Road to financial independence: A Forthright account

A few weeks back, Mr. Rajshekar Roy posted in the facebook group, Asan ideas for wealth. He wanted to know if his nest egg is big enough to quit a corporate job and start private consulting.  Many of us agreed that his fiscal health was sound enough to do so.

Since encountering such people is rare, the curiosity to know more about Mr. Roys journey increased. When I requested him to write an account, he readily agreed.

Regular readers may be aware that a couple of months ago, early retiree Mr. Balaji Swaminathan shared details about his journey towards financial independence in an interview.

Let us now learn from Mr. Roy.

~~~~~~~~~~~~~~~

Of late, a number of people have expressed their interest in wanting to know about how I have dealt with my own financial planning. While it will be difficult to put all the thoughts in one article, I will try to outline my overall approach and the related successes and failures.

Let me start by giving an introduction. I was born and brought up in Durgapur, close to Kolkata. I did my BE in Computer Science from Jadavpur university and my MBA from IIM Calcutta. I started working in 1988 after IIMC and have been in the IT industry throughout, except for a brief period of 1 year where I worked as a consultant, again in the IT sector. From 2000 onwards I have held CEO level positions and am now planning to do other things. At present both my children are in college (BITS Hyderabad and BITS Goa) in the 3rd and 1st year respectively. My wife is an Economist and is currently working from home.

I have always felt that our attitude towards money is intimately linked to the value systems that we have in us. Some of the values that are deeply ingrained in me are as follows – I am not in favor of loans unless it is for creating assets, had initial reservations on equity markets, believe in spending based on affordability and understand that money is only a means to do things.

In the beginning of my career and till the time I got married in 1993, most of my savings were in Fixed deposits. In fact, I spent all my accumulated savings for the marriage and associated expenses. That did not matter too much as both my wife and I was working. In the initial period I continued investment in debt products like PPF for both of us. This was also the period when there were a slew of IPO s and I started investing in a few. L & T, Essar, HCL HP and Nucleus were a few stocks that I invested in. The last two were courtesy my being an employee there. Till 1998 when we were in Delhi, I did not give much thought to my financial planning. It was more of – I have a good job and will be able to earn more if needed etc.

We shifted to Chennai in 1998 and changes in my family situation resulted in my being more serious about financial planning. My wife gave up working after our second child was born, my daughter started attending school and we bought our first car (Maruti Zen VX). I had taken a loan of 1.5 lacs to buy the car but paid it back within a year. We had also bought a Timeshare unit from RGBC in 1997 which I managed to pay off in the same period. Though I was earning significantly more, our expenses were high and ability to save rather limited. I continued to invest in PPF and FD s as we wanted to build up an amount for the down-payment of a house.

The year 2000 was one of big change as I got a new job which more than doubled my compensation. Though our expenses also had an upward lift, this enabled us to start saving more rapidly towards the housing goal. The other thing was my getting introduced to a financial planner who sold us the first Mutual Funds – it was Franklin India Blue chip whose NAV was some 9 Rs then. Being from the IT industry I also bought Prudential ICICI Technology Fund, whose NAV due to the recession had come down to 3.27 Rs. The extra cash that we had enabled us to build up the down-payment for our home through FD s. I still remember our HDFC bank manager being quite sad when we liquidated these in 2002 for buying an apartment in Adyar. Side by side our equity portfolio was growing both in direct stocks as well as MFs. We initially bought only Blue chip companies but later on diversified into relatively lesser known companies. As far as MF went, we did not do SIP but bought into certain MF’s depending on our cash flows. By the year 2007 when we shifted to Hyderabad we had built up a significant portfolio in stocks and equity MF. At that point my goal was to have this value at 1 crore, which looked possible in the bull run of 2007.

