Where are you on your FIRE journey

Thanks for inputs on last article , lot of folks wanted to know how to be Financially Independent and achieve FIRE . So today I will try and explain some element of FIRE with a case study and FIRE readiness sheet(what else you can expect from  analytics guy 😉)

Well the basics are very simple , which we will understand through case study

1)      Know your goal amount

2)      Identify your expenses and the saving pattern

3)      Most importantly plan your investments and get better returns

Let’s understand this through a case study :-

Jay has a sales job and lives in a tier 2 town say Indore. he has recently discovered the concept of “FIRE- Financial Independent Retire early”. He aspires to be FI Ready in coming years but is not aware about the journey.  Let’s try and understand jay’s finances better.

Jay works in middle management and has an earning of  ~2 lakh , other income (house rent and wife salary) is around 65,000 , taking his household income to 2.65 lakh.  Expenses for jay are ~ 82000 per month (refer to table 2).  

Jay has been working for last 12 years and has invested some amount of money in various instruments. On the asset side Jay has already invested (`65 lakh)  which gives him average annual return of 9.1%.  he has no liabilities as of today.

For Jay to be Financial independent, he is looking at multiple of 35 ( Expense * 35) as per concept of FIRE this number can be  from 25 to 50 times as per the risk appetite and the age, lesser the age or risk appetite  higher the multiple  , however this no can be different for each person )

Looking at the income and expense allocation for Jay. He  will feel safe if he has ~3.5 cr as the corpus  . With his income , expense and investment pattern he will be  Financial independent  in next 15 years (refer to table 3 for investment and table 4 for yearly plan)

How can Jay be FIRE ready before 15 years

-        -  Reduces expenses ( if he reduces his expenses by 10,000 every month , he can be financially independent 2 years before – in 13^th Year)

-        -   Increase income ( if he increases his income by 50,000 then the journey can be reduced by 1 year)

-          - Better allocation of finances ( if instead of following the same pattern, Jai changes his financial allocation and gets 12% return , he can be FI four early early)

What is your FIRE plan ,  attached is the Excel to play around and figure your investment and expense, in the next article we will see smart ways to get 12+% returns.

Excel link - 

ARE your FIRE Ready

Fire is considered to be one the greatest invention for mankind. Humans discovered fire in palaeolithic age which has given human life a new dimension – ability to cook , clear forest, make stone tools to keep predator animals away.  In some sense it put humans on top of the food chain. No wonder all the major old religions treat fire as one of the gods or as important part of their rituals.

Like humans of Palaeolithic age , whose main concern was survival and getting food for the day , what are priorities for modern age man? As yuval noval  Harari argues,  today’s human have to engage and manage  lot of things compared to stone age man whose only priority was food and survival. Over the centuries humans have evolved. Does FIRE has the same significance today ?

FIRE – Financial Independent Retire Early

One of the things I hear from some of my friends is “I have to work for money” is it really so ? do we have to work only for money ? This made me think and finally I am writing this article on how to get out of this circle. For a salaried employee , I cannot control my pay, my bonus , my appraisal ( all 3 are dependent on my boss and how organization is performing) but one thing that I can control is my savings. So we analytics folks say one of the most important variable is how much do you save each month . 

Before  we get into FIRE , lets define what FIRE means for us , atleast for me FIRE is about doing things which I love without thinking about monetary aspects or benefits also ensuring at the same time take life style and future needs of my family are taken care of.

I would define Early retirement is a stage where don’t work “only for Money” but no where it means you stop working.

Sounds exciting , if the answer is  yes , lets get into how to achieve it.

From our corporate world , all of us understand the important of planning , in FIRE also there are broadly three steps

1)      What is your destination   -

2)      By when you want to achieve it

3)      How to achieve it – Most important part  

What and when is your destination  -  Destination clearly means what is the amount of money which will ensure your current and future lifestyle does not change from the current one.

For ex – Say for mr X current expense is 50K a month  , kids schools expenses is 3 lakh a year, holiday expenses and others would be additional 3 lakhs . so current expense is 12 lakh but looking at future he would want minimum 25 lakh a year to be in a safe condition.

Now comes how –

Lets follow the thumb rule – average rate of return in India is 10% so anything over and above that is a great thing (refer to table below) but let’s a take conservative no of 8% (which is  return of debt option) then for 25 lakh I  need 2.5 cr – 3 cr so that I can manage my expenses and also create a kitty for unforeseen circumstances.

Calculation are all fine but I am not sure if I actually need retirement –

Recently there was a news that some folks from TCS / Cognizant were asked to go. At these high salaries they will need 2-3 years to start something which gives the same money so that is the time FIRE helps  also some other reasons I can think are

1)      Because you can !

2)      Give you freedom, courage – You can decide how much shit to take or not take

3)      Your money works for you – Napolean hill in “Grow Rich” talks about the same thing

Btwn lets be fair, not everyone hates their job , I don’t . people love to go to office.  Main Aim  is peace of mind that if anything unforeseen happen at least they will be financially secured.

This is  first article in these series, thanks to my friend Ravi for asking me to write it. will try and add more to this