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FIRE: Financial Independence, Retire Early

As much as this may seem like another millenial term invented in the world of finance, Financial Independence, Retire Early; more commonly known as FIRE has existed for more than a decade. Although the term for it wasn’t coined back then, the concept has been around for longer than you would imagine. FIRE is a movement wherein one takes a path towards extreme savings (almost 70% of the income) to quit their job and retire much earlier than the standard way of retiring at 60. The objective is to save enough to be able to live off the savings by withdrawing small amounts (typically 3-4% yearly) from the portfolio. And the motivation for it generally stems from the idea of having the freedom to do what you want to do. For example, traveling, blogging, authoring a book or anything as such which is more to do with pleasure, not necessarily generating income out of it. This frugality movement has been gaining awareness and spreading into the mainstream since the last decade.

People opting for FIRE are usually regular employees in corporate jobs with a definite timeline in mind. Their aim is to build a massive corpus for early retirement through extreme savings and once achieved, to quit their jobs/any form of employment. However, it’s important to note that with this decision there has to be extreme levels of discipline to be followed with regards to expenses and overall lifestyle choices. Almost 70% of your income contributed towards savings is a huge amount and hence, comes into picture the frugality aspect of the movement. Expenses have to be monitored diligently and the focus on continued maintenance and reallocation of the money is also just as crucial.

There are various approaches that people opt for while adopting the FIRE movement. The main goal is the same – extreme saving but there can be differences in the way they abide by this. Let us understand each of the types with the help of examples.

Fat FIRE – Rahul is a single, 33 year old software engineer who aims to retire at 45. He was introduced to the FIRE movement a few years ago when he gave it a serious thought and planned his life towards an early retirement. Three years ago, he dedicatedly started investing 70% of his income on a yearly basis towards his new financial goal. He has been very conscious about his expenses and has chosen to lead a simple life where there’s enough for his basic needs and some for an emergency. His brother who is 35 years old has opted for the traditional route of retiring at 60. Therefore, his saving towards his goal is 10% of his yearly income, and there’s no compromising on the lifestyle choices as there’s a budget allocated for that too. In short, saving more than the average retirement investor by adopting a very traditional and simple lifestyle is considered Fat FIRE.

Lean FIRE – Meenakshi is a college professor aged 35 years and her husband, Jay an insurance agent, is 38. Nearly five years ago, after gaining enough knowledge about FIRE through various sources and consultation with their financial planning experts, they decided to adopt a very stringent method of minimalist living to achieve their goal of extreme savings and mandating a far more restricted lifestyle. With the aim of retiring by the time they reach 50 years respectively, they have taken certain measures to meet their goal. They ensure that they eat only home cooked meals, they don’t subscribe to cable or Netflix/Amazon Prime but view only content that is aired free, they always opt for second hand goods when it comes to buying something for their house or their 7 year old son, they shop for necessities only when absolutely needed and they take buses and trains instead of cabs and have decided not to own a car. A lean lifestyle is how they look at it that brings them closer to their goal.

Barista FIRE – Rohan and Jharna are a millenial couple both aged 36 years. Rohan was in advertising for over a decade and Jharna, a journalist for the same amount of time. They aimed to retire at 50 years when they were both 25 and hence, hatched a plan for it. 10 years from then, they quit their corporate jobs and took over Rohan’s beach house. They renovated it and put it up on AirBnB, making an arrangement to cover their current expenses without eroding their retirement fund. Their aim to do so was not only to be financially independent and retire early but also to do some kind of part time work on their own terms. Their motivation for this financial goal was to bring an end to the stress of the corporate jobs or any form of employment where one doesn’t necessarily have the luxury or flexibility to do things as they please. With enough saved up over a decade for their early retirement, they still have work that keeps them busy and let’s them have the privilege of doing it on their terms while easily covering their current expenses through their new venture.