Our portfolio did briefly exceed the above target, but the crash of 2008 depleted our net worth considerably. As I did not sell in the initial part of the fall, I just had to stay put and hope that there will be future recovery. I was in a stable job where I wanted to spend the next 3-4 years, so I was not really worried about needing money from my investments. In 2009 after the Satyam situation caused further bloodshed in the market, I actually took a contrarian step and started to add to my stocks. I still remember buying ICICI at 263 Rs and several others at great prices. We also started investing through SIP in MF from 2008, which still continues.

The last leg of my investment journey has been to focus on debt. I chose FMP s as the main instrument after trying out MIP s and not liking them much. Till the government changed the rules in this budget FMP was a great product. Most of the ones I had gave me double digit returns annually with hardly any tax liability. Today I have a substantial portfolio of FMP s and am exercising the rollover option as I do not need the money in the next 2 years. Tax Free bonds have been my other investments in the debt area. The main reason for this was to establish a regular income stream when I would not be working in a regular job. I do have a few regular debt funds, but the investment there is not significant. PPF has continued over the years and I do not intend to take money from it in the next 5 years, unless the rules change.

As far as insurance goes I have taken Life insurance early in my career and added more after marriage. Health insurance was always provided by the companies I worked in and last 2 years I have taken a Max Bupa policy.

I have had investment goals, but I have not separate investments for different goals. Children’s education was always funded through my salary and, except for the first car; my next 2 cars were bought outright. I had taken a 15 lacs housing loan but managed to pay it back in 3 years. I do not believe in taking loans for consumption. Our expenses have always been high, but fortunately the income had kept pace with it. Recently my wife and I went to Australia for 2 weeks and this too was funded by savings in the past year.

Breaking away from the herd
"Breaking away from the herd: A solitary sheep breaking away from the herd accentuated by the disturbed dew on the grass." - David Hannah (flickr)

Now that I am looking at getting out of the regular corporate grind to do some consultancy on my own, the present situation is this:-

  • Children’s graduation will be completed in a few years. I have provided for their fees based on the inflation levels that BITS has indicated. I do not consider this amount as part of my net worth.
  • I get some rent from my Chennai flat. This amount should suffice to rent a good apartment in another city. Will look at buying RE only if I sell the Chennai flat.
  • Medical insurance is taken care of. With my current resource base and reduced economic value of life, I do not think I need life insurance.
  • Regular expenses will be funded through dividends from stocks, interest from tax free bonds and dividends from MF.
  • For the next 5 years I do not anticipate touching the PPF money and hope not to deplete the Equity portfolio for 10 years.
  • My consultancy will probably generate a fairly good income, but I do not want to depend on it for my day-to-day expenses. This should be for some causes that are dear to me.

I think this has been a long article and hopefully it would have given some ideas to people as to how I went about constructing my financial independence. It has taken a lot of hard work and several twists and turns, but I do think of myself as financially independent today.

