How To Invest For Early Retirement | How to RETIRE in YOUR 30s | Finance With Sharan

hey guys welcome to my first YouTube video after nearly 2 years of posting my first video in this video we're going to talk about how to retire [Music] early ever wondered how much money do you really need to retire I'm talking about quitting your job and doing nothing you know maybe enjoying your Prime Time of Your Life in a beat somewhere basking in the the sun drinking margaritas while your friends are still you know stuck in the monotonous 9 to5 job but you found a way to get out of it you found a way to retire while your friends are just starting to figure out their lives how did you do it well you got fired well gone of the days where we work and slog our asses off for 10 to 12 hours a day and work till 60 most people did that because we never really understood how much money we need see I did a Twitter poll recently asking people how how much money do they need to retire not a single answer said a number below 10 crores so in this video I'm actually going to blow your mind as to how much money you actually need to retire so the most popular way of doing this is fire which means financial Independence retire early so it's a moment which started in the US about three decades back when Vicky Robin and Joe Dominguez mentioned in their bestselling book your money or your life simply put fire is a way of accumulating enough money such that when this money is invested in the right places it generates additional income which is your yearly expenses in fact Joe Dominguez achieved fire at the age of 31 and never had to work for money ever again ask yourself you must be a 20-year-old or 30-year-old chap are you able to say this at the age of 31 or 41 that you never have to work for money ever again and just sit at home and watch Netflix all day so now that you know what fire is it's all about understanding what your fire number is now over the years there have been different types of fire number there's normal fire lean fire fat fire coose fire let's just talk about the most important types of fire starting with lean fire so lean fire simply put is your annual expenses multiplied by 20 for example let's say I spend around 50,000 per month which is 6 lakhs a year if you multiply that by 20 it's around 1. 2 cres so if I have 1. 2 cres today I can actually call myself to have lean five but Sharon 1.

2 crores right now not all of us are cories okay so what if I assume 40 years at the age which you achieve lean fire pretty good right you don't have to work till 60 at least now let's do the math for that so I've built this Excel tool which you can use for calculating your fire number you want access to the Excel tool it's a part of my one person Finance Club Link in BIO so let's assume my current age is 27 which it is and then I spend around 50,000 per month 50,000 per month is 6 lakh a year but if you adjust it for inflation at the age of 40 which is when I want to achieve my financial Independence that's about 11. 3 lakhs in annual expenses per year so that takes my lean fire number to 2. 3 cror now I know what you must be thinking Sharon you just increase it from 1.

2 cres to 2. 3 cres what the hell so let's assume that you need to achieve 2. 3 crores in the next 13 years the math says that you need to invest about 42,000 rupes per month to achieve 2.

3 crores at the age of 40 and let's assume that the returns that you can get over a 13-year period is around 11% post tax which is very very achievable right and let's also assume that you increase your investment by 10 percentage every year the math says that you just need to invest around 42,000 rupes per month to reach 2. 3 cres at the age of 40 so now once you achieved this lean fire number you are in a very comfortable state in life no you can't just sit and party all day and watch net all day and do nothing you still have to work for a living but just to cover your monthly expenses you don't have to think about actively investing this money for your retirement because your retirement Corpus is set so what does this mean for you let's say you have two job offers one is offering 18 lakhs perom and other one is offering 12 lakhs perom now you know that the job which is 12 lakhs perom is going to make you much more happier so if you have achieved this lean fire State you can actually pick that 12 lak perom job and it could be anything right let's say uh cooking is your passion or you know being a mountain guide is your passion right so you can choose these kind of jobs even though it pays lesser because you have achieved Financial Independence achieving lean fire allows you to take this sort of risk without worrying about money how great of a life could it be if everybody could live like this but what are most of you guys doing once you hit 29 or 30 you're going to get married going to have kids and then your parents are going to say get your own home now home prizes in India have been skyrocketing let's consider Bangalore and Mumbai for example the bare minimum of three BK apartment in a very average neighborhood would cost you anywhere from 80 lakhs to 1 CR this is the bare minimum guys and the Emi for this sort of a house comes up to 80,000 rupees per month because interest rates are so high right now now ask yourself if 80,000 rupees per month is going out of your account for paying this home loan emis where is the money left for achieving Financial Independence so it's a simple decision that you have to make whether you want to buy a house and call it like this is my house or whether you want to invest for your future self to Achieve Financial Independence so that you can live a life of carefree and focus on the things that you want to focus on without thinking about money now the next type of fire number is the normal fire number which is simply 25 times your annual expenses now why 25 so there was this research conducted by Trinity College and what they found out was that if you have saved 25 times your annual expenses and if you withdraw like let's say 4% from this every year this Corpus will last for anywhere between 30 to 40 years for example let's say I spend around 50,000 a month which is 6 lakhs a year now if I multiply that by 25 that's 1. 5 CR so if I have 1.

