How to Save Aggressively for Early Financial Independence

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Have you heard of the Financial Independence, Retire Early (FIRE) movement? It's a recent trend that is gaining popularity among people. It mainly focuses on greater financial independence through extreme frugality and aggressive investment. If you are someone who wants to walk on the same path, then this blog is for you. Here, we'll discuss how you can make decisions that will help you achieve early financial independence.

Effective strategies for early financial independence

Establish a clear financial goal: If you go by the FIRE planning strategy, you first need to calculate the total amount you would need to retire comfortably. This is known as a 'FIRE number'. You can calculate this by multiplying your annual expenses by 25. So, if your annual expenses are ₹5 lakhs, your FIRE number would be 25 x ₹5 lakhs = ₹1.25 crores. You need to save this amount to fund your retirement comfortably.
Boost your savings rate: As per this strategy, you need to set aside a large part of your income as savings. This approach plays a big role in achieving your personal financial goals and achieving early independence. The aim should be to save between 50% to 70% of your income. For example, if you earn ₹1 lakh per month, you should try to save ₹50,000 to ₹70,000 of that amount every month. This way, you can accelerate the growth of your retirement fund.
Spend less money than you earn: Live below your means. Avoid unnecessary expenses and spend less money in your daily life. This could be choosing budget-friendly options, like a less expensive car or house. Let's say you order food outside several times a week. If you reduce this to once a week, you can substantially decrease expenses and save more.
Make wise investment decisions: For this strategy, focus on investing your savings in financial instruments like low-cost index funds. The reason is that they grow over time and help you build wealth more efficiently through compound interest. For example, investing ₹50,000 a month in an index fund with an average return of 8% annually can grow to a significant amount over 20 years.
Find more ways to earn: Building passive income streams are sources of income that require little to no effort to maintain. This can be rental properties or investments that pay dividends. For that, you can think of buying a rental property that brings in a steady monthly rental payment. This passive income can help cover living expenses or be reinvested to further increase your financial security.
Learn about financial markets: Knowing the financial markets and investment strategies allows you to make guided decisions regarding your financial situation. This way, you can build better plans and adjust them as and when needed. To make this a habit, regularly read financial news or books and attend seminars or online courses. This will keep you informed about new opportunities and methods for managing your money more effectively.
Build an emergency fund: Also, consider setting aside a certain amount of funds that could help you during emergencies and cover unexpected expenses. The ideal way is to reserve a sum that could provide relief for at least six months of your living expenses. You should keep it in a safe, easily accessible account. If your monthly expenses are ₹50,000, you should aim to have at least ₹3 lakhs. You can reserve funds in a zero balance digital savings account to access them quickly in case of any emergency.

Conclusion

Make the most of the FIRE movement and unlock financial independence early in your life. To build a large corpus, choose a reliable and secure savings account. At Kotak811, we have options for all. Look at the different options available and select the best savings account that matches your lifestyle and financial needs. You can apply online and access your account swiftly through digital means, i.e., via net and mobile banking.

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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.