I think people who have read all the 9 posts in this series have a very good idea about FI and how they can create a road map for their own situation. Since this is a complex topic, I wanted to do a wrap up post to highlight the major points. You can, of course, go back to the earlier posts and read them again for greater clarity,
Why do you need to plan for Financial Independence?
- With the current and future income levels, this is possible today with proper planning.
- While income levels are high, jobs and careers are also riskier today, thus making it in your interest to get to a state of FI as soon as feasible.
- You may want to do other things in life like starting a new venture, doing freelance work, changing careers etc and being in a state of FI will give you the confidence to focus completely in it.
What do you do after you have achieved Financial Independence?
- You can continue in your current job or profession with the knowledge that you are not tied down to it and have the flexibility to walk out if you wanted to.
- You can start something new like a business or consultancy practice. In your current state of FI you will be having enough time to make it work without having real pressure to earn active income.
- You can actually opt for early retirement and just do the things that you enjoy doing.
How do you decide on your investment needs to get there?
- Firstly understand the extended money equation and see the peak level of your expenses. This should ideally be after children complete schooling, but this is not sacrosanct.
- Investment for your goals should be funded by the time you get to the state of FI.
- Your passive income level must be adequate for meeting all your expenses during the FI state.
How do you use your active income in the state of FI?
- You can keep investing the same.
- Put this into any new business or other investment you want to look at.
- Fund any of your earlier unfulfilled indulgences through it.
What are your spending strategies in the state of FI?
- Generate passive income out of Dividends, Interest, Long term capital gains, Rental income etc.
- Make sure that you do not redeem your assets till the formal retirement point is reached.
- If your passive income exceeds your expenses then you can use the surplus for short term investments or any indulgences.