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 13th 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.
