scorecardresearchWant to sit at the beach and do nothing like this CEO? Here’s how you can

Want to sit at the beach and do nothing like this CEO? Here’s how you can achieve it

Updated: 01 Jul 2022, 10:23 AM IST

Many of us wish to experience financial freedom early in life but are unable to take the plunge for fear of falling short of finances. Earning more may make you financially strong but does not ensure freedom from financial worries in the future. The best way out is to start planning your finances early in life to ensure that you have enough finances when you retire. 

If “Financial Independence and Retire Early” is your aim, it makes sense to plan your finances early in life.

If “Financial Independence and Retire Early” is your aim, it makes sense to plan your finances early in life.

The Chief Executive Officer of Jupiter Fund Management Company, Andrew Formica, announced his resignation from the company he had joined in 2019. Formica, aged 51, will renounce his position on October 01 this year citing personal reasons for his intended departure from his job. In an interview with Bloomberg, the CEO said, “I just want to go sit at the beach and do nothing. I’m not thinking about anything else.”

The announcement to resign so early brings forth the pertinent idea of how the decision to retire early underscores the financial goals of many. Those planning to retire early like Formica must be well-versed with FIRE thoroughly. Financial Independence and Retire Early (FIRE) is a foreign concept wherein people work hard, take utmost care of their finances and devise multiple income sources till they turn 50 years old so that they can live on their passive income. One may generate passive income from dividends from stocks, mutual fund investments, interest from bank deposits, rental income, etc.

With the cost of living going up exponentially every year, is it possible for people to achieve financial independence so early in their lives? The answer is “Yes”, though it takes a lot of thorough financial planning to achieve the same. Many millennials are inclined to retire early. However, they must be aware that post-retirement they would not have access to their regular salaries to pay for their living expenses and that their contemplated savings or investments must be at least 25 to 30 times their yearly expenses.

If you are planning to retire early like Formica, remember to take care of the following

Be aware of your retirement corpus

Are you aware of how much you will need after you retire? This is important as you must consider your current lifestyle that will help you decide how much you may have to spend in the future. The FIRE theory explicitly states that your pre-retirement savings must be at least equivalent to 25 times your annual expenses. Considering the rising inflation rate, it would be apt to save nearly 40 times the amount you spend every year.

Pay attention to how much you earn

How much you save depends a lot on how much you earn. If you are aiming to save more, it is obvious that you must target to earn more. Work hard to seek an increment at your workplace. Fight hard for a higher appraisal. Do not depend on your salary alone. Look for multiple income sources. Try your hand at freelancing too to ensure more income in hand. You may also take up odd jobs like part-time teaching professions, or teach at tuition classes at elite institutions to earn more money.

Focus on how much you save

Before you sort out your investment plans and line them up in sync with your financial goals, you must focus to save more. The first step to achieving financial freedom early in life is to target a high savings rate. There is no point in earning more or building multiple income sources if you cannot save more. Make sure that you save at least 45-55 per cent of what you earn every month.

Lower your expenditure

It goes without saying that savings alone cannot help you reach your financial goals. You must reduce your expenses and adopt a frugal lifestyle to be able to save more money for your future. Start with getting rid of unwanted habits like ordering food online or spending on expensive brands, paying for additional OTT services that take away a chunk of your earnings without you even realizing it. You can replace your expensive gym workouts with regular walks or join yoga classes nearby.

There are several apps available that can help you track your expenses. You can download one of them that would detail your daily and monthly expenses in an excel format to inform you about your expenditure. These apps have been immensely helpful to distinguish between essential and cursory expenses and cutting them down accordingly.

Do away with your liabilities

Are you aware of how much debt you have to repay? Be it loans or small debt, the burden of repayment is more owing to the interest that must be paid on those loans. Apart, credit card bills add to the liabilities, thus, leaving you to spend more. If you are aiming for a sizeable corpus to rely upon post-retirement, you must either consider prepaying your debt to get rid of it soon. Aim to get rid of your existing debts and not incur new debts at any cost.

While financial freedom is a fact that you cannot dare ignore, it is up to decide when you want to retire. Early retirement is a dream that many harbour while for others it may be due to compulsion. Irrespective of the reason, you must be well prepared with your finances and how you deal with them. If you are looking to experience financial freedom early in life, it makes sense to start planning now.

One can follow these steps to retire wisely.
First Published: 01 Jul 2022, 10:23 AM IST