How Can a 36-Year-Old With High Income & Investments Be Financially Independent in 10 Years?

Hello Sir, I am a 36 years old man, father of 2 (5y & 2y), Our income is 40Lacs pa post tax addition to that we have a rental income of 50K pm, our monthly expense is around 40K which is taken care by rents. Doing a SIP of 2.5 lac with total investment of 28L , have a RD of 25 L, ULIP -10L, Gold- 50L, I want to be financially independent in next 10 years. No loan , no credit cards., Has a medical policy of 25L. Emergency fund of 10L. Please advice how i can achieve financial independence in next 10 years.

Ans: 1. Understanding Your Financial Position
You are 36 years old with a goal of financial independence in 10 years.

Your annual post-tax income is Rs 40 lakh, with an additional rental income of Rs 50,000 per month.

Your monthly expenses are Rs 40,000, which are fully covered by rental income.

Your current investments include:

Rs 2.5 lakh SIP per month
Rs 28 lakh in mutual funds
Rs 25 lakh in RD
Rs 10 lakh in ULIP
Rs 50 lakh in gold
Rs 10 lakh emergency fund
You have no loans or credit cards, which is a strong financial position.

Your health insurance is Rs 25 lakh, which is good but may need a review later.

2. Defining Financial Independence
Financial independence means having passive income that covers all expenses.

You need enough wealth to generate returns that sustain your lifestyle.

Your target should be to build a portfolio that provides stable income after 10 years.

3. Optimising Your Current Investments
Mutual Funds – Increase Allocation
Your Rs 2.5 lakh SIP is excellent, but it needs active management.

Actively managed funds provide better returns than index funds.

Direct mutual funds lack professional management. Investing through an MFD with CFP credential helps maximise returns.

Maintain a mix of large-cap, mid-cap, and hybrid funds for stability and growth.

Recurring Deposit (RD) – Shift to Growth Assets
Rs 25 lakh in RD earns lower returns compared to equity.

Consider shifting RD funds gradually into mutual funds for better compounding.

Keep only a portion in fixed-income instruments for stability.

ULIP – Consider Surrendering
ULIPs mix insurance with investment, which reduces returns.

Surrendering and reinvesting in mutual funds can improve returns significantly.

Keep insurance separate from investments for better wealth creation.

Gold – Maintain a Balanced Allocation
Rs 50 lakh in gold is a significant portion of your portfolio.

Gold is good for diversification but does not generate passive income.

Consider reducing gold exposure and reallocating to growth-oriented assets.

4. Asset Allocation for Financial Independence
A well-diversified portfolio ensures long-term stability and wealth growth.

Your asset allocation can be:

60% in equity mutual funds
20% in debt funds and bonds
10% in gold and other assets
10% in liquid funds for short-term needs
Adjust allocation every year based on market performance.

5. Passive Income Strategy
Your goal is to generate passive income through investments.

SIPs will build a strong equity base over the next 10 years.

A mix of mutual funds and debt instruments will provide steady cash flow.

Rental income already covers monthly expenses, which is an advantage.

After 10 years, your investments should generate returns covering all financial needs.

6. Emergency Fund and Insurance Review
Emergency Fund
Your Rs 10 lakh emergency fund is good.

Keep this amount in liquid funds or fixed deposits for easy access.

Maintain at least six months of expenses as a backup.

Health Insurance
Your Rs 25 lakh health cover is decent, but medical costs rise over time.

Consider increasing coverage to Rs 50 lakh if affordable.

Ensure it covers critical illness and long-term care needs.

7. Retirement and Children’s Education Planning
Retirement Planning
Financial independence should include a secure retirement plan.

Your investments will continue growing even after achieving independence.

Keep investing to ensure financial security beyond the next 10 years.

Children’s Education
Education costs will rise significantly over time.

Start a dedicated investment plan for your children’s higher education.

Equity mutual funds with a long-term horizon will help meet this goal.

8. Tax Efficiency and Wealth Preservation
Efficient tax planning ensures you maximise post-tax returns.

Long-term capital gains tax is lower on equity investments.

Regularly review your tax liability to optimise investment returns.

9. Monitoring and Adjusting the Plan
Review your portfolio every six months.

Rebalance investments if market conditions change.

Keep track of financial independence progress based on wealth accumulation.

10. Final Insights
Your financial position is strong, and your goal is achievable.

Shifting from low-return assets to equity will help in long-term wealth creation.

Active management of investments will ensure better returns and financial security.

Keep insurance separate from investments to avoid lower returns.

A disciplined approach to investing and spending will lead to financial independence.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment

Ans: Your current financial standing is quite strong. At 37 and 36 years old, both you and your wife have done well in managing your finances.

You have no liabilities, with your home loan cleared and multiple properties providing you with rental income. You also have a substantial emergency fund in fixed deposits, significant investments in mutual funds, provident funds, and gold. Your insurance coverage is comprehensive, with term insurance for both of you, and health insurance provided by your employers. These factors set a solid foundation for your future financial independence.

Evaluating Your Financial Goals
Your goal is to achieve financial independence in the next 15 years. This goal is ambitious but attainable, given your current financial situation and disciplined approach to saving and investing.

To evaluate your progress toward financial independence, we will assess your current investments, savings rate, and expected future returns. We will also consider your expenses and lifestyle expectations post-retirement.

Assessing Your Current Investments
Emergency Fund: You have Rs 10 lakhs in fixed deposits, which is a prudent move. This amount is sufficient to cover around 4-6 months of expenses, ensuring financial stability during unexpected situations.

