I am 59 years old. After experiencing the pleasures, stresses and strains of corporate life for a little more than 35 years, I recently called time out on my career. To take care of my stress-ravaged body and to devote quality time in the pursuit of my passions.
One of the biggest contributing factors to the decision to quit was the state of my finances, which was very healthy, when my body was not.
Yes, today, I can claim to be financially free. Not bad for someone who started his career with a debt handicap and started to save seriously at the ripe age of 45.
Financial freedom means different things to different people. To me, it means a couple of things. First of all, I am debt-free. I am able to fund my son’s undergraduate education at a reputed US University. Barring some extraordinary calamity, I have sufficient savings to see me and my family through the rest of our lives. Also, I can afford to indulge in life’s little luxuries, be it a vacation, eating out or buying what catches our fancy. And contribute to social causes in a small way.
Most important, I don’t have to worry about a pay-check any more. You could say I write my own pay-check these days!!
No, I don’t have millions stashed away in a Swiss account or acres of real estate or tons of jewellery. Just a reasonably diverse portfolio of investments comprising equity, bonds, real estate and gold. I actively manage this corpus, helped by a few trusted friends.
How was this achieved? Can the lessons I learnt help others do their retirement planning more efficiently? I hope they will, so here goes.
Some practices that have helped me:
1.Have a Long Term Financial Goal, but break it down into interim goals. Financial planners will tell you that you need to estimate your retirement corpus based on earning potential, future needs, consumption pattern, etc. Sound advice. The problem is that the target amount is usually too big and the time period too long. What has worked for me is to set smaller but attainable goals along the way.
I have a simple excel table with details of my bank balances and investments in PF, government bonds, shares and real estate. There is also a target corpus for each year in the table. I update this every month. Believe me, it’s a great feeling when you inch closer to your target. In some years, I have exceeded the target, an even greater high.
I also made up vision statements from time to time, to keep me focused on my goal. Vision statements are not only for corporates; you can have one for yourself as well. The first one I coined for myself at age 45 was “50 by 50”, ie, I will achieve a corpus of Rs. 50 Lakhs by the age of 50. This slogan was a rallying cry in my mind during the initial years. After passing the 50 lakh milestone at 49, I coined another, “1 by 11”. Through this, I set my sights firmly on the next milestone – Rs 1 crore by 2011, and achieved that as well. These aspirational slogans have helped me. Try it.
2.Start Early, Start Small. Our family needs have always been modest, and we were always made aware of the importance of the savings habit. With family debts to repay, it was difficult to save during the early years of my career. Mine was a lost opportunity, but it need not be the case in yours. You have heard this one before, but it bears repeating. The earlier one starts to save, the faster and larger your retirement corpus. This is the power of compounding. For compounding to work its magic, however, it needs a corpus, however small. It is tough to save when you have expenses to care of, but with discipline, one can save small amounts even in the worst circumstances.
3. Practice Expense Control. I started keeping a meticulous track of expenses and reviewing them periodically during my college days, when a money order from my brother was my only lifeline. I still keep a diary with all expenses, however minor, and go over it monthly. This has nothing to do with being stingy, but everything to do with being thrifty.
Expense control is not going to be effective until you keep asking the question, “Do I Really Need It”? , whenever a major expense is to be incurred. This is crucial. One must know the difference between “Must-Have, Need-to-Have and Good-to-Have”. And here, be honest with yourself.
4. Realistically Plan Your Future Cash Flows. This is actually quite easy. I used a simple excel spreadsheet designed by a friend to do this. Make a list of all your expected revenue streams as well as big ticket expenses. Use a good guesstimate for your routine expenses. Factor in children’s education, your increasing medical needs, other contingencies. Set aside specific savings for them. Review progress against targets periodically (once a month works for me). The further you go, the hazier it gets in terms of accuracy, but persist and you will see the rewards.
While using the spreadsheet, I stumbled on another plus. I was able to see that I could maintain a positive cash flow (income more than expenses) even after retirement. This is doable, if the interest from your investments are more on a monthly basis than your expenses. So much so, that I continue investing in SIPs from my savings even without a monthly pay check because I have adequate income coming in. This way, my corpus is increasing even after retirement!! Good position to be in, you agree?
5. Take Advice from Experts, But Take Your Own Decisions A google search is all it takes for expertise to descend on you on matters financial. Do this, don’t do that, invest in this, stay away from that –the talking heads go on unceasingly. I do read financial newspapers and financial magazines, I do listen to advice, but the decisions are mine, and mine only. Takes a bit of work, but with time, you will gain in confidence.
Today, I turn 58. Financial freedom was my biggest gift to me this year.
Hope to see you soon, as a financially free being.
Happy planning, happy investing.