Life is not only about doing a job that pays for your bills, is it? Similarly, financial freedom should not mean having an emergency fund or earning your bread and butter. It is about living a life that you have always desired and deserve without having to stress about your monthly income and its associated expenses. However, sadly enough, most people do not understand the importance of achieving financial freedom, as they are so busy with their daily lives.
Many people earn a good amount of money, but they still live from paycheque to paycheque. They do not save and invest enough to achieve financial freedom in the longer run. In fact, according to a recent EY-Refyne survey, it has been seen that 80% of the employees run out of their salaries by the end of the month. In fact, 34% of them, run out of their salaries by the middle of the month itself. Only 13% of the employees have confirmed that they “save” a portion of their income towards future expenses.
If you do not wish to be one of them and wish to retire early by achieving financial freedom, here are eight steps mentioned below that you need to follow:
1. Retirement Budget Estimate
To reach a destination, you need to fix it first, isn’t it? So, for retiring early, you need to first estimate how much money you would need to save to live your retired life peacefully and without any financial woes. You need to calculate your living expenses, medical expenses, and other miscellaneous expenses for all the years of retirement.
Once you are aware of the post-retirement expenses, click here to get an estimate of the monthly SIP amount, that you would need to invest to achieve the same. Remember to keep inflation, especially medical and rise in lifestyle expenditure in mind when you estimate.
Suppose you want to retire by the age of 45 years, and the average life expectancy is around 70 years so, you have to estimate the total amount you would need for all these 25 years. You would also need to consider the inflation that will increase the cost of living going forward, this would help you find out the actual amount you will need post-retirement.
2. Budgeting today will save you tomorrow
If you want to retire earlier and live the life you want, then you would need to make some sacrifices today. Thus, if you can limit your expenses today and save that additional amount; then with a proper investment plan, you can build a healthy retirement portfolio with the power of compounding.
3. Paying off Debts as soon as possible
With the rise of debt in your portfolio, the interest component eats up a large portion of the same. Ideally, you should repay your loans as quickly as possible, especially high-interest ones such as credit card outstanding, so that you can concentrate on building your wealth portfolio. To achieve F.I.R.E. (financial independence and retire early), you need to live frugally in your initial years to achieve early retirement.
4. Buy a Health Insurance Policy today
If you already have one, great; if not, buy it today or as soon as possible. Health insurance is a non-negotiable, especially in the post-retirement scenario where your active income will stop. With high medical inflation, your healthcare expenses are bound to rise. In fact, without health insurance, the out-of-pocket medical expenses push about 50-60 million Indians into poverty every year.
Also, availing of a health insurance plan post-retirement might be difficult especially if you have any pre-existing ailments. Hence, to safeguard your wealth and create a healthy retirement plan, opting for a high-coverage health insurance plan is essential.
5. Invest wisely into instruments that will help you accumulate wealth
Keeping your asset allocation and risk profile in mind, you need to invest in financial instruments that will yield a higher return for you in the future so as to fulfil your retirement goal.
However, you should not invest 100% in any single asset class as the risk is extremely high. So, diversify your investments into equities, debt, and other alternative assets to minimize the risk as well.
6. Set up a SIP
Mentally account for one systematic investment plan (SIP) towards your retirement goals. If planned properly and executed diligently, small steps taken in the right direction will surely help you achieve your target on time.
7. Plan and stick to it
Finally, all that matters, is you stick to the plan and that is the key to saving for an early retired lifestyle. You need to automate your investments so that you don’t forget or spend time doing the same.
This requires you to plan the entire investment journey in advance, keep an emergency corpus and then simply follow it to the tee. Remember to review your investment decisions annually to check progress.
8. Opt for a Term Insurance Plan
This is your Plan B, the safety net for your family. So, if you live up to your planned retirement age, then you would have saved up enough already. However, in case you don’t, this term insurance plan would help you to fulfil your financial responsibilities towards your family if any. To Check out what your Term Insurance Cover is based on the Human Life Value method click here.
Little sacrifices today can help you lead the life you desired. Thus, start planning today and contact the experts at Tata Capital Wealth for help, not only for your retirement but also for the experiences you want to have in that life.
12 July 2022
5 mins read
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