~~~~~~~~~~~~~~~~~

Do join me in thanking Mr. Roy for such an honest account of his journey to financial independence.

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74 thoughts on “Road to financial independence: A Forthright account

  1. Rajshekhar Roy

    Thanks Pattu firstly for the calculators that have added valuable insight to my own knowledge and secondly for encouraging me to write this article. Will be happy to answer any questions that your readers may have. One clarification - I have always worked in India though travel abroad due to work purposes have been frequent. So my earnings have been entirely here.

    Reply
  2. Rajshekhar Roy

    Thanks Pattu firstly for the calculators that have added valuable insight to my own knowledge and secondly for encouraging me to write this article. Will be happy to answer any questions that your readers may have. One clarification - I have always worked in India though travel abroad due to work purposes have been frequent. So my earnings have been entirely here.

    Reply
  3. Piyush Khatri

    Thank you Mr. Roy for sharing your life journey with us. I would like to congratulate you on your decision of coming out of safe investments and investing in equity. You had proper balance of debt as well equity in your portfolio through out. Best of luck for your future aspirations.

    Thanx Mr. Pattu for giving limelight to such inspiring stories.

    Reply
  4. Piyush Khatri

    Thank you Mr. Roy for sharing your life journey with us. I would like to congratulate you on your decision of coming out of safe investments and investing in equity. You had proper balance of debt as well equity in your portfolio through out. Best of luck for your future aspirations.

    Thanx Mr. Pattu for giving limelight to such inspiring stories.

    Reply
  5. Ajit Gm

    The prsent net worth of Mr.Roy is not mentioned. How much is it for him to feel he is financially independent today.

    Reply
  6. Ajit Gm

    The prsent net worth of Mr.Roy is not mentioned. How much is it for him to feel he is financially independent today.

    Reply
  7. Rajshekhar Roy

    Yes, despite my initial reluctance to the equity markets I quickly realized that the road to financial independence purely based on debt products would mean I needed to work till 60 or more !! Also, once I got down to some basic study I could see that the volatility of the stock market reduces significantly if you play in the long run. As long as you can withstand the emotional stress of the stock picking with the philosophy, " you win some and you lose some", it'll work out. I have made some terrible stock picks but also some great ones that have proved to be multibaggers.

    Reply
  8. Rajshekhar Roy

    Yes, despite my initial reluctance to the equity markets I quickly realized that the road to financial independence purely based on debt products would mean I needed to work till 60 or more !! Also, once I got down to some basic study I could see that the volatility of the stock market reduces significantly if you play in the long run. As long as you can withstand the emotional stress of the stock picking with the philosophy, " you win some and you lose some", it'll work out. I have made some terrible stock picks but also some great ones that have proved to be multibaggers.

    Reply
  9. Ajit Gm

    Mr. Balaji Swaminathan's simple formula is easier to use. "My simple focus is to check my networth any year, in terms of my financial assets marked for retirement goal, should be at least 30 times my current annual expenditure." It can be modified as safe retirement financial assets should be current annual expenditure multiplied by number of years required. This will be very safe as long as you generate annual returns equal to or more than the annual inflation rate on your financial assets. The excess returns generated can provide more safety and some amount to be passed on to heirs.

    Reply
  10. Ajit Gm

    Mr. Balaji Swaminathan's simple formula is easier to use. "My simple focus is to check my networth any year, in terms of my financial assets marked for retirement goal, should be at least 30 times my current annual expenditure." It can be modified as safe retirement financial assets should be current annual expenditure multiplied by number of years required. This will be very safe as long as you generate annual returns equal to or more than the annual inflation rate on your financial assets. The excess returns generated can provide more safety and some amount to be passed on to heirs.

    Reply
  11. bemoneyaware

    Interesting read. Few observations which I are typical are as follows

    I have had investment goals, but I have not separate investments for different goals.
    Our expenses have always been high, but fortunately the income had kept pace with it
    As far as insurance goes I have taken Life insurance early in my career and added more after marriage. Health insurance was always provided by the companies I worked in and last 2 years I have taken a Max Bupa policy.

    Has Mr Roy been lucky that he did not face any layoff, no responsibility of sibling/parent , no medical issues, income steadily rising?

    Reply
  12. bemoneyaware

    Interesting read. Few observations which I are typical are as follows

    I have had investment goals, but I have not separate investments for different goals.
    Our expenses have always been high, but fortunately the income had kept pace with it
    As far as insurance goes I have taken Life insurance early in my career and added more after marriage. Health insurance was always provided by the companies I worked in and last 2 years I have taken a Max Bupa policy.

    Has Mr Roy been lucky that he did not face any layoff, no responsibility of sibling/parent , no medical issues, income steadily rising?

