. I would highly encourage you to do this exercise with your spouse (or with yourself if you are single)
- Enjoy the journey and not the destination. Life is full of surprises. There is no point in being a wealthy person at say, 60 years when you cannot do things that you dreamt of due to age factor. Instead, we should live a balanced life and gather moments of happiness along the journey to FIRE. After all, it is only 1 life we have got.
- Enjoy the small victories. A typical FIRE journey would be at least 15 years long. So we need to motivate ourselves along the way. Celebrating small victories will keep us motivated on the path.
- Keep on learning and don’t be afraid to adapt on the way. Things in reality seldom go as planned on a google sheet. We can only adapt with the situation and proceed.
I hope I was transparent enough with my story and hopefully this has been worthy of your time. Please do not consider this an attempt to brag about my condition. I feel grateful for all the good things that happened to me, and I humbly accept all the things that went south as well. I hope to learn from these experiences and someday be valuable to the younger generation.
I wish you a great year ahead! Happy investing.
Reader stories published earlier:
As regular readers may know, we publish a personal financial audit each December – this is the 2022 edition: Portfolio Audit 2022: The Annual Review of My Goal-based Investments. We asked regular readers to share how they review their investments and track financial goals.
These published audits have had a compounding effect on readers. If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail. They could be published anonymously if you so desire.
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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