I think goal based investing has a lot of positives going for it, the most important one being it gives you a target to aim for. Without this, a lot of our investment actions can be distracted and lack coherence. However, while I have always had life goals in terms of how my family and I should lead our lives and what we will hopefully strive to achieve, I have never really invested financially for these goals. In fact, all of my investments in life on the financial front has been targeted towards only one goal – Financial freedom.
What does financial freedom mean to me and why is it the only goal for me? In very simple terms it has the following aspects inherent in it:-
- I can choose to spend my time in a way that I choose. This may include “work” in the traditional sense of earning an active income, but that is not mandatory.
- I do not need to do anything I am not liking, simply in order to earn money.
- There is no need for me to monetize my hobbies in any manner. At the same time I am able to indulge in them to the extent I need to.
- What about other goals like children’s college, paying for the home etc? Well, unless I am having enough funds for these I cannot consider myself financially free. Other goals are therefore, part of the overarching goal of financial freedom.
- As an example, if I had to figure out the corpus needed at a very safe level for me at this stage of my life, it will probably go as follows:
- Annual expenses of 8 lacs for 35 years = 280 lacs
- 4 trips outside India @ 7.5 lacs = 30 lacs
- Replacement of car and furniture over next 10 years = 30 lacs
- Expenditure on children’s marriages = 50 lacs
- The above comes to 3.9 crores in current financial assets. Note that this is very liberal in terms of expense estimates and quite conservative in terms of returns as I am not expecting any real returns from my portfolio at all.
- As my current financial assets significantly exceed this figure, it is quite realistic to say that I have achieved my goal of financial freedom.
One can, of course, argue that your corpus should be 10 crores or something similar before you choose to spend your time as you please. My simple question will be, how do you plan to spend the money? If you are earning as your annual expenses are very high or you are doing it for others in your family till they are able to take care of themselves, then you need to continue working. But, if you are doing it for leaving a legacy for your children, then I am not in that boat at all. I believe in giving a good education to children and supporting them to get started in life. However, by the time they are 22 or 24 years old, I completely expect them to be taking care of themselves. I have never expected my parents to leave a legacy for me, nor have I encouraged my children to feel that they will be getting any. Emotional attachment is lifelong, not to be confused with financial support.
So, if you were to arrive at a figure for your financial freedom what will it look like? Against that figure, how much have you done till now? What is your plan to achieve the shortfall and by when are you likely to get there?
If you are able to answer these questions then you are well on your way to achieving your own financial nirvana.