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Choosing Financial Independence Wisely

This year marks 75 years of India’s Independence. From being dependent on outsiders for ‘growth’, we built our growth paths over the years. Just as India, we, in our lives too, need to build our growth path when it comes to finance. This article will focus on two popular methods (Financial Independence Retire Early or F.I.R.E and Slow Financial Independence or FI, for attaining Financial Independence.
Choosing Financial Independence Wisely

Every year on August 15th, we are reminded that independence is worth fighting for. On this day, we commemorate our country's proclamation of independence from British power and influence. Financial independence entails freedom. On August 15th, we commemorate the proclamation and your determination. 

To begin, financial independence is commonly defined as "a state in which a person or household has sufficient wealth to live on without relying on income from some sort of job." This is a more general definition. On the other hand, financial freedom can mean different things to different people.

Post the reality check of the pandemic, India seems to be in the wake of taking finances and financial independence seriously. Hence, there is a new wave of attaining financial security at first and then becoming financially independent. Though the baseline of financial freedom for Indians is the same as the definition, they do have some checklists. 

It is commonly associated with debt elimination, quitting one's employment, and having various sources of income. Financial independence, in a word, permits you to live life on your terms. However, establishing financial freedom is much more than simply money. It's also about the independence and luxury of having time and peace to enjoy life's finer things. We may have heard of the Financial Independence Retire Early (F.I.R.E) movement, which is one method of achieving financial independence in India. However, it is extremely tough to maintain (much like the keto diet) and demands you to alter your lifestyle drastically. So for a country like India, which method of Financial Independence is more sustainable: FIRE or just a slow Financial Independence? 

What is Financial Independence Retire Early (F.I.R.E)?

  • FIRE stands for Financial Independence. Retire Early is a lifestyle movement encouraging people to achieve financial independence and save enough money for a comfortable retirement. At the same time, they are considerably younger by employing extreme money-saving and investing tactics. The FIRE ideology developed in the United States and some of its concepts were initially published in 1992 in the book "Your Money or Your Life." The FIRE concept includes two financial planning components: Financial Independence (FI) and Retire Early (RE) (RE).
  • The FIRE movement adheres to traditional ideas of gaining financial independence and building a retirement corpus. Still, they retire much earlier, maybe in their 40s or 30s, decades before the actual retirement age. Besides the topic of early retirement, FIRE philosophy departs from customary practises in several ways. For example, most people think of financial planning as improving their current lifestyle. Yet, FIRE ideology requires you to maintain a modest lifestyle even after retirement to fund your monthly costs in most circumstances.

What is meant by Slow Financial Independence?

  • Slow FI, or slow financial independence, is a subset of the FIRE (financial independence, retire early) movement. Slow FI emphasises the importance of enjoying the journey to financial independence as much as the destination. It's a reframe in which, rather than forsaking your current lifestyle to attain financial freedom as soon as possible, you enjoy your current lifestyle, even if it entails a long journey to financial independence.
  • Slow FI attempts to allow you to live the life you want right now, even if it takes longer to achieve financial independence. It might be viewed as a more gradual, long-term route to financial freedom.

F.I.R.E or Slow FI?

  • Individuals who desire to achieve FIRE should save a substantial proportion of their regular income or generate a significant income while not living a luxury lifestyle. It is worth noting that middle-class professionals are increasingly aspiring to FIRE. These individuals must save a significant amount of their post-monthly income to achieve their goals. 
  • There are a lot of success stories in terms of F.I.R.E, but ideally, no one talks about failures as far as F.I.R.E is concerned. Though this seems like a perfect lifestyle scenario, the question is whether you are willing to reduce your current lifestyle to save more. Lowering current consumption to achieve FIRE means foregoing the opportunity to enjoy the present in exchange for the possibility of a brighter future. And who knows whether your financial strategies will pay off in accumulating the funds needed to reach FIRE?
  • The idea of F.I.R.E can be overwhelming for average Indians in the present scenario. Given the challenges with FIRE, a developing alternate movement is a Slow FI – slow financial independence.
  • The goal is to strike an optimal balance between enjoying the moment and reaching financial freedom later than you would if you were on FIRE. But, determining the best balance between now and future happiness is not so simple.
  • Does this mean you may keep spending as usual while saving 20-25 per cent of your monthly post-tax income? Not at all. Every year, you should grow your savings. The ideal approach to do this without sacrificing your current lifestyle is to save from your annual wage increase aggressively; instead of the usual 20-25 per cent, you should save 40-50 per cent. 

Everyone aspires to retire early, but only a few do. And fewer people appreciate early retirement since most people do not prepare emotionally for long retired life. Therefore, you should strive for early financial independence rather than early retirement while maintaining your current lifestyle and enjoyment. And, in that course, if early retirement is what you achieve, well, it is the icing on the cake for you, my friend, Congratulations!

Accumulating wealth and thus attaining financial independence is entirely dependent on how well we plan to do it. Saving the right amount, long-term or short-term investment in your goals etc., can be a few ways. We at Glide Invest aim to make investment simpler. Glide Invest helps you invest in your goals with Goal-Based Investing, get higher returns than standard mutual funds with Smart Portfolios, or invest in your favourite funds with Custom Portfolio. Download the Glide Invest App now to get started!

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