Last Updated on December 29, 2021 at 5:03 pm
SEBI registered fee-only investment advisor, S R Srinivasan (SRS) discusses his journey to financial freedom for the benefit of freefincal readers. You may recall that he recently wrote about the List of Mutual fund categories that you can avoid! (incidentally, this went viral!).
SRS believes in numbers based insights and naturally, I find this appealing. He has rigorously stress-tested his retirement corpus with various tools. You can approach him for your financial needs via srinivesh.in. Kindly note that he has written this detailed two-part series upon my request.
Older readers may also recall a Sep 2016 presentation shared by SRS: Growing Wealth: An engineering approach
Download free ebook: How to retire early in India
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
Financial Freedom – Concept
Financial Freedom (FF) is defined as the state of having sufficient personal wealth to live, without having to work actively for basic necessities as well as other life goals. For Financially Free people, their assets generate a passive income that is greater than their expenses, year over year, as long as they live. Achieving FF basically means building such a corpus. Financial Independence (FI) is another term for this.
Another catchy phrase – FIRE – is often used in this context. FIRE – Financial Independence, Retire Early. There are many terms used to describe various ways to achieve this – FatFIRE, LeanFiRE, etc and milestones – CoastFIRE, etc. When used this way, emphasis should be more on FI than RE. You could love your job or profession and strive to be the best that you can be. You don’t have to retire early. But you can seek to achieve Financial Freedom/Financial Independence as early as possible. This can then motivate you further in your career/venture.
I achieved my Financial Freedom in 2017, slightly ahead of my planned date. In the rest of the article, I would use the FF short form. I would use the term FIRE when discussing the community. calculators, etc.
Intro and summary
This section gives a short summary of relevant details. These provide context to the entire write-up.
- 51 year old male – software industry
- Wife a few years younger. Noble profession of a teacher (salary not included in the financial plan)
- 2 kids – in Classes 12 and 9 as of 2019; no other financial dependents
- Living in Bangalore, house paid for (a long while ago)
- Kids’ college (plus some years of school), postgrad, marriage all happen during planned FIRE
- Currently on a second career as a fee-only planner
- This career choice would have been impossible if I had not achieved FF
Initial and middling journey to FF
Even when I was twenty-five, I knew that I did not want to work beyond 50 years of age. The reason for 50 is a long story and personal. But I had a strong belief that I should not rely on my capabilities after 50. I got married slightly latish, when I was 29. My wife was and is a school teacher and I knew that my income would primarily run the family. By that time, the software indsutry had become a good paymaster and teachers are always underpaid – particularly at the school level.
I started working in India in 1988. Some of the savings from earlier years went into buying our home. The rest of the savings are in a foreign account. They are not part of our primary financial corpus.
I was working with an MNC with a decent pay package. Like many of the modern firms, my company did not put the (then 6500, now 15000) limit on PF wages and contributed 12% of the full basic. I also opted in for the superannuation with the max limit. The home loan for our primary home was in a ‘Home Saver’ account – you can keep some money in the account and it would reduce the interest outgo. I developed a habit of using this as the emergency reserve, and as a liquid fund for rebalancing.
My salary flows into the account. My primary bank does not play well with the rest of the eco-system – bill payment, online payments, etc. I used Citibank first and now HDFC for all the transactions. For many years, the investments happened from the primary account, and I would transfer an amount to the other bank for spending. The balance would build up the emergency reserve and ‘liquid fund’. I did not have other debt products and all my active choices were in equity – mostly in mutual funds and about 10% in direct equity.
We bought our home in 1999. We had paid off our primary home by 2003 and started investing in mutual funds in earnest. I got a bit of fortune since the markets had shaken off the laziness of earlier years and were on a long bull run. By the end of 2004, I knew that my first child would finish school by 2020 and set that year as the FF target.
By 2005 or 2006, we had a good idea of the financial requirements for both our children and our FF needs. The initial investments earlier were guided by the investment advisory team in my bank. (I had a ‘privileged’ account.) The mutual fund recommendations were quite good – HDFC Equity was one of the suggestions and I have written publicly about the details. (About 1.5 lac invested in 03-04 was 14.8 lacs when I finally switched to direct in 2015.) Though the bank had its AMC business, the wealth management team did not push those funds.
