I do across a few young and promising professionals, who want to become CEO by 35 and retire by 40. They are saying this because of the amount of stress they encounter in their career. While I have shared my thoughts on stress management with thousands of corporate executives, only a few of them are consistent in applying the simple and powerful tools, I discuss with them.
While becoming CEO at the age of 35 depends on a number of factors, achieving financial independence by 40 is definitely possible for people, who follow the ‘rules of the game’.
Before we discuss further, we need to understand the meaning of ‘Financial Independence’. What I have learnt from great people like Robert Kiyosaki is that a person is financially independent when his passive income is equal to or more than his expenses needed to maintain himself and his family. As you may be aware ‘passive income’ is the income which accrues to you even without your working for it. Rental receipts, interest income, dividend income are examples of passive income. Let us say, your annual expenses are Rs. 600,000; you are financially independent when your passive income is equal to or more than Rs. 600,000 per annum. Please note that financial independence is the first step in the journey of becoming rich.
Let us take the case of a young person aged 25, who has begun his career recently. We will go back to basics and discuss a few simple actions that can help the person in reaching financial independence in another 15 years from now:
- The person has to sit with his Financial Planner and work out the likely expenses after 15 years and the asset mix that will give the passive income that will at least meet the likely expenses. The estimate of inflation is very important in this exercise.
- He has to start saving and investing as agreed with his Financial Planner. As the first step, he has to start ‘paying himself first’. That is he should save first before spending his monthly income. Very soon, he will be using the wonderful ‘Power of Compounding’.
- He needs to insure himself first as suggested by his Financial Planner. These days, term insurance rates are very attractive. He should also take suitable medical insurance for himself and his family.
- There is no way, this person can avoid risk. He has to manage the risk with proper asset mix and review the same at least twice a year. In my opinion, he will benefit by investing in a few likely multi-baggers.
- For the next 15 years, he has to take inputs from his Financial Planner. There will be changes in the assumptions made while working out his Financial Plan and hence the need for a half-yearly review. In my opinion, the person will also benefit by having a Financial Mentor, who can guide him on a monthly basis.
- The person should also have a mentor in his profession. He will benefit through the mentor’s guidance on vital issues such as job change, handling situations in his organisation, starting on his own, contributing more to his employer or his clients.
- Last but not the least, the person should also provide for entertainment for his family. Fifteen years is really long time and if there is no such provision, life will be monotonous. Also, he can enjoy several costless luxuries of life such as beautiful sunrise, the smiling face of his child, trees and flowers etc. Happiness can precede financial independence.
It is very important for the person not to forget his smile. Several people become too serious in their career pursuits. I always tell my trainees the Finance Minister of my country can tax my income, wealth, gifts, service but cannot tax my smile, laughter, happiness and enthusiasm! Keep smiling all the way in your journey to be Rich.
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