If you can save 70% of your income, you can retire in 7 years!
My name is Rohin Pagdiwala and I quit my corporate job to live a stress-free financially independent existence. I quit when I was 44 after earning what was a reasonably normal salary through my corporate life. Yet I was able to reach this stage of financial independence without the aid of a lottery win, any significant ESOPs or even multi-bagger stock picks. What helped was an early understanding of how to invest coupled with a sense of strong financial discipline. Let me also clarify that I never came from a wealthy family nor did I have financial support at any stage.
It’s now been a year and a half since I quit the rat race, only to discover during this period how wonderful and fulfilling life can be when you have time and energy on your side. And I want to share this only to encourage all those who are considering such a pursuit but may not have the courage, know-how or will to get there.
Most people, even with much higher incomes, end up being stuck needing to work till 60 or 65 to just sustain their existence. So here’s the key question to be answered:
How can you lead a happy wealthy financially independent life without a high income or a big inheritance?
For close to two years, I’ve been preaching a different brand of financial planning from what you see in the newspapers or on financial websites. Planning that’s centred around saving hard, investing wisely, and then living off that saving to pursue things that you really want to. Every time I have proposed this to someone, without fail, I get the riposte that life is difficult and expensive, especially in the big cities, so you must keep working hard, grind yourself to the ground, fulfil all your social obligations (and this is a surprisingly big deal), save hard for the kids, after which you can put any small slice of savings left into a PPF or an FD account for what is a very brief retirement.
My advice? Well there’s nothing wrong in doing the above (except for the investing in FDs part) if you enjoy doing what you are doing today. But we all know that a vast majority don’t and would much rather have a simpler stress free existence if they could.
So here’s my two bits – Your current middle-class life is likely a volcano of financial wastefulness. If you start to dig into this, you will find wastefulness all around. From the dinners you don’t want to go to, to the unnecessary gifting, to expensive luxury goods. And by simply cutting this out, you will easily be able to cut your expenses in half – leaving you saving half or even two thirds of your income. What this eventually does is take years off your working life, giving you free time in return. Now what would you rather have?
Sounds like a fantasy?
What happens when you can save more of your income?
Well, you start to build a passive income stream that much faster. Spending much less money than you bring in is the only way to get rich.
Now see the table below to understand the impact of this. If you can save 50% of your take-home pay, you can retire in under 15 years. If you already have some assets now, you’re even closer than that. If you can save 70%, your working career reduces by half to only 7 years. This applies to all ages.
|Saving rate (%)||Working years until retirement|
|95%||Under 1 year|
|90%||Under 2 years|
- Your investments will make 6% more than inflation (that’s 12% return in India assuming inflation remains around 6%)
- After retirement you will live off the “4% safe withdrawal rate”, with some flexibility to reduce spending during recessions
But how can you save so much?
Simply focus on what matters to you and brings you joy. And you will lead a much better life than those who focus on convenience, luxury, and follow the herd mentality propagated by the TV/internet fuelled middle class. Happiness comes from many sources, but seldom do these involve large cars or luxury branded purses.
No matter what people tell you, this is the truth. And by doing this you won’t become a social outcast. In fact, this new perspective might make you a hero among your friends. Millions are already fixing their lives these days. The earlier you accept it, the sooner you can be wealthy too.
In the end if this is all too much ‘gyan’ or is too ‘philosophical’, here are some practical hacks to cut your life costs to half
- Don’t borrow money for cars, and don’t buy stupid ones. Ride a bike wherever you can.
- Live closer to work to cut travel costs
- Consider moving to a smaller city to cut rentals
- Give your kids the opportunity to do well, but that don’t pamper them with expensive toys, branded clothes, etc.
- Lose the overpriced cell phones
- Avoid frequent and expensive dinners that you seldom enjoy
- Reduce over indulgence in expensive clothes, purses and the like
- Cut taxi / cab costs
That should do it – about half of your expenses gone in one short summary. And if you keep digging, you can probably save closer to 75% of what you make – especially for those with above-average incomes. Remember even small cuts in monthly expenses if done consistently can shave years off your working life.
But then what do I do with all the money?
You invest it. Primarily in diversified equity funds, but also in paying off debt, and in other sources that can give decent yields. As of 2023, my personal asset allocation is a simple 75:25 equity:debt mix. It’s best to get a financial planner to help you here.
How long will the money last?
You need to accumulate up to 25 times your annual spends, and then live off 4% of that every year. That should be enough to last forever. Don’t worry about the details – just do the saving for now, and you will see your worries melt away. The key is to save hard for a sufficiently long period of time, which is the area most people struggle with.
I’m going to again say what i’ve said several times before – it’s your behaviour with money that is more likely to make you wealthy than your knowledge of how to invest it. Fix your behaviour and chances are you’ll be able to quit your job soon. Get started!
Financial Distributor & Founder – Pagdiwala Investments
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