Changing a lifestyle is an effective way to bring changes in life. If you want to lose weight, or quit smoking, simple strategies may not work. But change in a lifestyle will. Similarly, for a massive transformation in traditional retirement plans, you need a lifestyle change too. If you want to answer the question that how much time it will take to achieve financial freedom in India, you will be asked what is your financial lifestyle. Do you want to change it for the better? And the better option is called Financial Independence, Retire Early (FIRE).
FIRE is not a simple financial investment strategy. As mentioned earlier, it is more of a lifestyle change. Here, you save or invest aggressively to retire much earlier than normal customs. The term was first coined in the 1992 book “Your Money or Your Life”, written by Vicki Robin and Joe Dominguez. The key philosophy of FIRE is to invest as much as 75% of your income in retirement funds to retire very early, and then live off by withdrawing a small portion from the retirement corpus.
What Are The Challenges People are Facing
Stress is a massive global pandemic that affects the lives of professionals. Many people burn out under the stress of work pressure. Work-life balance is often destroyed. This is a challenge in the lives of a working community, like you.
The change in lifestyle right after retirement is another problem. The regular flow of income stops after retirement. But the expenditure increases. Along with the ever-increasing inflation reduces the value of the fund.
How FIRE Will Address It?
The fundamental nature of FIRE addresses both challenges directly. For first one, you can retire much earlier and then live a peaceful life thereafter. You don’t have to worry about the inflow of cash. You don’t have to worry about daily work pressure. You may choose to do side hustles to complement your income.
On the other hand, in the first year of retirement, you, the retiree will withdraw 4% of accumulated wealth and from the next year onwards you will withdraw the same plus adjusted to inflation. This is the 4% safe withdrawal rule which will make sure the retirement life is safe for you.
How to plan for FIRE
Again, for the question that how much time it will take to achieve financial freedom in India, you need to plan for FIRE.
Typically, a savings of 10% to 15% of the annual income is recommended by traditional investment advisors. At a rate of 10%, it will take (1-0.1)/0.1 = 9 years to save for one year’s living expenses. Similarly, for a 25% savings rate, it will take 3 years, at a 50% savings rate it will take 1 year, and at a 75% savings rate, it will take 4 months of work to save for 1 year of living expenses. So, if you are planning to retire after 40 and looking for 40 more years of life, you need to work for 13 years. So, you should plan for FIRE from the age of 27.
In another method, a person looking for a FIRE lifestyle must save 25 times his annual expenses. So, if your monthly expenses are Rs. 75,000/-, you need to multiply it by 12 to get annual expenses. It comes to Rs. 9 lakhs. The 25 times it is Rs. 2.25 crore. Assuming inflation of 5% PA, it would be Rs. 3.71 crores for a period of 13 years, as calculated above. However, as the monthly expense decreases, the required accumulated wealth decreases.
These two methods can be used to plan for FIRE for you to answer how much time it will take to achieve financial freedom in India.
Is 1 crore sufficient for FIRE for a 30yrs aged person and willing to attain FIRE in 10yrs?
It is not simple to answer. You need to consider so many things. For example, if your monthly expense is Rs. 75,000/-. You need Rs. 3.71 crores as your retirement corpus. To bring it down to less than one crore, you need to cut the expenses below twenty thousand per month. But again, bringing the monthly expenses down to twenty thousand per month is not easy at all. In India, health care service is costly. You need to factor that in as well. So, I would say, one crore may not be enough to follow FIRE philosophy.
Conclusion
It is not easy to follow FIRE Lifestyle. Rather it is very difficult. For starters, if you want to save 75% of your earnings, and still want to have Rs. 25,000/- for your expenses, you must earn one lakh per month. For a person earning only 20,000/-, FIRE may not be a viable option. There are many other criticisms of FIRE as well. However, it is an excellent choice for those who can effort is. Particularly, if they can do barista FIRE. That is retire and do some side hustle to earn some extra.
Please feel free to get in touch to learn more about FIRE, or if you want to answer the question that how much time it will take to achieve financial freedom in India. Good investing!!