Financial independence #7 – How you can do it

In the earlier posts of the series I had outlined my objectives of financial independence and the way in which I went about it. If you have read all the posts it would have given you an idea that it is definitely possible to attain FI without compromising on any important needs of today. In this post I will start on a general template that you can use for attaining your FI goals.

The first thing to consider is the age by which you want to attain FI. This will depend on your current situation as well as the amount of time available to you. For example if you are just starting out at 24 with a high paying job, it may well be possible to attain FI in the next 20 years. This will, however, depend on your family situation in the future etc. On the other hand if you are in your mid-thirties with 2 young children and not too much of financial assets, you may still need another 20 years to get to your state of FI. You must therefore be both ambitious and realistic at the same time. There is very little point in having an ambition that you should attain FI by the time you reach retirement age – that is anyway a given, if you have not done even that much then you are really in deep trouble. At the same time, an obsessive focus on investment will mean you are unable to cater properly to your needs of today and this will be counter-productive for you and your family.

The second thing to consider is how you will spend your time once you have attained FI. There are really 3 choices here – you could just continue with your current job or profession feeling good that being FI means you could walk away any day, you could give up your current vocation and take up something new that you are passionate about but did not have a chance to do earlier or you could take an early retirement and enjoy life. In the first two of these options and sometimes even in the third you will have some active income, which is great. However, by definition FI is a state in which you do not really need this income. The cake is already there, extra active income is really only the icing on it.

I think a desirable age to achieve FI will be 45, if you can do it at 50 it is still great. Anything beyond this should really happen naturally, without your having to plan for it specifically. In order to attain FI by the age of 45 or 50, you need to look at the following strategies, and relate to them from my example that I had described in the earlier posts of the series.

  • Ideally the time at which you are planning to attain FI, should be when your regular expenses have peaked and will either decline or remain flat. This typically happens when your children complete their schooling and get admitted to college. Remember the college expenditure is out of the goal amounts accumulated, not part of regular expenses.
  • All loans should be paid off by the time you get to this stage. If they have been paid off in the normal course, well and good, otherwise you need to plan for pre-payment.
  • While you can plan for a level of passive income that lets you continue with some investments, this will necessarily delay your attaining the FI state. The ideal thing would be to wind up fresh investments by this time, unless they are strictly from your active income sources.

So with the above strategies in place, how do you plan your investments that will allow you to attain the state of FI by the time desired by you? We will be discussing more on that in the next post.

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