    Reply
  13. Ramamurthy

    Though Pattu many not agree,direct investing in Shares is good for your financial health.I am 85 and still dabble in share market as an investor(not trader}

    Reply
  14. Ramamurthy

    Though Pattu many not agree,direct investing in Shares is good for your financial health.I am 85 and still dabble in share market as an investor(not trader}

    Reply
  15. Mark

    Congrats MrRoy -
    My 2 cents on approach taken by him -
    "He was sensible not to follow his passion (quit job/start off on his own) - until he was financially stable. It is very easy to fall into the hero trap - with all passion - when you are least prepared financially and lose the plot very soon and at the end your family are the ones who suffer. Now when we starts off - money is not the motivation factor - so he can choose his projects/clients/price - rather being desperate for a break."

    Also kudos to you for not falling to RE trap inspite of Chennai Adyar RE appreciation of at least 15-20 fold in last few years.

    Reply
  16. Mark

    Congrats MrRoy -
    My 2 cents on approach taken by him -
    "He was sensible not to follow his passion (quit job/start off on his own) - until he was financially stable. It is very easy to fall into the hero trap - with all passion - when you are least prepared financially and lose the plot very soon and at the end your family are the ones who suffer. Now when we starts off - money is not the motivation factor - so he can choose his projects/clients/price - rather being desperate for a break."

    Also kudos to you for not falling to RE trap inspite of Chennai Adyar RE appreciation of at least 15-20 fold in last few years.

    Reply
  17. ashalanshu

    The core of financial life of Mr. Roy - Continuity in investments be it in debt initial part of life and later on Eq. (direct+MFs). How many of us can remain invested in thick and thin?

    Lesson to all of us.

    Thanks dear Pattu and Mr. Roy for this great piece of advice (living example).

    Thanks

    Ashal

    Reply
  18. ashalanshu

    The core of financial life of Mr. Roy - Continuity in investments be it in debt initial part of life and later on Eq. (direct+MFs). How many of us can remain invested in thick and thin?

    Lesson to all of us.

    Thanks dear Pattu and Mr. Roy for this great piece of advice (living example).

    Thanks

    Ashal

    Reply
  19. Kiran Kumar

    Good saving scheme but I don't see anything extraordinary here from investment strategy. To start with and until he broke off employment he was earning more than he ever needed so that forms the crux of the financial independence. This one is of CEO level, what is there for us aam aadmi investor?
    I read the last such example of financial independence also and so it appears the basic driver for financial independence is greater than required earning and which continues that way for a long time. The only skill needed in such a case would be to know not to dump all your extra money in bank.

    Articles like above don't have anything worth learning because in my opinion because what's there to learn when the eligibility for financial independence is to be born with a silver spoon (a.k.a extremely high paying job coupled with onsite earning opportunity) )?

    Reply
    1. pattu

      Yes large investible surplus does help. I can assure you that I earn much, much less than both the people in my blog. I may not be able to retire early but I intend to be financially independent before 60. That is all I can do. I think that is no mean achievement, even if I say so myself.

      Reply
      1. Jason Braganza

        Which is why I follow you and try to learn from you so closely 🙂 My economic status being either equal to or lower than yours, I’m like, if Pattu can do it, so can I 🙂

        Reply
    2. Deepak

      Dear Kiran Kumar,

      If the lesson to take is that higher earning is what will help you accumulate a good surplus - the action point is clear - while you invest and save and all that, you should also invest in yourself upskilling and ensuring you make a higher salary and are more employable - that is an even longer, painful and harder exercise than trying to make money out of beating market - but is more endurable and until you reach that goal - the mantra is to save first, spend less and invest wisely and enjoy the whole process !!!

      Reply
  20. Kiran Kumar

    Good saving scheme but I don't see anything extraordinary here from investment strategy. To start with and until he broke off employment he was earning more than he ever needed so that forms the crux of the financial independence. This one is of CEO level, what is there for us aam aadmi investor?
    I read the last such example of financial independence also and so it appears the basic driver for financial independence is greater than required earning and which continues that way for a long time. The only skill needed in such a case would be to know not to dump all your extra money in bank.

    Articles like above don't have anything worth learning because in my opinion because what's there to learn when the eligibility for financial independence is to be born with a silver spoon (a.k.a extremely high paying job coupled with onsite earning opportunity) )?