Coast FIRE – Mayuri is a 37 year old banker turned social media influencer. She is a single mother to her 5 year old daughter. With a finance background, Mayuri always had the tools to her disposal to understand the do’s and don’t’s with money management. Planning way ahead in her 20s, she knew she wanted to retire at the age of 35 and travel the world while she was still in her 30s. Her motivation to do so was to never work again for money and have enough to cover for her current expenses too. She worked seriously towards her goal through extreme savings and managed to achieve it just as planned. However, after being in a corporate job for close to 15 years it was actually not as simple as she thought – to not do anything at all. Besides, with a daughter in tow, needless to say that there are several expenses to keep up with. While money wasn’t an issue at all, Mayuri was drawn to social media marketing and became an influencer. While this helps her to still make money on her own terms, whether she does it part time or full time, her nature of work still involves all the privileges she dreamed of post the early retirement. And all of this while actually having enough in her retirement fund to cover for the current expenses too.

The FIRE movement has started spreading gradually as we see more people opting for it. Achieving financial independence to fund an early retirement is most definitely an act of severe discipline and stringent means that one ought to stick to. However, one should also be cautious while practicing extreme diligence that when stock markets fall and/or interest rate environments are low, the FIRE plan may fall short. The discipline too needs to continue post the early retirement to ensure that the corpus is not used up recklessly or too soon. They are after all fruits of all the hard work and compromises made for years to have a cushion much earlier in life. FIRE is certainly a redefined way of retirement and to make informed and sound decisions, it’s highly advisable to connect with financial planning advisors or companies who can guide you towards your goal in the right manner.

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There’s a new Spice Girl on the block

This one is not to be confused with the famous girl band from the 90s. Singapore-based Namita Moolani Mehra is a mom of two and is the founder of Indian Spicebox. Her brand is about enabling families to eat more wholesome home-cooked meals, including healthier versions of restaurant favourites. Simple recipes are packaged with wonderful organic spices that provide not just amazing flavour, but great health benefits as well. The best part is that for each Spicebox Kit she sells, 10 street children in India are fed a hot meal. Namita states, “We have funded over 60,000 hot meals and our goal is to provide 1 million meals by 2025.”

Namita is also a writer and has published two cookbooks out of which one is a children’s book published by Scholastic. She also writes for several online publications including Sassy Mama. She founded Indian Spicebox a few years ago after spending 15 years in the corporate world, primarily working as a digital strategist at ad agencies in New York after which she spent five years at Facebook in both New York and Singapore. Indian Spicebox was born as an idea in 2004 when she was living in New York and surrounded by friends asking her for recipes and information about spices. It wasn’t till a decade later that she quit the corporate world and founded it as a business.

Namita’s drive to make a difference was her main inspiration to become an entrepreneur. She wanted to give back and do something with meaning and purpose. Therefore, by creating something of her own that would be purpose-driven and make her feel excited about getting out of bed, she wanted to put her strengths in service of something meaningful. After working at one of the world’s best companies (Facebook) with the most incredibly talented people, and supported by tremendous resources, she was afraid of going off on her own. She was worried about not having the teams and resources to keep her motivated and productive.

A year before starting her own business, Namita worked for a VC (Venture Capital) firm which was an eye-opening experience for her to a great experience. It gave her a good understanding of the start-up world and financing better. “Frankly, I had no clue about funding businesses and there are a lot of different routes and options out there for founders and small business owners. It is really important to know your options, network with other business owners and founders, attend start-up conferences/events, read the blogs, soak up as much information as you can and also consult financial planning advisors to get a clear understanding of that part too.” says Namita. She invested her own savings from her previous jobs and advocates engaging financial advisors and companies who can help to manage money and investments for you on the personal front and for the business.

There are several things one should be aware of while starting on their own. Namita shares a few from her experience, right from being prepared to feel alone, to being constantly in battle mode to ensuring that you hire and delegate early-on. Hire interns and invest in a good
website developer and designer. She also emphasizes to take the time to create and build a solid brand right at the onset (as all touchpoints matter) and most importantly, investing in quality.

