There is no such thing as perfect timing or perfect decision making – only hindsight can determine whether or not you’ve made the ‘right call’.

Today, it is easier than ever to become lost in indecision. Well let’s keep it simple –

1. Invest in Debt Mutual Funds for short term goals upto 2-3 years.
2. Equity Mutual Funds for long term goals like Retirement, Child’s Education etc.

I met a college friend after a long time. After reminiscing about canteen, professors and the college beauty queen, I started complaining about my crappy job and how I would love to retire in ten years.

Yeah, said Aditya. That’s the trend these days. FIRE: Financial Independence, Retire Early.

Makes sense, I said. If I could do that. Then I could pursue my farming hobby full time. Everyone wants to retire early, but am I ready? Am I rich enough?

Learn this financial planning tool to know for sure. First of all, let’s ask ourselves how much money is enough? How much do I need to have to call myself rich?

Practically speaking, being very rich actually means that the amount of savings you have is more than sufficient to ensure that your lifestyle of choice is assured and there is little risk to that. Please note, the phrase is ‘lifestyle of choice’ and not ‘extravagant lifestyle’.

Assuming your annual expenses equal 10 lakh. The amount of savings required is directly linked to your yearly expenditure. One needs a minimum of 25 times your annual expenses (2.5 cr) to lead a comfortable retirement.

It is very important to note that when we say savings we are talking about liquid financial assets. Not illiquid business assets, gold or real estate which may or may not yield fruits. To be more specific, assets which beat inflation because your expenses will double every 12 years.

Calculate for yourself. Where you are currently on the Richie Rich Scale?

We’re fascinated by the net worth of ultra-HNIs like celebrities, business tycoons, politicians, and sports heroes. But even for the “aam aadmi,” knowing our own net worth can be very useful for us. Do you want to assess your personal financial balance sheet? And use that to decide future spending?

If you won 10,000/- in a lottery, would that change your life?  What if you won 20 lakhs?  How about 5 crores?  Your answer is based on your age, family situation, and your current net worth.  More importantly though, how your spending and investing patterns will change after a lottery win of this value says a lot about your present economic status.

Let’s explore 6 levels of wealth:

Level 1. Salary to Salary: It’s the third week of the month and you run out of cash.

Level 2. Grocery freedom: Grocery prices don’t impact your finances.

Level 3. Eating out freedom: When eating out, you don’t use the menu prices to decide what to eat.

Level 4. Holiday freedom: You fly first class, stay in five-star hotels, and travel as often as you want.

Level 5. Property freedom: You can afford your dream home.

Level 6. Charity freedom: You can donate enough to transform many lives.

When you think about wealth in levels, you realize that certain amounts of money may not make a huge difference. For the average person in level two above, an extra 10 lakhs probably won’t bump them up to level three.

Honestly, 10 lakhs aren’t enough to free someone from thinking about day-to-day living expenses for the rest of their life. But the same 10 lakhs given to the average person at level one may push them to level two.

It is difficult to put an exact rupee value on each of the above wealth levels due to differences in cost of living, individual mindsets, number of dependents, etc.

Let’s say two friends, Avyaan and Mahima, have decided to buy themselves the latest iPhones. They have to choose between the iPhone 13 Pro (priced at 1.5 lakhs) and the iPhone 13 (priced at 1 lakh). Avyaan’s is at level 3 of our hierarchy above so he feels the pinch of 50,000/- and purchases the iPhone 13.

Mahima, on the other hand, is at level 4 of the wealth ladder and doesn’t find it worthwhile to save 50,000/-. So she opts for the iPhone 13 Pro. The marginal impact of a single decision at each level of wealth is dependent on the net worth of the individual.

Wealth grows in steps, not in a steady slope

Most people in the same level of wealth consume in a similar way. A level 3 person doesn’t fly by private plane. They only fly first class if they get lucky and get upgraded. A level 1 person rarely flies.

Spend within your means to ascend the wealth ladder

At level 2, if you book a holiday to Switzerland without considering the costs then you won’t make progress in the wealth hierarchy.  Until you have enough to spend extravagantly at your current level, you have to be disciplined about your spending at that level. Do this and you are very likely to move up the wealth staircase.

For example, though today I might opt for a nice restaurant when eating out, I will still move my schedule around to find the absolute cheapest deals for holiday travels. Last year I booked a family holiday in Goa way before Diwali because it was so much cheaper than in peak travel season.  Because I spend as per my level; I enjoy my life while growing my wealth.

Some people might recommend not increasing your consumption as your net worth grows. I disagree. Moderate lifestyle creep can make life deeply satisfying. So, there is more to life than saving money.

Within your allocated budget, live the best you can.

Another horrible commute.🚗🚙
A highly unpleasant interaction with a know-it-all😏 colleague.
A manager that seems to pile on more work every day – and yet isn’t nearly so generous with the recognition🙌.
And the work itself. What (hopefully) seemed exciting early📆 on has now completely lost its luster😮‍💨.
The question is: How can I enjoy a fulfilling life as I leave my job behind?

Your savings rate is the percent of your take-home💳💲💸 you’re investing🏦 long-term. Say you have no savings currently and you start investing 45% of your take-home; you’ll have enough to retire in a little more than 15 years!⁣⁣😲
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This is assuming your investments💰 grow at 10% annually. (Historically Nifty 50📈 has grown at about 13.4% annually). ⁣
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The retirement multiple I use is 30 times your annual spending. Annual spending is everything other than your savings. So, when you increase⬆️ your savings rate, it helps in two ways: By increasing🔼 investing and reducing🔻 spending!⁣⁣

Undoubtedly, 10% compounded🌱🌳 over 15 years📆 will be highly fruitful🥭.

But with shorter time⏳ frames like 5 or 10 years, it’s the savings rate that works the magic.

As we increase the percentage of our income we invest, we buy years of financial💰 freedom🆓 in the future.

I’m not suggesting we stop enjoying🍹 our lives. We just choose how to. There are many things I spend extravagantly on:
Holidaying at the Taj Holiday Village, Goa🏖️
Adding to my sneaker collection👟

There are also plenty of things I hardly spend any money on.
Owning a fancy car🏎️
Wearing an expensive watch⌚
Why? Because these are just not part of my rich💎 life. Maybe they are for you and that’s great.👍🏽

What is your current savings rate?

Could you hike⬆️ it by 5 or 10 percent if it meant being financially independent years sooner?🧐