Sunday, February 11, 2024
HomeMutual FundBuild wealth by measuring your progress with these milestones

Build wealth by measuring your progress with these milestones


Here are a few personal finance milestones that can help you gauge “where you stand today” on the road to wealth. We will assume the basics like insurance, emergency fund, and goal planning are in place. If not, we recommend this free e-book: Re-assemble Step by Step Money Management Basics.

1. Your Liquid Networth exceeds Your Life Insurance Sum. For example, if you are insured for one crore and your net worth can be immediately liquidated – stocks, bonds, gold, funds, etc., exceed one crore. This should be possible in 10-15 years with some systematic investing,

2. The investment amount required decreases! We need to redo the goal-planning calculations each year with updated portfolio values and goal estimates. As your portfolio grows, at some point, you will notice that the investment amount needed from this point forward is lower than what you calculated last year and/or lower than the amount you are actually investing.

For example, if you are investing 10,000 per month for a goal, increasing, say at the rate of 10% a year and if the revised calculation says you only need to invest 8,000 a year (increasing at 10%), then that is a huge relief!

3. Your Equity holdings exceed your term insurance sum. With luck – the residue of discipline, your equity holdings will have a value greater than your life cover. Sure, it may not last, but it is a great feeling while it does. Give it time. It is possible.

4. Your Retirement Planning can be set on auto-pilot. This is related to (2). As your portfolio grows and the investment amount decreases, there will come a time when all you need to do is – nothing. Your current equity holdings and your EPF monthly deduction should be enough for you to retire normally. Give it a little more time, and even that EPF deduction will not be necessary (although it cannot be stopped).

5. You can live off Your Net Worth for several years. As mentioned here, Review Your Financial Freedom Portfolio in Seven Easy Steps. Look out for two numbers measured in years.

  • The number of years you can generate an inflation-protected income if you retire today. This will soon be 5Y, then 10Y, then 15Y etc.
  • The number of years you can generate an inflation-protected income if you retire as planned (say 55 or 60). This will soon be 5Y, then 10Y, then 15Y etc.

These are the first steps towards financial independence. Read more: E-book: How to retire early in India.

If you want a simpler thumb rule, then for zero real return (return from investment = inflation), if your retirement corpus = 25 times your current annual expenses (25x), you can live off that amount for 25 years. So, 5x will be your first mini-milestone. This suits those who wish to quit salaried jobs to create startups. Then 10x then 15x –> 20x —>30x. Anything about 30x with at least 15 years worth of money in fixed income would be awesome.

6. The current cost of an undergraduate education matches the current value of your child’s education portfolio. If your kid is some years away from 12th standard, you can pat yourself on the back.

You can make up milestones like these and watch your net worth grow. All it takes is discipline and time.

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Pattabiraman editor freefincalDr. M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter, Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.


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