Amongst other things, Namita also highlights that it’s important to surround yourself with people you trust. She states, “If you find good partners, vendors, interns, freelancers—hold on to them and keep investing in good people. Also, build a solid brand upfront. Invest in good designers, brand building experts and digital experts who know how to present your brand and offering via critical touchpoints. Have several mentors or your own personal board of advisors – the people you can trust and use as soundboards. Work with a professional coach. I’ve been working with a coach for over five years now and she anchors me tremendously behind the scenes. As I’ve mentioned earlier, engaging financial advisors to keep you on track with your money management is also crucial. Remember, you can’t succeed alone. So, the people you surround yourself with, are the ones who will ultimately determine your success.”

 

 

 

 

 

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Love at first sight!

Rucha Mulay, founder of R Pilates Studio in Pune is also the pioneer of equipment Pilates in the same city. Having flown for British Airways as an international cabin crew for 10 years, Rucha’s love for Pilates was a discovery during one of her trips to London that set her on a journey from where there’s no looking back. She was introduced to Pilates by a friend on that trip and says that it was love at first sight for her. She began frequenting the studio as it was healing her backache and soon she decided to bring Pilates to Pune.

After relinquishing her flying job, she enrolled herself for ACSM CPT (American College of Sports Medicine) then did all her Pilates certifications one by one. In 2013, Rucha started teaching mat Pilates classes at a gym and also started personal training at home. In 2014, she started her own Pilates Studio, R Pilates in Pune with only 1 reformer in a small apartment in her parents’ building. Today, she has a beautiful 1000 square feet studio in the most plush area of Pune with all the Pilates apparatus imported from Sacramento, California and a big family of 6 Pilates teachers, 150 clients and another branch opening soon.

Rucha’s inspiration to become an entrepreneur was her passion for fitness and Pilates. She believes that Pilates changes lives and she wanted her Pune people to have access to that through a dedicated studio in the city. As someone who doesn’t come from a business family, she was apprehensive about a few things while starting out. Return on investment, being a critical factor. Having invested a substantial amount in education and equipment, her fear was whether Pune people would be willing to pay the kind of money Pilates trainers charge in Mumbai.

Taking baby steps in the beginning, Rucha started on a very small scale where the overheads would not leave her restless. Initially, she invested some savings of hers from the British Airways job and her husband helped her too. She specifies that she didn’t take any loans. She gradually started adding equipment to the studio and when she felt the need to scale up, she calculated her figures, did a lot of homework and then made the move. The overheads were going to be 10 times more but the way their work had increased, she was confident that they would do well. “I had a very clear picture of our business in my mind.” states Rucha.

 

Having landed firmly on her feet with her venture, she shares her approach with us. “If you know exactly what you want to do, start small, watch the response, make your mistakes and learn your lessons in a small set up. Once you have tested the waters then dive in into the big pool. Always count your figures backwards. Give your business a strict teething period and make sure it picks up pace gradually. Set goals and talk to your team regularly.” While starting a business or even while scaling up, we know that finance is the key component. Since personal savings become a big part of investment in it, it is quite natural for one to experience that they are low on that reserve for a while. Rucha experienced the same after moving to a bigger studio where her overheads increased manifold and her personal savings took a back seat. However, she continued with her basic savings like PPF and left them untouched. Now that the new set-up too has been established well, she has been able to focus better on building up that reserve for her personal savings and has defined separate financial goals for herself and R Pilates where she has started two separate SIPs for future capital investment and her own retirement.

Rucha shares some wisdom nuggets generously for budding women entrepreneurs. “Unless you dive in, you are not going to be able to show your swimming skills. But do not dive in if you don’t know how to swim well as just moving your hands and legs in water won’t take you to the shore gracefully. Know your capabilities, know your limitations, work around them, have a plan B ready always and don’t think mediocre. Think big .”

 

 

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Financial Frenemies – what you need to know.

