In this edition of the reader story, we learn about a young earner’s journey to one crore and their plans to build further wealth.
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.
Firstly, thank you for this opportunity. I have chosen to remain anonymous for this post but may reveal my identity in future yearly audits on this forum.
*Friendly Disclaimer: This post is as much for our clarity as it is to motivate you.
We will keep things simple and split into different sections :
- Background: I come from a Defence background where to be candid, we often faced financial constraints due to familial responsibilities that my father, as the eldest child, had to manage. My exposure to investing began during my college years. In contrast, my wife hails from a well-established IT background with exposure to investing since childhood. We both completed our B-Tech degrees, with me graduating in 2018 and my wife in 2019. My parents stretched their resources, even taking a loan, to secure my admission to a Tier-1 Private College in Chennai, while my wife opted for a regular college in Hyderabad.
Both of us started our careers with the same company at the age of 22. We got married during the COVID-19 pandemic, managing to keep expenses under 10 lakhs. Beginning in the IT sector with entry-level salaries, we understood the challenges of being at the bottom of the pay scale. Despite this, we stayed with our first company longer than anticipated before realizing our potential for growth and deciding to move on to positions with higher earning potential.
After two years of continued skill development, I recently transitioned to my third firm, where I anticipate higher earnings post-tax. My wife is currently in the process of changing roles as well. These moves mark a significant shift towards becoming high earners in our careers.
- Present Situation: We have accumulated between five to seven years of professional experience, with a combined monthly income of 3 lakhs after taxes. Our monthly expenses consume 33% of this income, with travel expenses being the largest component. The remaining 66% is diligently saved across various investment vehicles that align with our preferences. Our target is to maintain an average annual savings rate of over 50%.
We are grateful to our parents for supporting us in securing a home, which relieves us from the financial burdens of rent or mortgage payments. As a couple, we have made a commitment to avoid taking loans in our lives, except for financing a retirement home, which we plan to partially fund through the sale of our current residence.
Regarding our investment strategies, we adopt different risk tolerances within our family. I am inclined towards high-risk direct equity investments, while my wife prefers the medium-risk approach of mutual funds or ETFs. My parents, on the other hand, find security in PPF investments, with me contributing the annual limit every April.
Portfolio Allocation: We haven’t formally documented our portfolio allocation, but approximately 70% is allocated to direct equity, 20% to mutual funds or index funds, and the remaining 10% is invested in debt instruments such as provident funds. I have not included any potential future inheritances in these calculations; for instance, we contribute to PPF in my mother’s name to build upon an existing base rather than starting a new one.
I have few near-term action items which needs to be taken care on priority :
- No Emergency Fund ( Handling it indirectly presently as we hold a few credit cards which give me a 45 day loan free period with overall limit upto 25L, off which at anytime we can take 6L if I need in any emergency which will take care of the next 6 months of our expenses )
- Private Health Insurance of 10L ( We have personal health insurance from Star Health along with 15L coverage from our employers, but the kind of feedback I have heard from doctors is not good. I may need to port to another private insurer who is much more reliable with a super top-up cover upto 50L. My parents will be retiring in the next 3 years and hence need to plan the same for them as well )
Retirement Planning: We have set my expectations conservatively, assuming that we will continue working for another 13 years, totalling two decades in the industry. We anticipate a 7% annual salary increase, along with a 7% annual increase or step-up in investments, and factor in an 8% lifestyle inflation rate. Additionally, we aim for a 10% rate of return on incrementally invested capital, which projects to a substantial sum of 10 crore if all goes according to plan.
The pre-retirement goals included in this calculation are :
- Taking an international trip with our family of six every four years.
- Purchasing a new car to replace our current one after it has been in use for 10 years.
In our post-retirement calculations, we plan to integrate this figure while also considering our financial goals for the next 40 years, up to the age of 80. Achieving a return on investment that exceeds the 7% inflation rate is crucial for building a substantial corpus, aiming for a future value of around 20 crores (though the actual amount may be lower).
The post-retirement goals included in this calculation are :
- Taking one special retirement vacation with our family of six.
- Investing in a retirement community home.
- Providing education for our two children.
- Planning for a new car to replace the one mentioned earlier after it has been in use for 10 years.
- Establishing a house fund for our two children.
Our journey towards financial independence may face several potential risks that could disrupt our plans! These include the unpredictability of a market crash, which is especially challenging given our significant equity investments. To mitigate this risk, we plan to adjust our portfolio allocation as we approach our financial goals. Additionally, a downturn in the real estate market poses another risk, which we aim to manage through strategies such as reverse mortgage options. Job loss is another concern, and to safeguard against this, we continuously upskill ourselves and remain proactive about changing companies before becoming complacent. Lastly, while loss of life is unforeseeable, we take measures to mitigate its financial impact by ensuring adequate term insurance coverage for my spouse.
Target Corpus: Our monthly expenses average out to be 1L i.e 12L per year, the corpus I am trying to target is 80x of which I was able to achieve 10% in 2024. Looking ahead, we anticipate reaching 2 Crores by 2027, 4 Crores by 2030, 6 Crores by 2033, 8 Crores by 2035, and ultimately 10 Crores or 80x by 2037. This remarkable growth, achieving 10 times the initial amount in just 10 years, underscores the importance of building a strong foundation and me being conservative in all the parameters above, starting with 1 crore which took us 6 years. Compounding is indeed powerful!
Post Retirement Plan: We haven’t yet discussed this, but by the time we turn 35, if we haven’t achieved the necessary clarity, we might consider extending our retirement by another 5 years. During this period, our focus would be on building our own retirement home and possibly taking advantage of our peak earning years in our careers. The critical question to address beforehand is where we envision retiring. My preference leans towards relocating to a smaller Tier-2 or Tier-3 town, or possibly internationally, to experience a slower pace of life. Conversely, my wife is concerned about our children’s education quality and prefers Hyderabad for its educational opportunities. If everything falls into place, we foresee transitioning into a blogger-teacher couple in the future.
Conclusion: While we acknowledge our fortunate head-start, it’s crucial to maintain our financial discipline and resist inflating our lifestyle according to our current income. Although we could easily afford to finance a luxury car with monthly payments as low as 50,000 rupees, we pause to consider how many meaningful experiences or trips this expense could fund instead. Will indulging in such purchases be a decision we regret later? Staying focused and adhering to our financial goals is paramount. This post was not to boast around for all the positives in our life which we are eternally grateful for but to give you a peak into our planning ahead. With that, I’ll conclude this post.
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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