“10 commandments for retiring at 39, or doing your own thing”

I happened to meet my senior from school when I was in my hometown a few days back. He had not changed much and in fact looked as fit as he was 9 years ago!

We agreed for lunch the next day as I thought he was on vacation. I was surprised when he said he was there for good.

I first thought he was the latest to enter the entrepreneurial world- there have been so many stories now of people quitting well paying jobs and picking up farming or some environment related venture in the hills. I was wrong.

The next day we caught up over lunch and our conversation resulted in some vital financial lessons, the only difference being that these came from a person I knew quite well and not from a newspaper article. He said that he was late by three years as he had contemplated becoming his own boss by the time he turned 36!

Just to share a brief background- he was heading a critical department  around 9 years back in a leading financial services giant and was considered to be one of the most prolific managers in the organization. He was ambitious and I remember him saying that one day he would like to lead the organization!

Change of heart? He had clarity of thought, vision, focus and a razor sharp mind. He started investing in different avenues at the age of 23. He is 39 now, having seen his fixed investment in PPF account mature.

The journey has been easy, he said- PPF, bank FD/RD and Mutual Funds/Stocks. Unlike others, he never bothered about real estate. (Which is strange for people his age and a topic for discussion in itself!)

How did he achieve financial independence at such an early age- focus and discipline are the keywords from what I could make out of our two hours long conversation.

1 Starting early                 He implemented his plan for building a corpus at the age of 23. Initially he used to save almost 75% of his take home salary! It helped that his father had insisted on RD/FDs initially.

2 Do it yourself                 Very early in his professional life, he made an effort towards financial self sufficiency and literacy. He practiced the principle of “Outsource only when you understand and if you must”. If you outsource everything, your advisor or bank might start helping themselves rather than creating wealth for you!

3 Goal oriented approach            the end objective gives wings to your goal and brings focus in whatever you do.  All assets were reviewed for returns every year-non performing ones would be substituted, where ever applicable.

4 Mix of asset classes                    Mutual Funds, stocks, fixed return instruments- the mix for him was different as it would be for any investor. Experience taught him that each asset class grows at a different pace and the returns over a period of time are also different. The average return over the years for him has been 18%. (This is substantial, by any standard!)

5 Use your Credit card and automate expenses  a very interesting aspect and something which I always insist on. All expenses should be on credit card and regular ones should be automated. In fact he told me that he even used to track the savings from his credit card and has saved a reasonable amount by way of cash back and discount offerings in the last 12 years. Also, he has never missed on a payment!

6 Patience is the key                     Quick money is akin to gambling, not investing! Wealth creation is a long drawn process. Warren Buffett has created most of his billions by staying invested “forever”. If you have the force of conviction, stay put for the long haul.

7 Build a corpus to take care of all your expenses for one year    the journey becomes easier then. You would not have sleepless nights. This also enables you to take a few calculated risks, as you would not need to worry about expenses on a monthly basis.

8 A second source of income definitely helps    when he started working, his parents were working. This enabled him to invest at a faster pace with a good amount. His wife continued working till the time he quit his job. He ensured that one salary was being invested judiciously, as per the goal. (# 3)

He strongly believes that having a second source of income has helped in multiplying money and also acted as a catalyst for arriving at the ultimate decision.

9 Earning is different from ‘Creating or multiplying wealth”       Earning takes care of your monthly expenses, wealth ensures your life goals are met. You cannot really decide how much you earn, however creating wealth is a step by step process, which if followed religiously and given time to compound, yields amazing results.

10 Buy only what you need         there will always be things which you would be forced to buy due to peer or societal pressure. While we are part of a consumer focused world with lucrative deals across, we need to decide what is good for us financially. As the famous Buffett quote goes: ‘Buy things you like or you will have to sell things you like’

Today he has the equivalent of next six years of salary as corpus, considering a 12% average annual increment, baked in! This amount will take care of next few years as well, even if it grows at a decent 10-12% return. Meanwhile he has taken up teaching, mountaineering and writing, in the cool climes, apart from training his daughter in badminton for two hours daily at the local club.

Last thing, though he mentioned it in the beginning- Invest in your physical well being – any plan would be meaningless otherwise.

Sounds simple? It is, indeed!

Just follow the golden rules.


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