MT23 | Neha Desai On Choices You Make Towards Financial Independence

Discussion Topics: Neha Desai on Choices You Make Towards Financial Independence

• Ways to reach your financial goals
• Choose your path of Financial freedom, the way you like
• What are the opportunities to reach your goal
• Reducing risks of your investment/ income streams

Transcript: Neha Desai on Choices You Make Towards Financial Independence

Hi, everyone, welcome to another episode of MoneyTok, where we help make personal finance and investing simple and accessible through both my own experience. I’ve been doing this for about 20 years now. This show is about money and wealth creation. And we talk about so many ways of making money, bought retirement planning about stocks, bonds, gold, real estate, crypto, and so many kinds of things.

As you know this podcast is geared towards educating people on the importance of managing your money, and all our episodes address either a specific point in this journey or tools to enable you to walk this journey so you can get to a level of financial independence. But why do we set that goal – why is financial independence the milestone we are hoping you will achieve?

That’s because we believe financial independence is the point at which you truly have the freedom to decide how you want to live, with the resources to afford it. It is what gets you out of having to do things you would rather not be doing, working soul-crushing jobs or spending time at work when you might be needed with your family or dropping out of dinner with friends to meet a deadline.

That’s why if you ran a survey of the top 5 goals of individuals, Financial Independence would be assuredly in that list. It has become the emerald city on the yellow brick road of our professional life.

A lot of us have seen our parents go through decades of work life, almost like an automaton. The salary they earned was enough to meet monthly expenses and rare indulgences, and whatever was left was squirreled away for the eventual old age nest, when you will no longer be able to work, and therefore will have no income stream.

Thinking about building a corpus through investment (be it stocks or land or gold) was not the traditional mindset. Land was purchased to put a roof over your head, gold was for weddings and bequeathing. And the stock market was not a safe venture. In India, retirement or education fund was always associated with a fixed deposit, since equity markets were not that developed or deep. Unlike in the US where 401(k) is almost synonymous with equity holding. Basically, you relied on salary alone to meet expenses, and savings were for the time when you would not be able to work.

But our generation is somewhat different. Pockets of Generation X and to some extent millennials have been able to reap the benefits of the increase in pay from white collar work, or bumper cash flows from entrepreneurial ventures. Wealth has increased, and many of us might already have more money saved than our parents did at similar stages of life. There is a growing desire to live life beyond the narrow confines of working for a paycheck.

The concept of retirement has been revamped: It doesn’t necessarily mean that you are no longer creatively or economically productive, but just that you are free to decide what avenues you want to engage yourself in, regardless of the economic remuneration to do the same. And paycheck is now by no means the only way to earn your way to financial freedom. With a broking account or a digital wallet in everyone’s pocket, market access has become very easy.

I would say in a way too easy and overly gamified but that’s a separate issue.

The internet revolution has created a greater sense of financial inclusion. Now what to think about financial freedom? I divide it into two different ways. There is a top-down and a bottom-up approach. Top-down is assessing what is your aspirational lifestyle, and legacy for children, penning down the amount required for that, and then using your job or investments to achieve that. This may mean that the road towards the goal might be longer, and if you are not enjoying your work, you still have to keep doing it, because it is slowly but surely rowing you to the other side of the river. You build enough capital so that you can live off the interest without any adjustments to the lifestyle or drawdown into the capital.

On the other hand, bottom-up is when you already decide on an expiry date on your job, by which you have done enough to meet the basic needs of life like food and shelter. After which you will untether yourself from the anchor of a known paycheck and start pursuing your dreams. You are not aiming for a huge corpus because you are looking at it more as a contingency fund, with drawdowns for regular expenses very small, and in fact, find other ways to have a small stream of income.

In earlier episodes, we already covered the topic of how to put a defined number to your retirement corpus, and how to spearhead your investment strategy towards it.

In short, the level of aggression in your investment will depend on the gap between the current level of corpus and desired level, and the time horizon you have in mind. It is kind of like driving a car. You want to get from point A to B in x time, and therefore decide how much to step on the gas depending on the distance and the time.

