Each time a financially independent person is interviewed on YouTube or the media, many comments go, “Oh, this guy had a huge salary; she went on-site, that is why she can save so much. He says he is financially independent and retired, but his wife is still working so that does not count” and so on.
Whining won’t make wealth! Let us first state the obvious. Not everyone will get rich or financially independent, even at the time of normal retirement, let alone early. We can aspire to financial freedom, but those who take this seriously will not waste time whining about someone else’s success. Most of those guys would have gone through years of sweat and toil to get where they are today. Our time is better spent worrying about how we will get there.
We can’t sugarcoat the truth: Yes, a high-paying job, a sought-after skillset, and an impressive CV make a big difference to the wealth we can build over time. To be precise,
If Income minus expenses minus debt >> 0 financial independnce is highly possible. If is small, but non-zero then it will take time, discipline and effort.
For example, a salary of Rs. 3 lakhs a month, expenses of Rs. 75,000 a month, and no debt imply an invisible surplus of at least twice the monthly expense. If this entire sum can be earmarked for financial independence, achieving this at least a decade before normal retirement is possible.
Sadly, expenses will always look big for those with a low income, and what they can spare for investment will also be small. Even normal retirement (say by age 60) will appear to be a distant dream.
The “usual” thumb rule for normal retirement is to invest at least 75% of monthly expenses (that will continue in retirement) each month. This includes mandatory EPF/NPS/Annuity contributions. See A simple thumb rule for retirement planning.
So what is the way out? It’s easier said than done, but that is how it always is.
Let us not get bogged down with talk of a corpus equal to 30X or 45X multiples of current annual expenses and redefine financial independence as being able to manage a frugal lifestyle after retirement, even if it is a few rungs lower than our current lifestyle. Then, we look for ways to increase our income.
- Can you find a way to upskill yourself?
- Can you take up additional assignments, impress clients, and hopefully open doors for yourself?
This means you get to sleep less with no time for leisure. Are you willing to do this? Are you willing to take on some risk to change your life? It is more possible than probable, but you must write your own odds and be your own inspiration.
Here is some proof:
Also, see:
Even if you did not do this, you could manage to achieve a reasonable degree of financial independence by age 60-65, provided
- You “invest” and not “save” whatever you can in a disciplined manner. Your portfolio needs 50-70% equity. You must have the temperament to withstand years of loss to ensure your corpus has a reasonable chance of beating inflation.
- You do not increase your lifestyle when your income increases.
- You do not get into debt. Yes, forget about that dream car or even dream house. Sorry, not everyone gets to enjoy everything. When on a budget, dreams will have to be prioritized and re-shaped.
- You are lucky. Sadly, luck always plays a role, but we must get out and knock on doors (try).
With a “low salary”, financial independence is not an impossible dream, but it cannot be an immediate dream. It will take much longer and require significantly higher sacrifice, sweat, and toil.
The sad reality is that many of us are unlikely to be financially independent in our lifetime. This does not mean we give up on it. Earlier, we discussed building wealth across generations by investing right.
Often, trying to change the social situation of our family may take two to three generations. My parents did everything they could to support me for 13 years after school so that I could get a career and not a job. Their sacrifices changed the social station of our family.
So don’t give up on your dreams. Try to increase income; Take (reasonable) risks with your career and money; Keep your expenses as low as possible. Yes, this means giving up some or even most of your dreams. Change requires sacrifice. Keep debt as low as possible and invest what you can, like a machine. Put your head down and work/invest without expectations – change may take decades.
Even if you don’t become financially independent, you can set up a pedestal for your children* to soar. And that ought to be just as fulfilling and no less an accomplishment.
* If you don’t have any, you (hopefully) should have more money for yourself!
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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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