Where are we on the journey to financial independence and early retirement?
Why have I started a post on journey to a happy retired life with a picture of guy alone in the desert?! Well a desert safari is an unforgettable experience for some while for others nightlife and beaches might be heaven. To each our own I say!
I have been wanting to write a post and share our goals, where we are now and how we plan to achieve them. But as I thought through on this, I decided that I should first write about how I would approach this journey then add in the numbers. Below are my steps towards achieving a happy life through financial independence and retirement
- Define your Happyness List: This should be a list of top 10 activities that you / your family derive the most happiness from. This should be the list where decision should not be based on money
- Track your expenses: Track your monthly expenses for 3 months or so until you have a very good idea of where your money is going. Continue tracking.
- Classify your expenses: I suggest categorizing your expenses as Happyness, Essential and Discretionary. Be true to yourself and classify correctly. Buying the latest gadget should not be on your happyness and eating out should not be on the essential lists. You should then write down what your ideal monthly expense value should be.
- Plan your Budget: Once you have an idea of where your ideal monthly expense should be, plan your budget for the year. Include periodic spends like Insurance, travel to ensure you have a correct projection for the year.
- Reduce your expenses: There are 2 ways to approach this. You can either attack the expense category with highest possibility of savings or attack the category that causes the least heart ache. Generally, house and travel tend to be the items where you can save more.
- Invest: Plan how your savings will be invested. Decide your emergency fund, short-term requirements (1-3 years), medium term requirements (3-7 years) and longer term requirements. Plan a strategy for each. This step will also include generating alternate streams of income – both passive and otherwise.
- Plan your retirement amount and date.
I will write details posts sharing our lists, numbers on expense and budget and tools we use later this month. The reason I have mentioned planning the retirement date as a last step is because, I believe your expenses should be based on your values and not on a projected goal. The lifestyle you live now will not change even after retirement if it is based on your values. The other reason is that projecting an accurate number in India where inflation plays a huge role is very difficult. Small variations in your savings rate and ROI from investment have huge implications. I still advocate doing this, so you can measure your actual date versus your planned. In case you end up with a huge delay you can decide if you can give up some happyness to retire early.
As I had mentioned earlier, the FS family has a pretty good savings rate. But we have never had a happyness list to ensure our spending is giving us the maximum benefit. My immediate action is to first have a chat with the Mrs. to decide our list this week. We have also started tracking our expenses on a daily basis since this month, so we should have a rough idea of any change compared to 1 year ago. In the next post, I will share the excel sheet that we use to track expenses. It can double up as a starter budget planning tool. I am planning to try out some phone apps that I have heard good reviews about and will update my experiences in a couple of months.
Since we already had some savings, we have a plan for the stash we have currently and the monthly savings we are accumulating. But since we do not have kids yet, it is difficult to project any requirement within the next 5 years. The plan is to share a net worth tracker every quarter and I feel starting this from mid-October would be good. I will also try to share our thought process behind our asset allocation and the steps we have taken around our investment.