The analysis, however, was template driven, As an illustration, the tools assumed that all investments would happen right till the milestone. e.g My second child would start college in 2023. The tools that I could access assumed that I would invest until that time. I could not find a calculator that would take investments until 2020 – my planned FF date. I ended up developing my own excel sheets and this started off my DIY journey. However, a key point to note that is we started the investments soon enough, without waiting for all the calculations to be in place.
We had bought a rental property in 2006 on loan. This was also in a ‘Home Saver’ kind of account – the loan was for a larger amount and this cemented my practice of using this account as an emergency reserve and liquid fund. In fact, I still have a very small balance on the loan (about Rs 17,000) and continue to use the account.
We bought yet another (more like retirement) property in 2009 – this was without a loan and used up a good amount of equity. All our other large purchases have also been without loans.
Approach and Process for Financial Freedom
I used to write down some points about how I would approach the task of building a corpus. For some reason, I used to talk about this with my colleagues and made presentations. Describing something is often the best way to understand it. And this was the case for me too. I really could develop the approach. I titled it “Engineering Approach To Build Wealth” I also used to teach a course on project management and liberally used the terms from that space. I described the approach in some blog posts.
The summary of the approach is below.
- Clear objectives statement – Scope, Schedule, Resources
- Requirements
- Design that is consistent with assumptions and constraints
- Clear approach to risk
- Sensible implementation
- Validation, Maintenance
Any engineering project has a clear objective statement that clearly spells out these parameters: Scope – What we want to do, Schedule – When we want to finish it, Resources – What would we use
The scope is the most important parameter in a financial plan. If we conceptualize this well, the goals write themselves. The way I see it, the scope is the visualization of ‘Being Wealthy’ – the kind of life I like to lead. It includes all aspects – family size, lifestyle, support to children, a legacy for children, etc. One can want to live like the Ambanis, Warren Buffet, etc. Yet, it is more useful to look around our personal life and spot people who live happy and contented lives. Schedule is the amount of time that you want to work to achieve the scope. Resources is the means that you would use – for most people it would be their personal earnings.
When I look back, thinking of scope this way was very helpful. Basically the idea is to visualize your life and write it down. Some examples could be:
- Our retirement life would be contented. While simple, we won’t have money constraints
- Our children can pursue the college education that they want and money won’t be an issue
- etc.
After this visualization, it becomes easier to list financial requirements. This is just another word for ‘financial goals’. It is quite easy to take the scope statement and to break it into many types of requirements:
Life events – Marriage, Kids education, Parents, Siblings, etc. These events create requirements that we have to address, one way or another.
Quality of life – Kind of home, kind of vehicle, all the variable lifestyle aspects. These have a lot of variation. My personal take is that we often get misled by how wealthy people live. We look at them after they have become wealthy, but we fail to realize that they led simpler lives before that. And we often don’t spot the difference between the rich and wealthy.
Dreams and desires – We should realize the importance of these. We can’t limit our lives to just the discharge of responsibilities. We should have desires and dreams that are just that – with no constraint of necessity or need. Of course, the first and unsaid item in the list is post-retirement.
I used to emphasize (to myself and others) that the second part – quality of life – can be the crucial difference between achieving FF and not achieving it. A lot of articles, particularly in the FIRE community, stress this point.I am convinced that having this approach helped tremendously in creating the corpus that we needed. I can definitely take satisfaction in the fact that I kept my equity holdings through the tough 2008 days. The approach was a key factor in creating the conviction. Of course, you can (or should) have your own approach. You just need to be systematic about it.
The serious years – Investment choices
I would set this part from the beginning of 2010. The 2009 home purchase was from equity. Due to this and the large volatility in equity in those years, my equity portfolio varied widely and was about 10 lacs at the beginning of 2010.
- I used PF and superannuation as the main debt products. (For some reason started PPF late.) In 2009, the PF contributions were around 3 lac a year and superannuation 1 lac a year. The interest used to almost equal the contributions by this time and has become larger in later years.
- As mentioned earlier, the clarity of my approach and the goals helped us keep the focus and stay in equity through the 2008 bloodbath. I could have been a bit fortunate too in not having much notional loss. Due to the house purchase in 2006, I did not buy much equity in 2006 and 07. Most of the equity from before that was still in green through all of 2008. Still 2008 was trial by fire.
- Most of my direct equity was and is in large cap stocks. For mutual funds, I had more in mid-cap and multi-cap funds, and DSP-BR microcap (now small cap).