    Reply
    1. pattu

      Yes large investible surplus does help. I can assure you that I earn much, much less than both the people in my blog. I may not be able to retire early but I intend to be financially independent before 60. That is all I can do. I think that is no mean achievement, even if I say so myself.

      Reply
      1. Jason Braganza

        Which is why I follow you and try to learn from you so closely 🙂 My economic status being either equal to or lower than yours, I’m like, if Pattu can do it, so can I 🙂

        Reply
    2. Deepak

      Dear Kiran Kumar,

      If the lesson to take is that higher earning is what will help you accumulate a good surplus - the action point is clear - while you invest and save and all that, you should also invest in yourself upskilling and ensuring you make a higher salary and are more employable - that is an even longer, painful and harder exercise than trying to make money out of beating market - but is more endurable and until you reach that goal - the mantra is to save first, spend less and invest wisely and enjoy the whole process !!!

      Reply
  21. Ramamurthy

    I agree with kiran Kumar.In india how many Dr Roy,s are there?I would like to see posts from an average middle class investor how he has managed his finances.

    Reply
    1. pattu

      Sir, early retirement is not possible by everyone. The lesson one should learn is that they got their by being disciplined. They could have spent it all and still be part of the corporate grind.

      Reply
      1. Ramamurthy

        The whole problem,Pattu,is to know how much is enough!! Save, Save, and Save.How long, how much.Can any one tell me?Taking my own example,I am 85.My wife 78.No dependents.Income from fixed maturity investments minus regular monthly expense is around 40% of my income..Apart from this I have about 50 Lacs investments in Direct equity+Debt Funds.Very recently I had to vacate my own very old residence and occupy an apartment where i pay a rent of Rs 35000 pm. Income from Sale of my property less Cap Gains Tax etc invested in FD of PSU Bank .Medical Insurance policy Rs 5 Lacs on which I pay a premium of Rs 42000 per year.Age related medical problems are there.
        No other goal to plan for.Should I continue to save and invest?

        Reply
        1. pattu

          Sir, in your case, I think you don't have to invest anymore. I think you have enough to earn from safe instruments. Even a simple SB account! As regards the other issue will write about it in my next post.

          Reply
  22. Ramamurthy

    I agree with kiran Kumar.In india how many Dr Roy,s are there?I would like to see posts from an average middle class investor how he has managed his finances.

    Reply
    1. pattu

      Sir, early retirement is not possible by everyone. The lesson one should learn is that they got their by being disciplined. They could have spent it all and still be part of the corporate grind.

      Reply
      1. Ramamurthy

        The whole problem,Pattu,is to know how much is enough!! Save, Save, and Save.How long, how much.Can any one tell me?Taking my own example,I am 85.My wife 78.No dependents.Income from fixed maturity investments minus regular monthly expense is around 40% of my income..Apart from this I have about 50 Lacs investments in Direct equity+Debt Funds.Very recently I had to vacate my own very old residence and occupy an apartment where i pay a rent of Rs 35000 pm. Income from Sale of my property less Cap Gains Tax etc invested in FD of PSU Bank .Medical Insurance policy Rs 5 Lacs on which I pay a premium of Rs 42000 per year.Age related medical problems are there.
        No other goal to plan for.Should I continue to save and invest?

        Reply
        1. pattu

          Sir, in your case, I think you don't have to invest anymore. I think you have enough to earn from safe instruments. Even a simple SB account! As regards the other issue will write about it in my next post.

          Reply
  23. Nigel Pinto

    I love this story, especially the simplicity and how possible Mr Roy's reality could be ours?. Thanks Mr Pattabiraman Murari for this article and all that you do. You are a legend.

    Reply
  24. Nigel Pinto

    I love this story, especially the simplicity and how possible Mr Roy's reality could be ours?. Thanks Mr Pattabiraman Murari for this article and all that you do. You are a legend.

    Reply

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