The Not So Ugly Truth About Financial Independence

A little more than seven years ago, my expenses dropped to ‘normal’ levels after my father passed away (post a prolonged battle with cancer). I  had been in a regular position for less than two years then and was taking stock of my cash flow and investible surplus (money net of all expenses).

Immature me, I remember asking my mom a dumb question: “Why did you and appa not invest more when you were younger?”

She answered without batting an eyelid: “We (both worked) never earned enough”.

That felt like a slap to my face. I must have insulted her deeply.

I now realize that I was asking the wrong question.

The financial health of a family depends on its investible surplus at any point in time.

When the breadwinners work for a living, a good part of the surplus ought to be invested and not spent frivolously.

After retirement, the surplus could be invested or used in full to enjoy the finer pleasures of life.

Investible surplus is defined as

Surplus = Income – Expenses.

Interpreting this simple equation is a tricky and often a touchy subject.

You get a surplus if
1) you earn much more than you spend
or if
2) you spend much less than you earn

Unfortunately, there is a problem. The ugly truth is that these two conditions are not independent in practice.

You can spend much less than you earn only if you earn much more than you spend!

Distribution in income levels causes inequalities in society. However, all is not lost for those who earn less.

Consider a family (couple + 2 kids) whose sole breadwinner is in the 10% slab (or lower) and is likely to be in the same slab for the rest of
his/her life.

Can the couple expect to be financially independent after retirement?

Yes, if they expect to maintain their current lifestyle in retirement (and not dream of anything above that).
Yes, if they invest as much as they spend until the breadwinner retires.

But how practical is that?

The couple has two kids to parent. There is more to parenting than just taking care of the basic necessities of children. A parent will have to
indulge the children at least once in a while. They will have to support the kids dreams.

What if they decide to buy a small house? What if want to take a holiday? What if they want to spend a little extra during festivals?

Do we tell them that such things are luxuries and a strict no – no for them, because they are not earning enough?

Do we tell that the pleasures that rich and the affluent enjoy are beyond them even if they wish for it sporadically?

Financial advisory has to be clinical but who would have the heart to say such things to the family?

I don’t have an answer. However, I think there is one thing that MUST be said to such families:

Invest what you can, but invest it right, and as early as possible in productive assets. Never touch your investment unless absolutely necessary.

I write this post in the light of recent reactions to the post detailing the real-life experiences of two people who are financially independent:

Balaji Swaminathan and

Rajshekar Roy

I am miffed at comments which suggest that their financial independence is only because of their high income levels. Miffed because they could have been spendthrifts, locked their money in fixed deposits and still be chained to the desk.

The primary reason they are financially independent today is because of their disciplined investing in aggressive assets.

Had they earned less, they could not have retired early. No question about that. That, however is not the point.

A disciplined person, who understands the value of investing in aggressive assets to the best of their ability is more than likely to be financiallyindependent when they stop working. That is what counts.

That is all that we can expect a breadwinner and his family to do, irrespective of their income level.

During the recently concluded IFA Galaxy meet, I was delighted to spend most the day with Subra. He narrated how the peon in his office has a corpus of a few lakhs (thanks to Subra’s counsel). When the peon learnt about the value of his corpus, he could not believe it.

Disciplined investing matters. Investing right matters. Financial independence is not an impossible dream. It is a dream that is far away.

Yes, the investible surplus determines the distance to the dream. Why harp on that?

We can only control the controllables, but control them we must, to the best of our ability.

That is the mistake my parents made. They never invested in a productive asset like equity to the best of their ability. The comfort with which they met ends during their earning years gradually withered away, thanks to inflation.

Aiming for eventual financial independence backed with meaningful effort is something that we all should strive for. Regardless of ourincome levels.

Not all of us can achieve early financial independence.

Not all of us can enjoy the same level of financial independence. Subra’s office peon cannot go on a vacation abroad.

That goes against the nature of our existence. Every aspect of our lives follows a distribution – a spread. ‘True’ equality is defined but its absence!

All this reminds me of this quote.

The worst form of inequality is to try to make unequal things equal – Aristotle.

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This post was last modified on July 19, 2016, 6:51 pm


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  • The problem with our previous generation(s) was that they could not trust the high risk equity. Because of their less income their risk 'appetite' (or should I say the digestion capacity) was very less - perhaps even less than the risk they could withstand in actual. My parents still say Equity is a bet - a bet to lose money. :-)

  • Dear Sir,

    A meaningful article ! My take on investing for the milddle class people :

    Live simply and save as much as you can. Lets see where we end up when we retire. No point in losing sleep today thinking i need to buildup a corpus of 6 crores to retire comfortably and how am i going to achieve it.

    True financial independance is to live within your means on any day.

  • Thanks for the article Pattu sir.. I think, one of the paragraph in "Richest Man in Babylon" is correctly matches here. Quote "Hard work without consideration for what you do with your earnings is as futile as laziness. You have to be clever about what you do with what you earn—regardless of how much that is. Otherwise you will come to realise, that you have been working ‘year after year living slavish lives. Working, working, working! Getting nowhere…’

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