HOW TO GET FINANCIAL FREEDOM AT THE VERY YOUNG AGE?

Today I am just going to talk about financial freedom, how can anyone get financial freedom as early as possible. So, if you are somebody who wants to achieve financial freedom then stay till the end of this article. In this article, I will be talking about these things.

 Getting financially independent is not as complex as you think but at the same time, it is not as simple as you think. Because if you want to retire early then you have to save a lot. There is no shortcut to achieving financial freedom, you need to follow certain rules. So, let's start...

The rule is called by the name FIRE( FINANCIAL FREEDOM RETIRE EARLY)

First of all, you have to give yourself some honest answers to some questions, just like if I ask you how much money do you need if you want to be retired? or what is the exact amount of money you need to retire early in your life? some would say 5 cr, some would say 10 cr or even they would not sure about that because this kind of question they never asked themselves and this is a big problem of our society because we are not sure about what we really want and because they don't know how much money they actually need to retire that's why they invest their money anywhere without the second thought. We need to change this, everything that we are going to do we have to be aware of every single step of that process. So, let's focus on today's topic,

Basically, it's a 4% rule, let's see how it works, 

so, first of all, you have to make a chart of your monthly expenses, how much money do you need to spend on your monthly expenses? For some people in India, it could be 25k, for some people, it could be 50k or it might be 100k, so if you are someone like me who are happy to live in a quiet area( because here, if anyone is ambitious then that person would not get distracted easily) instead of living in a city area then your cost of living would be less than a city man or if you have your own house then 50k is the suitable amount for your monthly expenses. In 50k you can easily access your daily needed things like food, clothes, you can go shopping, you can afford vacations or stuff like that. So, here I pick this 50k amount because I think the majority of us can happily survive in this amount of money.

So, if you can get 50k rupees from somewhere every month and you have one type of security that you will be able to get the amount every month for the rest of your life, you can say that you have achieved financial independence, right! so, let's calculate, 

So, if your need is 50k/month then in a year you will need 50000×6 =600000

In India, every bank is giving us on an average 4% return on our money, so, now you have to think this 600000 rupee is your 4%, so the 100% amount would be the 25 times of your 600000 rupees, (600000×25)=1.5 cr, so this is the amount you need to get financial freedom but in India, this rule actually doesn't work, because India's inflation rate is on an average 6% for the last few decades, this is a big number, we cannot simply ignore this, for example, today what you get in 100 rupees after 10 years you wouldn't probably get half of the things at the same price( this is inflation). So if you put your money in banks which gives a 4% return and inflation is around 6-7% then you are actually losing your money. But the good part is, in India, you can easily generate 8-10% return, from FD you can make a 7% return, so in FD you aren't actually losing your money.  In India, from an index fund, you can easily expect a 12-13% return on your investment if you invest for a long time, so here I am going to pick this index fund because we have to beat inflation and have to generate wealth as well. Index funds are the safest option in the field of the stock market that's why I have chosen index funds for generating wealth. Here I am assuming that you are not going to learn any other type of stock investing, you just continue investing in an index fund( by the way in the future if you learn investing then you will probably be able to generate 18-20% return or in some cases even more than that). So, in that case, that 600000 rupee is your 13%,  but in the future, we will not going to withdraw all the returns we will get on our money, let's choose 10% would be the amount, in that case, this 600000 rupee is your 10%, so the 100% amount would be the 10 times of your 600000 rupees. Then the amount will be( 600000×10) = 6000000 rupees. 

Let's make this calculation a little bit serious. Till now, we haven't added inflation in the calculation. Because with this 6 lac rupees you can have a good day now but not 10 years from today. Today you need 6000000 for your financial freedom but after 10 years the number wouldn't be the same, you will need 1,07,45000 rupees. So, this amount of money you have to save in your next several years. First of all, we have to think about how can we be able to save these 1,07,45000 rupees? So if we invest 31000 rupees every month in an index fund from where we can get usually a 13% estimated return then after 12 years we would have 1,07,57000 rupees. So, if you want to retire at that moment of your life after 12 years then you can take your retirement, let's see how things would happen...

Today you need 600000 rupees for your yearly expenses, after 12 years you would need 12,07,000 rupees because of inflation. In the first year of your retirement, you will generate 1,396,000 rupees from your investment amount which was 1,07,57000, and your requirement amount would be 12 lac, in that case after withdrawing 12 lac you would still have 10,953,000. In the second year of your retirement, your portfolio's value will be 12,376,890  rupees and your need would be 12,80,000, after withdrawing this amount of money you would still have 11,096,890 rupees in your portfolio, it will keep growing and you will generating wealth because of compounding.

So, if you follow this way then you can take retirement after 12 years or if you want to take retirement before that, then you have to increase your savings rate, this is one of the ways of taking retirement at a young age, so if you are 22-23 of the age, if you want then you can be financially independent before turning 35.

NOW LET'S TALK ABOUT SOME DISADVANTAGES OF THIS PROCESS:-

1) If the market performs poorly for a few years, you still have to withdraw money because the strategy is based on withdrawal, this is the first problem.

2) The second problem is Inflation, for the past few decades Indian inflation was between 6-8%, but in some cases like recession or stuff like that inflation can go more than the average, just like Inflation in 2010 & 2011 was 10% for the recession of 2008, this is the second problem with that.

3) As we grew older we will have to face a lot of different types of difficulties, if you want to give a good education to your children or if you are planning for their wedding or even healthcare, as we get older we would have problems related to healthcare because people are nowadays living much longer and these things will be very expensive after few decades, this is the third problem with that process.

 Now you might be thinking if this process contains so many problems so why do we follow this process! so I want to say if you follow this process then after completing this you will have a sense of satisfaction that you have achieved financial freedom. After that, you can continue your work but the good thing is you will have the right to do whatever you want to do, with whom you want to work, for how long you want to work, you will not have any kind of pressure that time, you will be completely free from the tension of money. You will be able to do things that you couldn't do before getting financial freedom. This logic isn't completely true, because if you want to be financially free which is great but if you want to quit your work after getting financial independence there is a problem, which means you don't like your work, and if you don't like your work that means you aren't happy, and if you aren't happy, even if you have achieved financial freedom before 40 then remember you haven't done anything great with your life. So be happy and continue whatever you are doing. Ohh sry! for a minute I became a philosopher😇😊. And most importantly because you have started investing early and your money is growing by compounding which is great. If anyone wants to see the magic of compounding then that person has to invest his/her money for 2-3 decades, after that you will be able to see the magic of compounding because that time your money will be creating an immense amount of wealth. For being financially independent I personally believe that we should focus on creating passive incomes for someone it could be the stock market, for someone it could be a company's dividend, for somebody it could be some rental property or stuff like that.

Thanks for reading the article completely. If you like it then share it with your friends. 

CREDIT: "INVEST MINDSET" YOUTUBE CHANNEL.