If you are in your 60s, with a decent pool already, you don’t need to go for the more volatile strategies. You could park your funds in a fixed deposit and live off the interest, and remove the tension of seeing your corpus fluctuate with the market. If you are 75, you definitely want to consider moving towards cash, bonds, and FDs, as a tumble in the stock market, or crypto may not correct in your remaining lifespan.

If you are in your 20s, you should have a more tiered approach. 50% in more volatile assets, 25% in relatively safer, and some in cash. Something like a stock market, or real estate, will over decades, almost certainly grow your pie.

Define not just the start and finish but also milestones. If you have a small pool to begin with, first go slightly conservative, so that you don’t lose whatever you have in a single sweep of the market. Once you reach goal 2 (where your savings have gone past the level of basic sustenance), and you have gotten more comfortable with the journey, step up on the gas.

Thus, and is advice everyone has already heard in multiple ways. What I think is lacking is a discussion of the choices you have to make in order to get to the goal of getting savings beyond the point of sustenance.

Defining your financial freedom is about making choices. And defining what your priority is for your lifestyle. Is it about experiences or material comforts? Do you want to leave enough money for your kids so they do not have to work, or do you just want to stop at giving them the best education possible?

Weigh these choices against how much you are willing to tie yourself to the pole of a job. If you feel you are really suffering today with the amount of work you are having to put in to build enough money for a secure tomorrow, maybe you can rethink on letting go of some of the peripherals which might make the burden of working today easier. Like when you are climbing a mountain. Sure you want to reach the summit with a camera, and a chair, maybe to sit and enjoy the view, but if the weight of those is making the climb unbearable, it is not worth it. Time to keep them aside.

Once you have made that choice, you need to put a number to that choice to define the corpus. And then start on your financial journey. Looking for a job that pays, investment strategies that grow your money, and most importantly investing in yourself so that you are always agile enough to readjust and recalibrate if required.

You take the plunge and leave your job and ‘retire’. You don’t like it? You can come back. You realise you need more money than you had factored in, or maybe the new hobby costs more than anticipated, you can come back, work for a bit to earn that extra bit, and go back to pursuing your dreams.

In fact, a term I heard recently was portfolio career, which is about assembling a number of income streams together to get you where you need to go without the constraints and challenges of a full time job. As an example, an ex-colleague who’s a trainer and certified career coach puts in a few hours with a company but also coaches clients and advises startups on the side, giving him variety, reducing risk of income loss, and also allowing him more time than when he had a full-on corporate job.

You can also be creative about it. Maybe you can consider moving into a smaller house. There is a big tiny house movement going on, where you reduce your footprint, become debt free.

Do you want to settle down on a farm in your retirement? Maybe you can look at buying a farm right now and converting a portion of it into B&B which will give you enough income for usual expenses while affording you your dream today.

Do you want to travel the world? There are a lot of ways where you can earn your stay, by working for your host in exchange for lodgings.

You may not have a 65 inch screen, or a 10-bedroom house, but you will have the luxury of time right now. So rethink and refocus your concept of retirement. Cut out the peripherals, and focus on the absolute must-haves. Think about creative ways to achieve those must-haves in a more affordable way.

Yes, this is also another way to achieve the purpose – semi-retirement essentially. Reduce your costs, find a way to work as much as you need to meet those expenses – maybe through consulting work – and spend the rest of your time doing things you want.

My father has this saying that I love. When he had teeth, he had no nuts to chew. Now that he has nuts, he has no teeth. In essence, he spent his entire life-saving bit by bit to have a good corpus in his old age. But now that he has the corpus, he has no ability to spend it as age has caught up.

Don’t do that to yourself. Don’t have a tunnel vision for that corpus to the exclusion of everything else. Look around. There are financial tools that can act as a rope to make the climb easier and ask yourself. Do you really want to get to the summit or is the hike more enjoyable to the smaller peak?

Yep exactly. Only you can decide how high is the mountain you want to climb and whether the trek is going to be worth it. But whatever you decide, know that it comes with choices so be clear-eyed about what it will take and make the choices early while they are still choices and not golden handcuffs.

Thanks for tuning in today and do take a moment to subscribe or follow our show. We were Neha and Amit with MoneyTok. See you next time!