5 CR with me I can actually call myself fired so the last type of fire number is the fat fire number as the name suggests it's a very very big number so according to Fat fire you actually need to have around 50 times your annual expenses once you have this ginormous number you can spend more money than you usually spend you'll also have enough money left over to pass on to your kids so if you want to actually make so much money that you will not have enough time to spend it and then pass on to your kids then fat fire is the way to go but if you ask me Sharon what number should I pick I would personally go with the normal fire number I mean why do you want to live for your kids man let them figure it out by themselves just give them education send them to college you focus on your fin fincial Independence number and that should be more than enough so now we are in the most important part of the video how to actually achieve your fire number so you know what type of fire you want you know what that number is but how do you actually get there so there are three pillars of achieving fire number one is to increase your income you don't say Sharon you're telling me that if I make more money I can achieve fire faster I'm not going to bore you with you know go to your boss and ask him for a hike get a better paying job or start a side gig or structure your salary better for tax savings you already know all of that so I'm not going to bore you with that the second pillar of reaching fire is to increase your savings have you heard of that 50 30 20 rule well I hate this rule because if you follow this rule blindly you're going to spend a lot more money than you need just keep it simple predict what monthly expenses you will have make a budget and follow that and you don't need to just increase your expenditure just because a rule is saying so so you make your monthly budget spend that money and the balance amount you will invest it in the beginning of every month and that brings us to the third pillar which is investing now I know what you guys are thinking the stock market is not doing that great right now you know everybody is predicting a doomsday and fds have kind of risen Up From the Ashes and offering 8% interest rate so I'm seeing people all around me people of all age groups rushing towards Bank to put their money for three year four year five year lock in fds so that they get those higher interest rates but that is the worst thing that you can do just check out this graph over here see the number of times the inflation rate is crossing the FD interest rates see when interest rates are increasing it's because the inflation is already high right so even if the banks are offering 8% FD it is still not going to be able to beat inflation which is around 7 to 8% right now and to make matters worse fds are taxed the worst possible way let's say you're in the 30% income bracket every year 30% of your FD returns will be sucked out and paid to the government so even if it's like an 8% FD which is like the best case scenario your effective returns would be like 5. 6 percentage now you tell me is that enough to achieve your fire number absolutely not now don't get me wrong I'm not saying that you should never invest in FD but it is meant for a different reason it's meant for maybe like a onee goal or a two-year goal not for your retirement planning for your retirement planning this is what you need to do asset allocation which is knowing how much money to put in equity debt gold and other asset classes is the most important thing when it comes to achieving your fire number what is equity Equity is nothing but investing in the stock market buying the shares of a company so that you are also a part owner of that company that is what the stock market is second is debt which could be fixed deposits it could be debt funds it could be investing in bonds and so on and gold it could be jewelry investing in sgbs investing in gold bonds and so on so now knowing how much money to put in each of these asset classes is the most important thing when it comes to achieving fire so now you might ask me Sharon Equity is the best performing asset class it has given us around 14% cagr over the past 30 years why not put all my money in equity here's why you should not do it one word draw down so draw down is defined as the maximum dip in the value of your investment in any given year for example in 2008 the Nifty which is the aggregate of the Indian stock market fell by nearly 59% now you might tell me Sharon it eventually recovered and we still had 14% cagr but answer me honestly if you were in 2007 or 2008 and saw almost 60% drop in the value of your investment let's say you had saved about 1 CR you had invested 100% in equity and it dropped to 40 lakhs would you be having a good night's sleep I don't think so so investing is not about making the most amount of money no no investing is about knowing where to put your money across the various asset classes so you have a good night's sleep just ask your yourself what is this money for we are not in the game of increasing our bank account number no we are in the game of using this money to live our life maybe it could be to purchase a house it could be to pay for our kids education going for vacation that is what the money is for but if you spend the next 20 years where 100% of your money is in equity where you're in constant stress of the ups and downs in the market do you call that as a good life not me so I would advise everybody not to put 100% Equity even if the historical returns of equity has told us that it is giving us 14% of CHR because it's not worth the mental stress of living like that for the next 20 years so now the next question that you might have is how do I actually divide this money across the various asset classes that I just talked about earlier in this video we talked about the lean fire number and we deduce that I need to save around 42,000 rupees per month to achieve my lean fire number which is around 2.