Friendship Day marks the celebration of the relationship we’ve shared with our friends, old and new. It’s a journey we cherish and hope to continue for a lifetime. Just as we trust these long lasting friendships to have our backs when we need them the most, there’s another critical aspect of our lives that we need to give a lot of thought to – our money management. Savings and investments are not habits that come naturally to everyone. These are lessons we learn along the way as we grow up, start earning and are told to take care of our finances. Yes, it’s for the very same reason that we make friends for – to have something of our own and more so, enough of it to fall back on when the need arises.

If you are new to financial planning and don’t understand how to invest, what to invest in and other related queries, it’s best to consult a financial planning advisor who can guide you well with this. While family members are advisors for life, it’s helpful to seek guidance from an expert who can provide clarity to you in your journey. Amongst the plethora of investment options available in the market, it’s important to know which ones suit you the most and invest accordingly. There are various choices which may seem very obvious or the most recommended however, it’s important to do your research and understand if they are really worth investing or consider other avenues.

It’s easy to fall prey to plans or people who promise high returns with low risks. While such plans do exist, they may not necessarily be real or lucrative offers in the first place. Speak Asia and Stock Guru are two such examples of dubious schemes in 2011 and 2012 respectively, wherein very high returns aka promising to double in a span of 6 months, proved to be a red flag in itself. Ankur Sachdeva from Delhi invested Rs. 11.6 lakhs in Stock Guru in 2012. He was initially skeptical and invested Rs. 2 lakhs in the scheme. When he received Rs. 40,000 back in the first month, he invested Rs. 10 lakhs more to never have got back anything in return. A very basic principle to bear in mind while investing in any scheme is to check if it has been verified by some regulatory authority such as SEBI. Reading the fine print is cumbersome in most cases so make sure to have a lot of questions for your advisor. Anything or anyone promising unbelievable returns in a short duration should ideally not be trusted. Anything that is too good to be true is never true.

Life insurance is another vehicle which is mistaken for investment because of its triple benefits of a cover for life, long term savings and tax benefits. Endowment plans are the most traditional and very often considered to be the safest forms of investments. However, these policies not only give sub-optimal returns of 4-6%, but also force the policyholder into a multi-year commitment. While there is a way out, which is to surrender the policy if you have paid the premiums for a minimum number of years, you are sure to face a loss when you do so. These investments not only prevent investing in other lucrative avenues but also don’t give returns which do justice to such long term commitments. Not to forget, very long lock-in periods which means that you could end up investing for as long as 20-30 years where the interest is only accumulated, not compounded.

As an investor, it’s also very important to be cautious of falling prey to trading. The thrill is a given with quick high returns that trading gives however, very often most of the investors have no idea of what business the company is in or why is it that the price of a stock is going up or down. Let us look at a simple scenario. Say for example Mr. A believes that the price of Stock X is likely to go up by 10% today and hence he buys at Rs. 100. X indeed rises to Rs. 110 and Mr. A sells it off to Mr. B who also buys it with a belief that the price will rise further. X further rises to Rs. 118 and Mr. B sells it off to Mr. C. Obviously, Mr. C also wants to make money and believes that the upward movement will continue. He therefore sells it off to Mr. D at Rs. 128. This continues till that moment when the cycle breaks. The last man standing ends up making a loss. As stated above, in this cycle, there is a high probability that none of the players have any idea why the price is behaving the way it is and even the fact that someone will eventually pay a price in anticipation of the price rising further. Trading is a risky activity and is under no circumstances a medium of creating wealth. While a lot of people have made money with trading, there is no guarantee that you will be one of them.

While there are several such financial frenemies out there that can misguide investors, it’s best to start with professional help and take things in your hands in a couple of years of learning the ropes. Our expert advice is to first identify your financial goals, investment horizon and risk appetite to know how, where and how much to invest. Mutual funds are a great way to start with through SIP as they can always be tailored to your needs whether, short, mid or long term. Having a mixed portfolio also ensures that not all your eggs are put in the same basket. After all, there is no greater wealth in this world than peace of mind. So, befriend the savings habit and trust us with all your financial planning needs. Wishing you all a happy & financially prudent friendship day!