Last Updated on January 26, 2015 at 8:34 am
‘What is your definition of financial freedom?’, is a question I get asked by readers from time to time. Opinions and definitions in this regard vary widely and often a matter of convenience. Some call it financial freedom, some, financial independence, some early retirement!
Here is my take on this subject. The following should have been in a flow chart form, but I am too lazy to draw one.
Can you quit your present job to do nothing or whatever you want?
If ‘NO’ go to part II below.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
If ‘YES’, proceed to Part I
Part I
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Can your corpus handle day-to-day expenses for the rest of your life (including the typical expenses of your partner, or spouse)?
If ‘YES’,
It implies, You are
- retired if you do not work for money anymore.
or
- financially independent if you work for money when and how you feel like it. The income can be spent or invested without constraints, unless something out of the ordinary occurs. You are neither dependent on your spouse or on anyone else for income.
Assuming the corpus is large enough and nothing abnormal happens, you can be retired or financially independent for life. You can switch between the two states at will or remain in one state for as long as you want/can.
If ‘NO’
This means
- You are dependent on your parents, partner or spouse to support you while you explore your options. Obviously a less than ideal situation which we shall not discuss further.
or
- Your corpus can handle day-to-day expenses for some years to come, but not for the rest of your life. You are free to take a break, pursue a passion that would give you a steady income down the line (before your corpus runs out!). You can handle your typical family expenses for a few years without depending on your partner (who may or may not be working). It seems fit to say that you free to do what you like but not whatever you like (like not working again).
You need to work, but you are free to choose your line of work. You are financially free as long as your income steadily increases and the dependence on your corpus to provide monthly income decreases.
Financial freedom is not permanent. If something goes wrong -you are out of work, your income does not increase enough – you might be forced to take up a job that you are not too thrilled about …again.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Part II
You cannot quit your job, but would like to asap to be either independent or free.
Here is a checklist
1) Are you investing like your ass is on fire?
2) Are you investing productively?
3) Have you factored in at least 8% inflation after you quit your job?
4) Are you confident that you can lead a frugal life? Good but dont depend on it too much!
5) Are you hoping to beat inflation? You might, but it is best to plan with zero real-return after taxes.
6) Are you influenced by blogs like Money Mustache, Early Retirement Extreme? Don’t be. They are clueless about Indian inflation levels. So understand retirement mathematics first. That is universal. Underestimate the longetivity of your corpus.
7) Do you like the idea of a safe withdrawal rate? Don’t. Will not work for our inflation levels. You will keep withdrawing more and more as time goes by. Are you ready?
8) Have you assumed a real return for your entire portfolio or only your equity component? Common mistake. You need a good amount of debt. So don’t expect too much returns from your folio.
9) Understand volatility. Don’t assume a SWP from an equity fund will work. It might, it might not. You can’t take that chance.
10) Keep your CV up to date. You never know, you know!
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)