Mutual Funds: With Rs 15 lakhs already invested and a monthly SIP of Rs 1.5 lakhs, your mutual fund investments are on track. This approach is excellent for long-term wealth creation.

PPF and NPS: Your PPF balance of Rs 16 lakhs and a monthly contribution of Rs 25,000 add up to a substantial corpus over time. The NPS balance of Rs 5 lakhs will also grow significantly with regular contributions.

Provident Fund: Your PF accumulation of Rs 30 lakhs is a strong foundation for your retirement corpus.

Gold: With 7-8 lakhs invested in gold, you have diversified your portfolio well, although gold should be viewed as a hedge rather than a primary investment.

Insurance: Your term insurance coverage is adequate, with Rs 1.3 crores for you and Rs 60 lakhs for your wife. LIC premiums of Rs 56,000 annually indicate that you have some traditional insurance policies, which may not be the best for wealth creation but provide a safety net.

Identifying Gaps and Opportunities
Although you are in a strong position, there are areas where you can optimize your investments to reach your goal of financial independence in 15 years.

Optimizing Your Mutual Fund Investments
Your current SIP of Rs 1.5 lakhs per month is commendable. However, it’s crucial to ensure that your mutual fund portfolio is well-diversified across various asset classes such as equity, debt, and hybrid funds.

Given your long-term goal, focusing more on equity mutual funds could provide the growth needed to achieve substantial wealth. It is also wise to periodically review and rebalance your portfolio to ensure it aligns with your risk tolerance and financial goals.

Reviewing Your PPF and NPS Contributions
Your PPF contributions are disciplined, and this is a safe, tax-efficient investment. However, given the long lock-in period, ensure that you have enough liquidity outside of PPF for other investment opportunities.

Your NPS contributions, while beneficial for retirement, should be balanced with the need for flexibility. NPS offers a good mix of equity and debt, but it comes with restrictions on withdrawal before retirement. Ensure that your overall investment portfolio is not overly restricted by such instruments.

Reassessing Gold Investments
While gold serves as a good hedge against inflation, it is not a high-growth asset. Ensure that your gold investments do not constitute too large a portion of your portfolio. Ideally, it should be around 5-10% of your total assets. This allows you to benefit from the safety of gold without sacrificing potential returns from other investments.

Evaluating Your Insurance Policies
Your term insurance coverage is robust, which is essential. However, if the LIC policies you hold are traditional endowment or money-back plans, you may want to reconsider them. These policies often have low returns compared to mutual funds. If feasible, you could consider surrendering them and redirecting the premiums into higher-yielding investments like mutual funds. However, this should be done only after evaluating any surrender charges and the impact on your overall financial plan.

Planning for Financial Independence
Achieving financial independence in the next 15 years requires careful planning and disciplined execution. Here’s a step-by-step approach:

1. Determine Your Retirement Corpus
To achieve financial independence, you need to estimate the corpus required to sustain your lifestyle post-retirement. Consider your current expenses, inflation, and life expectancy. A rough estimate would be to accumulate at least 25-30 times your annual expenses as your retirement corpus. This amount should be sufficient to generate a sustainable income through systematic withdrawal plans (SWPs) or other income-generating assets.

2. Enhance Your Savings and Investments
Given your current income of Rs 3 lakhs per month, you can consider increasing your savings rate. You are already saving and investing a substantial amount, but if you can allocate more towards investments, it will significantly accelerate your path to financial independence.

Increase SIP Contributions: Gradually increase your SIP contributions as your income grows. This will ensure that your investments keep pace with inflation and provide the necessary growth to achieve your financial goals.

Diversify Across Asset Classes: While equity mutual funds are essential for growth, consider adding some debt funds to your portfolio to balance risk. Hybrid funds can also offer a mix of stability and growth.

3. Monitor and Rebalance Your Portfolio
Regularly monitor your investment portfolio to ensure it aligns with your financial goals. Rebalancing is crucial to maintain the desired asset allocation and to take advantage of market opportunities. It also helps in managing risks and ensuring that your portfolio is not overly concentrated in one asset class.

4. Plan for Post-Retirement Income
Once you achieve financial independence, generating a regular income to sustain your lifestyle becomes the priority. Consider creating a portfolio that can generate a steady income through:

Systematic Withdrawal Plans (SWPs): These can provide a regular income stream while keeping your capital invested in mutual funds. It is a tax-efficient way to withdraw money.

Dividend-Paying Mutual Funds: These can offer a regular income, although the returns are subject to market conditions. It’s important to choose funds with a consistent dividend track record.

Debt Funds: These provide a stable income with lower risk compared to equities. They can be part of your post-retirement income strategy.

Tax Planning and Estate Planning
As you approach financial independence, it’s important to consider tax efficiency and estate planning.

Tax Efficiency: Optimize your investments for tax efficiency by choosing the right mix of equity and debt funds, considering the tax implications of each. Use tax-saving instruments like PPF, NPS, and ELSS funds wisely.

Estate Planning: Ensure that you have a clear estate plan in place, including a will. This will ensure that your assets are distributed according to your wishes, and it will provide peace of mind for your family.

Final Insights
You are on a strong financial footing with a well-diversified portfolio and disciplined savings habits. By optimizing your current investments, increasing your savings rate, and planning for a sustainable post-retirement income, you can achieve financial independence within the next 15 years. It’s important to stay focused, regularly review your financial plan, and make adjustments as needed. Consulting with a Certified Financial Planner will also help you navigate any complexities and ensure that you stay on track toward your goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in