The basic criteria of Financial Independence are to have assets that will give you returns, which is more than your expense. Financial Independence does not necessarily mean getting money without working.
This article is for those who passionately need to be financially independent as soon as possible. There isn’t much to tell, but the effort expected from those who desire to retire early is rather pretty difficult. Only those who are ready to sacrifice at least 5-10 years of their life can achieve financial independence.
There are three basic and simple things used to make us financially secure. They are; Job, Saving, and Investing. There are other options, like Lottery, gambling, and racketeering, to make huge fortunes, but we do not discuss those here for obvious reasons.
Let us stick to the traditional and normal ways of making money because we are normal, duty-bound citizens paying taxes and love a peaceful life.
Have a Job to Start Out
When you have finished your education and head up to the big world outside, the first prerequisite you need to retire early is to have a job. Only a steady job just after education could see help you stand on your feet.
How will you plan when the ground under your feet is not stable? So try to get a job as soon as possible and try to bring in the income. If you want to study further, look to work part-time, and complete your studies.
If you can start a business on your own, it is much better. However, not everyone is cut out to become an entrepreneur very early on, at least. Therefore, stick with getting a job quickly if you cannot start a business by yourself.
Aggressive Saving Is the Key
Saving is what will demand your greatest effort. When we speak of saving here, it doesn’t mean the kind of usual saving that financial gurus advise you. To be truly independent financially, you must save aggressively. This is why you need to be really passionate about being retiring early because most young people find saving like this very difficult to achieve.
Save on everything and anything that can be saved. Live as much below your means as possible. Cancel out on all your outings, unnecessary shopping, eating out, and partying. This is not meant to transfer you into a recluse or a saint but to save as much as possible from the little income that you are earning.
However, you need to undergo aggressive saving only for a period of 5 years. After that, you are free to do whatever you want to do.
The focus here is to save a good amount of money from the only source of money you are getting, that is your job. Save up to 60% to 70% of your income every month. That is if you are currently earning about Rs. 10,000 per month, try to save an amount of Rs. 6000 to Rs. 7000.
Let’s say you save an amount of Rs. 7000 every month. Within 7 years, your savings go up to Rs. 5.9 lakhs. That is not such a bad amount for a young person considering that the income was steady all through these years. If you perform well at your job, the income is bound to increase, thus pushing your savings higher. Rs. 4.2 lakhs is the lowest limit that you can save. The upper limit can go much higher than this.
Only aggressive saving can help you to save 60% to 70% of your income every month. Also, your job location can affect your savings. The struggle will be much harder when your job is away from home and in some high-cost city. However, for your own future, you need to make an aggressive saving. You must achieve that saving percentage for you to retire early.
Invest in Assets and Make Money Through Compounding
Investing is not something that you do after the 5 years are up. It must be done simultaneously when you start your Saving. With a steady job, your income is fixed, limited, and can only grow slowly along with inflation.
This means that in real terms, that salary hike doesn’t make any difference in your life because your purchasing power remains the same.
By investing, your money will grow more than the inflation rate in the economy. This helps you to earn extra income other than what you get from your regular job.
You will increase your income by investing in high-yielding assets, but you must not take the money earned for day-to-day expenses. This amount is reinvested in assets for still higher returns. This is the classic Compounding method to grow your money exponentially.
By taking the above example, for the person who invests Rs. 7000 every month and do compounding will end up with Rs. 10 lakhs after a period of 7 years. For a person with a salary of just Rs. 10,000 every month, having Rs. 10 lakhs after 7 years is a good deal.
Enjoy Life After 7 Years
After 7 years, either you can continue with aggressive saving and compounding, or you can invest in assets that give you good returns with limited risk, for example, Mutual Funds, etc. Some mutual funds will give you returns up to 15% though the risk is high.
Funds like that can give you Rs. 1.5 lakhs in one year as income. This means that you get Rs—12,500 every month for your expense.
With 7 years of Aggressive Saving experience behind you, don’t you think you could live comfortably with Rs. 12,500?
Besides, if you are not quitting your job or business after seven years, then imagine how much money you will have to save and spend for the rest of your life.
The challenge is huge, but it is practical. Once you decide to work hard and suffer for 7 years, you can enjoy life after this period. All the calculations are made, considering that your salary stays the same, and the returns are fixed—the possibility of having a higher income than we state here higher in real life.
I have covered some best tips and ideas about how and can you become financially free within 7 years, and we also covered these ideas with our calculation, but you also keep in mind that every calculation results can be different as per your current salary and expenses.
If you think that this topic is good and helpful, then please share with your friends who want real advice to become financially free in life.