- Sometime in 2011, I started using the ‘then new’ mutual fund platforms. This got me completely out of using my bank as an investment platform. I ramped up my equity SIPs tremendously. A large part of my salary went into investments.
- One thing that my primary bank does well is to set up a standing instruction that fires on the last working day of the month. (This is the day I got my salary.) I set it up, transferred the investment amount to where it was needed and had the SIPs running on the first of every month.
- I did some level of expense tracking but kept the focus on investment goals. Once the SIPs and bill payments were done, the money stayed in the home loan account and we used to spend it as needed. From 2015 or so, I was more pedantic about counting expenses. This is primarily to fine tune the expense estimates during FF. I used Intuit earlier and have used perfios since 2013.
- I had shared this chart online earlier. It shows the portfolio as reported by Perfios. The colour scheme is not easy to read. But you can clearly see the steady growth of the portfolio.
- The rightmost bar is for EPF. You can see the steady growth in this. The first bar (that starts negative) is for bank accounts. The negative balance comes from the home loan. Around 2015, the loan balance was close to zero. I realized (and the bank too realized) that the balance can be positive also! I have kept this account in positive balance since then.
- The pale orange bar is for mutual funds. I massively increased the SIP amounts through the years, The expenses had become quite predictable and a major chunk of my net income would go into investments. By 2017 or so the equity portfolio had reached the value that I needed. (I invested most of my salary in VPF since then.)
- Around 2014, I had become a reader of freefincal The fabulous calculators really improved the efficiency of my DIY approach. I use some of the calculators extensively.
- The one tool that I would credit the most is the bucket strategy calculator. Simple formulae don’t help with the buckets. Pattabiraman has painstakingly flattened out the calculations and showed the optimization possible. See: The even lower stress retirement calculator
- In 2015, I enhanced the calculator to include all goals. This calculator was the clincher to review the preparedness for FF. I could see that I can reach FF in 2017 itself.
- My version of the calculator built the buckets through the years and no change was required at FF time. The money was mostly in the right buckets.
- My assumptions are quite conservative and largely follow those in freefincal calculators
- I don’t account for my wife’s salary.
- Inflation before FF- 8%, during FF – 8%
- CAGR from equity – 10%, from FD – 5%, from debt funds – 7% (all post-tax)
- Since I use buckets, I can tweak the returns for each bucket and don’t use real returns, etc.
- In end-2016, I consulted with a fee-only planner, Melvin Joseph, to reaffirm my plans. He was definite about the feasibility of FF by 2020, and a bit cautious about earlier dates. (After 2003, this is the only other time I worked with any advisor. ) A major help that he provided was to select appropriate debt mutual funds. I found selecting debt funds 2x,3x harder than selecting equity funds.
- Sometime in 2017, I got my wife fully on board about 2018. And that was the last part needed to make the plan a reality. As it stands, the corpus has been planned for all these goals – living expenses, college and postgrad education for children, some level of marriage expenses.
- In 2010, I formalized our HUF – it has some corpus now and I plan to leave that as the legacy.
- By the way, through the decade we did not really crimp on expenses. We made loooing overseas trips, took some vacation or other every December and summer, changed our cars, etc.
- Incidentally my debt: equity in financial assets is almost 50:50 now – quite in line with the rule of thumb. However, if you are looking to work till 60 or, then you can and should have more in equity.
- Most of the equity part is in ICICI Pru Value Discovery, Franklin Prima, DSP Small Cap, and HDFC Hybrid Equity (I treat the last as equity) Most of the debt mutual funds are in Franklin UST, HDFC Short Term, and ABSL Savings and Regular Savings (Yes 1-2 in the list is sub-par, but that happens.)
- I have put some of the education expenses in debt mutual funds in the names of my children – they can access it after they become 18 and STCG or LTCG is in their hand!
- One can’t write a personal finance article in India without mentioning Gold! For us, it is not a part of the portfolio. My wife says that her education is her gold. Socially too, our community is not that high on gold. If required, we would buy gold using financial assets. I have the odd purchases of a few grams of gold – mostly in the form of coins and bonds.
###
Part 2 is here: Factors that helped me achieve financial freedom
Download free ebook: How to retire early in India
Please join me in thanking Srinivasan for sharing his journey. You can approach him for your financial needs via srinivesh.in.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool! => 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 over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
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)