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Can the average person attain financial independence?

A reader sent us the following message: “This article – Can I Achieve Financial Independence and Retire Early by 45? – it was, as always, a good read, like most of your articles. I have been a reader of freefincal for quite some time. My rant/question may be long, so please bear with me. I would understand if you would want to cover all of these questions in a podcast episode and not an article. I like your podcast, too. Or maybe you wouldn’t cover it at all 😅”

“So, this article got me thinking as to how many Indians actually can afford to invest 2 to 3 times their monthly expenses, and that too assumed at an incremental rate of 10% every year. Average appraisal rates are not that high in India or anywhere. Most Indians, if I am not wrong, do not fall into this category, as I have collated over the years from numerous surveys done in India. You would find the same true for the average Indian.”

“Stating that one needs to make X amount of investment per month to achieve financial independence, in theory, seems very alluring and positively reinforcing, whereas many of us may not simply have the background, career path or opportunities to invest money in such volumes.”

“So my questions are:

Question 1. Does this then mean that a person who cannot follow the flow of being able to invest 2 to 3 times their expenses and come from a lower class or modest background should forget about retirement or early retirement?”

Response 1: The thumb rules are, for normal retirement, invest 75% to 100% of current annual expenses (0.75X – X) that will persist in retirement. The definition of current should be revised each year. So, the investments should increase at least at the inflation rate, if not at 10%. For early retirement, the investment should at least be 2-3 times of current annual expenses (2X-3X).

Early retirement is optional. So yes, those who can’t manage to invest 2X-3X cannot afford to retire early. Normal retirement is an eventuality. So, if one can’t invest 0.75X – X, then start with what you can. Start with 0.1X or 0.05X and keep at it relentlessly. Whenever you can invest more, do so.

Yes, this means you cannot spend at will. Then, the party will stop when you stop earning. If we spend some and save some, we can ensure the party can continue into retirement. These are the grim realities of life. Sugar-coating them by assuming high returns or low inflation expectations can be disastrous.

Question 2: Does this mean that the framework you suggest at freefincal applies only to a select few who meet the formula baseline requirements (2x or 3x of expense as investment)? In a world of hyperconsumerism and even general inflation bashing the pulp out of the common man, does the common man with a common background and job have any chance of achieving financial independence?

Response 2: I don’t think the “common man” or an “average person” has any chance of achieving financial independence without taking great risks career-wise or making great sacrifices in spending anywhere in the world.

The average person should have a burning desire to become above average. Else change is not possible.

More importantly, no “common man” has ever read freefincal, and I don’t expect this to change in future. Of course, many readers (such as you?) like to associate themselves with the average person. I am certain that the truly average person has bigger fish to fry than to think about retirement planning or read articles from a site like ours.

Perhaps we can associate those who live paycheck to paycheck with a “common person”, although I am not sure that is right. Even those with a healthy paycheck invest next to nothing; that does not make them a common person. Anyway, if we go by this, invest what you can, like clockwork, and sacrifice today’s wants for tomorrow’s needs. Take risks in investing. Take risks in your job/career. Try to increase your income as much as possible.  This is not “theory”. I speak from experience.

Is this easy? Certainly not. If you want to change your life, you have to sacrifice a lot – time, effort, and pleasure. If you are not ready to do this, freefincal is not for you.

Question 3: Apart from having theoretical formulas about how much and how to invest, I feel the biggest hindrance to one’s investment journey could be the person’s relationship with money. I find it fascinating that there aren’t many pieces on freefincal covering this topic, but shouldn’t there be guidance or a framework as to how one should tackle the overwhelming emotional side of money management and personal finance? Shouldn’t there be guidelines or frames of thought that should be formed for life situations when life becomes difficult? For example, a medical emergency. Preparing for situation X financially is one thing, but having the frame of mind or foresight to predict such potential situations is what’s needed in the first place.

Response 3: The only “guidance” I can offer them is to try and use common sense. It is common sense that convinced me to invest in equity because there is no other practical way for the “common man” to combat inflation. Some people get it, some don’t. Freefincal is happy to cater to those who do as minuscule as they may be.

It is common sense to hold an emergency fund. Either we learn from the sufferings of those around us or from our suffering. Once we have had a bad experience, we must act and ensure it does not happen again.

Question 4: Lastly, I would like to say that you keep saying that we need to be more emotional about investment and retirement; however reality is unless people have the right frame of mind and have a sense that this is achievable for them too, they won’t be emotionally engaged in it.

If a person feels that the goal ahead is way too high or unachievable for them, most people would give up. That, in my opinion, would be the average sum of human nature. I can say so cause as much as I am fascinated about learning your methodology for investment, I also find that I may not be able to achieve it myself. The behavioural finance part is what I seem to find missing in Freefincal’s methodologies is what I’m trying to say.

Response 4: I am happy to repeat it. We are emotional about being emotional. This is human nature. We only need to extend this and be emotional about being logical! This is within the realm of human possibility. To get someplace different in life, we need to do something different.

You say people need the sense that their goals are achievable for them. This is wishful thinking. Such a “sense” is rarely possible in most human activity. Be it school, college, love, marriage or parenthood. No one can say whether a person will be successful in these endeavours or not. Yet, it does not stop us from trying.

Why should investing be any different? Why should we be provided with a sense that investing goals are achievable? Especially when the truth is retirement with financial independence is going to be mighty hard.

I agree with your statement, “If a person feels that the goal ahead is way too high or unachievable for them, most people would give up. That, in my opinion, would be the average sum of human nature.” Such people are not our target audience.

If people say, “If a full glass is difficult to achieve, I will not settle for anything less. I might as well give up”, then I wish them the best. Wanting to try our best is also a basic human emotion!

Question 5: Life would keep coming at you with something new or the other (positive or negative), which would, in most cases, take higher priority in one’s life rather than investment and retirement. But it is equally important to plan for them. So, how does one do this balancing act?

Response 5: Common sense! If you cannot invest towards a goal for a few years because you have to spend on something else, you don’t give up on the goal. You keep track of the months/years you did not invest and try and catch up for it later. Again, this is not “theory”. I have been there and done that.

Life will always throw googlies at us. What matters is, at the end of the day, we should be able to reflect on our efforts and say we had a plan and tried our best.

Almost everyone gets shocked by a retirement planning exercise. Moping about our circumstances and how bleak the future looks today will not help our cause. We need to put our heads down and begin the journey with small steps and see how it goes. For inspiration, see: We lost sleep after using a retirement calculator! This is how we recovered.

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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(X), 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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