Hello Sir,
I am 26 year old (male, single) and my current in-hand salary is 76K per month. I have been investing in mutual funds since 2019.
Currently, I have 5.5L in my mutual fund portfolio with a CAGR of 28%, 7L in stocks, 2.7L in PPF. I also contribute to NPS and APY. My current SIP amount is 18K per month.
I have two loans - Education loan which will finish this year and Home loan which started this year in April with an emi of around 22K.
I wish to create a F.I.R.E number and become financial independent early. Can you please advice me what I can do differently from above and how I can achieve financial independence as early as possible?
Can you please tell me
Ans: Achieving Financial Independence and Early Retirement (FIRE) requires strategic planning, disciplined saving, and wise investment decisions. Let’s break down your current financial situation and explore steps to help you reach your FIRE goal.
Current Financial Snapshot
Income and Investments
In-hand salary: Rs 76,000 per month
Investments:
Mutual Funds: Rs 5.5 lakh with a CAGR of 28%
Stocks: Rs 7 lakh
PPF: Rs 2.7 lakh
NPS and APY contributions
SIP amount: Rs 18,000 per month
Liabilities
Education loan: Ending this year
Home loan: EMI of Rs 22,000 per month starting in April
Setting Your FIRE Number
To achieve financial independence, you need a target savings amount, commonly referred to as the FIRE number. This amount should allow you to live comfortably without working.
Calculate Annual Expenses
Estimate your current monthly expenses, excluding your home loan EMI. Let’s assume other expenses are Rs 30,000 per month.
Total monthly expenses: Rs 52,000 (including EMI)
Annual expenses: Rs 52,000 * 12 = Rs 6,24,000
Determine Your FIRE Number
Using the 25x rule, which suggests saving 25 times your annual expenses:
FIRE number: Rs 6,24,000 * 25 = Rs 1,56,00,000
Evaluating Your Current Strategy
Investment Performance
Mutual Funds: Rs 5.5 lakh at 28% CAGR is excellent.
Stocks: Rs 7 lakh in stocks diversifies your portfolio.
PPF: Rs 2.7 lakh offers tax benefits and stable returns.
NPS and APY: Good for long-term retirement planning.
Debt Management
Education Loan: Ending soon, freeing up additional funds.
Home Loan: EMI of Rs 22,000 is manageable within your salary.
Recommendations for Achieving FIRE
1. Increase Savings and Investments
Redirect Loan Payments: Once your education loan ends, redirect those payments into your investments.
Boost SIPs: Increase your SIP amount progressively as your income increases. Aim for at least 25-30% of your salary in investments.
2. Diversify Investment Portfolio
Equity Mutual Funds: Continue investing in high-growth mutual funds. Consider adding diversified equity funds to balance risk and return.
Stocks: Focus on a mix of high-growth and stable companies. Ensure your portfolio is well-diversified.
PPF: Continue your contributions to PPF for long-term, tax-free returns.
3. Optimize Tax Savings
NPS and APY: Maximize contributions to NPS for additional tax benefits under Section 80CCD.
Section 80C: Utilize the full limit of Rs 1.5 lakh under Section 80C through PPF, ELSS, and home loan principal repayment.
4. Build an Emergency Fund
Reserve Fund: Maintain an emergency fund of 6-12 months of expenses to manage unforeseen situations without disrupting your investments.
5. Prepay Home Loan
Extra Payments: Consider making extra payments towards your home loan principal. This reduces your interest burden and loan tenure, freeing up funds earlier.
Projected Growth and FIRE Timeline
Investment Growth Projection
Assuming a conservative CAGR of 12-15%, your investments can grow significantly over the next 10-15 years.
Future Value of Current Investments
Current Portfolio: Rs 15.2 lakh (Mutual Funds + Stocks + PPF)
Annual SIP Contribution: Rs 2,16,000 (Rs 18,000 per month)
Using a conservative growth rate of 12%:
10 Years: Future Value (FV) of current investments: Rs 47,20,808
15 Years: FV of current investments: Rs 86,82,168
Future Value of SIPs
Using a conservative growth rate of 12%:
10 Years: FV of SIPs: Rs 41,32,082
15 Years: FV of SIPs: Rs 1,00,03,553
Total Future Value
10 Years: Rs 47,20,808 + Rs 41,32,082 = Rs 88,52,890
15 Years: Rs 86,82,168 + Rs 1,00,03,553 = Rs 1,86,85,721
This projection shows you can achieve your FIRE number within 10-15 years with disciplined saving and investing.
Conclusion
Your disciplined approach to saving and investing is commendable. By increasing your SIPs, diversifying your investments, and managing your debts efficiently, you can achieve financial independence early. Regularly review your portfolio and stay committed to your financial goals.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
