Last Updated on June 5, 2021 at 9:14 am
Raghu asks, “Dear Pattu Sir, I have just started my career as a school teacher in a tier II city. I also take tuitions to supplement my income. Thanks to our families frugal existences and early initiation into personal finance, I have been able to comfortably make ends meet and invest the rest (thanks to your articles!). I am fascinated by financial freedom and wish to achieve it at least before the age of 50.”
“However, except perhaps your story, every financial freedom story I have read is that of an IT employee often with some time spent abroad. Is financial freedom an impossible dream for those working in non-IT jobs?”
Let us begin by making necessary clarifications to appease readers from the IT industry who are possibly fuming at the insinuation that it is easier for them to become financially free. While it is true that some instances of financial freedom (including accounts shared here) are those from IT folk, it is not a universal trend. What Raghu is trying to say is, “is there any hope of financial freedom if my salary is low?”
Now, let us not interpret this as “IT folk earn a lot”. Raghu is under the impression that a school teacher in a tier II city may not make as much as an entry-level employee TCS or Infy. However, I recently learned that the entry-level IT pay has not changed much for many years. So the “gap” may not be as high as Raghu imagines.
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Also, even as an outsider, I could see that the nature of the IT business has changed. Many who started in the early/mid-90s have probably achieved financial independence and become independent consultants or entrepreneurs. Correct me if I am wrong, but the going has been at least a little tougher for those who started in the early 2000s and tougher for those who started later.
And as regards that envious on-site opportunity, it had dried up even before the pandemic and, at the very least, looks uncertain now. So let us not single out IT employees as these super-rich guys who can easily become financial independent.
At least in the higher echelons of academia, the income gap has significantly reduced if not overturned. Ok, that is enough appeasement. Let us get down to the question at hand.
Forget early retirement. For even normal retirement with financial freedom, one requires a reasonable salary, low expenses, not too much debt and the prospects of salary hikes in future. Where one works is irrelevant.
Also, the definition of normal retirement has considerably changed. For me, it is age 65. For school teachers, it should be age 60. The scenario for those with corporate jobs is considerably different. Even in the non-IT sector, normal retirement is probably 55 or even 50 (if not less!).
For someone below age 30, for normal retirement with financial freedom, if X = annual expenses that will persist in retirement (to be reviewed each year), X should be the minimum annual investment. They should invest in a portfolio with an initial equity allocation of at least 50-60%.
If Raghu can pull this off from day one or at least within the next 3-5 years, he should consider himself on the right path. But, unfortunately, scores of 30+ and 40+ Indians find this impossible to pull off. Raghu could well be one of them. The way out does not lie in worrying about what others make.
For early retirement – let us define this as at least 10 years before normal retirement for a person’s job profile -the annual investment should be two-three times more. If Raghu lives a frugal life and keeps his expenses and debt low, strives to increase his income; early retirement is a real possibility.
It is important not to jump to conclusions about our life and future net worth based on what we earn today. Things can change quite rapidly, provided we have the desire and discipline to take action.
So dear Raghu, do not be envious of IT folk. They have a ton of problems to deal with. A teacher typically does not deal with the kind of stress that comes with a fat corporate salary. Use that advantage to make the best use of your time. Upskill yourself, share your learnings with others and build your income.
The desire for financial freedom or early retirement is often a dream that originates from a stressful workplace. However, at least for someone with Raghu’s profile, I think it is possible to find a work-life balance without becoming financially free as soon as possible.
Never define success in terms of salary or education or belongings even success! “Success is really nothing more than the progressive realization of a worthy ideal.” – Earl Nightingale.
So I would worry about what is a worthy ideal for me and set about getting closer to it. Determination is the key. All the best.
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