Financial independence – know your number

In the last post I had written about Financial independence as a concept and why is it very important for all of us to understand it and be aware of where we are situated with respect to it. Now, the difficulty with such concepts is that we have a need to put a number to it for the purpose of making it tangible and easy to grasp. At the same time the method of arriving at this number cannot be too complex, otherwise most people will lose interest in dealing with this.

So how does one arrive at a number? Many people are thinking “calculators” as they read this, but my belief in their utility, except for crunching large numbers, has never been a lot. I always believe in tackling things at a fundamental level, whether it is in running a company, writing a blog or looking at creating a framework of FI number. So, let me do this through a real life example where i was interacting with a friend to put these numbers in place for him.

Some details about my friend Raghav and his financial context will be in order here:-

  • Raghav is 50 years old and his wife Meena is 47 years old. They have 2 children, both on the verge of getting to college.
  • Their current annual expenditure with children’s schooling is to the tune of 10 lacs. Of this children related expenses are 3 lacs.
  • They have assumed that their life span is another 30 years.
  • They have their own apartment in Hyderabad but may relocate to Indore after Raghav finishes his work life.

Ok, so now for the nitty gritty stuff of arriving at an FI number for Raghav. The following information will be used in arriving at a number.

  • We will take out the expenses incurred on children and take it as the base figure for their future expenses at current value. In this case it is 7 lacs but let us just call it X.
  • Retirement costs will be equal to 30X for the next 30 years
  • 1st child college will cost about 3X today
  • 2nd child college will cost about 2X as he wants to do a different course.
  • Both their Post Graduation will cost 2X each.
  • Their marriages are likely to cost 2X each also.
  • Post retirement asset purchases will cost 2X

So now, if you add up all this you can see that Raghav needs to have 45X today if he is to be considered as being in the FI state. As we know in his case X is 7 lacs this comes to be a figure of 3.15 crores. In other words, if Raghav had 3.15 crores of financial assets available today, he can take it that he is in the FI state. If this were so then even if he does not earn any more Active income it will still not impact him too badly. Of course, he can figure out till when he wants to work.

How should he assess his FI status readiness? Well, if he has 2.1 crores today then he can compare this to his FI number and say that he is currently at about 2/3 way to achieve his FI state. Clearly, in this situation he needs his active income and will be able to think of giving it up only when his assets exceed the FI figure of 3.15 crores. Note that this can get more if you put more goals. For example, if Raghav and Meena wanted to go on a few foreign holidays that will cost 5X in today’s terms then the FI number for them will go up to 3.5 crores.

You can use your life context, your goals and apply the method explained here to get a number. Knowing it and understanding how close or how far you are from it will help you immensely in deciding how you need to run your financial life.

I will do a post with my numbers next to explain this even better.


5 thoughts on “Financial independence – know your number

  1. Here the corpus gets depleted over time and assumes no real return. In real life, prudent people try to live on the returns generated by the corpus leaving it mostly intact for emergencies or future generations. A real return, risk free, of 1.5-2% on bank deposits/government bonds is a given where as you can make your corpus work for you with better financial management.


  2. Hello Sir,
    I am currently in the middle of this exercise personally. Though I am relatively younger to your friend, situation is somewhat similar as I have set some aggressive goals for myself.

    After reading your post, I do have some open queries.

    1. You have just considered 30X as livelihood expenses, but I couldn’t understand how this would factor in inflation.

    2. Marriage costs are assumed to be 2X which is Rs. 14L each. Isn’t this figure dependent on the specific culture and also based on the fact whether the kid is a girl or a boy. For example, in south indian context, the cost for a girl’s marriage is much higher (2.5x) than a boy’s marriage. Has this been factored into the 2X number?

    3. Personally, I also came to the magic figure of 3.5 Crores as a feel good number. However, unless makes some really bold moves and is lucky, it’s a luxury that not many would be able to do achieve. In this scenario, what is your recommendation?

    4. Though one may have the sufficient corpus, it would be interesting if you could capture how to make money work for you and generate more money.

    I will eagerly look forward to your next post.


      • I agree with your view on having a midcap fund as the main income generating vehicle. However, I am not sure if I would put my entire money into the same. Given the age of your friend, is it recommended that he invests his entire FI corpus into mid-cap fund?

        On a related note, personally I foresee 3 options:
        1. Park the entire corpus into one fund
        2. Have specific funds for individual goals.
        3. Have funds based on time horizon of withdrawal.

        It would be really good to know your views and perspectives on the same.


      • Sorry I think that reply was wrongly posted to your comment. But to answer your question, deployment of FI corpus is a different issue altogether. I would still go with the 3 portfolio approach though the distribution will be different. Too complex to reply here, will do a post on this soon.

        Liked by 1 person

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