Aggressive Plan of Action for Financial Freedom

Action Items to move aggressively towards FI.RE.

FIRE = Financial Independance + Retire Early
Aim —To be in a state where you work because you want to and not need to.

Disclaimer
This is an article that I am essentially writing for myself. Here, I am highlighting the most important points to remind myself again and again in the future. By the way, I am a 33 years old, married male with no kids and have an Aggressive Risk Profile. Below tips might be too aggressive and might not fit your risk profile and life circumstances. Please use discretion.

1. Track your Net Worth.

— Calculate your Net Worth by adding up all the assets and liabilities.
— INDmoney App automates all the tracking. How beautiful!
— This is the number you need to optimize guys.
— If you can’t measure it, you can’t improve it. — Peter Drucker

2. Accumulate the First One Cr INR ( or One Million USD) ASAP.

— First Crore is the hardest and compounding seems slow during this period.

3. Pull the biggest levers first.

— Instead of fretting about the small stuff, do the highest impact thing first.
— “Your excel sheet” will tell you your biggest mistakes.
— For me — Sell the fuckin’ house. 2.5% shit returns.

4. Increase your Income.

— Negotiate. Get another offer in hand. They don’t care.
— Get a job that pays 2x.
— Create Second Source of Income

5. Zero Debt.

— Zero debt is a huge emotional relief. The brain starts thinking differently when you have no debt.
—A ‘good debt’ with ROI < 8% is acceptable though.

6. Save aggressively. Forget 20%. Can you save 70%, 80%?

7. Avoid Money Leaks. Don’t subscribe; buy things, A La Carte.

— Pay monthly for Gym & Netflix
—Concept of subscription is designed to exploit a psychological loophole in Humans.

8. Automate Investing in Equity.

— Setup Mutual Fund SIPs.
—Learn fundamental analysis and invest in stocks.
— Hunt for Quality Small Caps. Sit tight on a handful of potential 100 baggers for a few decades.

9. Don’t buy a house. Live on Rent.

10. Don't buy an Expensive Car. Cars keep you poor.

11. Build an Emergency Fund

— Create a fund worth 6 months of expenses.
— It brings Peace of Mind. You will feel relaxed and secure.
—Also, you’ll not be forced to sell your assets at a low price in the time of need.
— Emergency Fund of 12 months’ expense is even better.

12. Buy Health Insurance.

— Buy via an agent who is willing to play by your side when the Insurance company starts playing mind-games with you.

13. Buy Life Insurance. Online.

— Build a death folder containing all important documents and steps to be followed when you are not around. Hard copy & online both. Tell about this to a safe friend too.

14. Optimize Capital Allocation

— Ultimately, the return of your whole portfolio matters.
— Have a high allocation in Equity as it will be the biggest driver of returns.
— For your spouse and your parents, sell or close all the outdated and forgotten investments like ULIP’s, Real Estate, etc.
—Increase equity percentage to “100-age”

15. Make Tax your friend

Rules of Taxation:
Firstly, tax is applied only when you “book profits” i.e. sell stocks, mutual funds, real estate, etc. If you sell stocks before 1 year, you attract Short Term Capital Gain (STCG) which is 15% whereas if you sell stocks after 1 year, you attract Long Term Capital Gain (LTCG) which is 10%. Interestingly, 1 lac profit every year is tax-free from LTCG.So, let’s see a few strategies to minimize “realized” profit.

For India Stocks, LTCG = 10% and STCG = 15%
For US Stocks, LTCG = 20% and STCG = According to Salary Slab.

Here are the strategies to minimize tax with the above rules in mind.
— Tax Harvesting. Sell loss-making stocks, book loss, and rebuy immediately.
— Delay paying taxes by not selling profitable stocks for a long time.
— Use New Money to Rebalance Portfolio instead of selling.
— Use Loan Against Securities for Emergency Needs. Pledge<25%. [ High Risk].
— Buy stocks from all family member’s accounts. Book 1 lac tax-free profit from every account.
— Buy stocks from a non-earning family member’s account. The dividend will be tax-free.
— Invest in US Stocks from a non-earning member’s account. If you sell stocks before 24 months, then you are charged STCG which is taxed acc to salary slabs. This means you can book a 2.5 lac tax-free profit every year. Needless to say, sell and immediately rebuy to continue the compounding journey.

16. Minimize the fees you pay

— Buy Direct Mutual funds instead of Regular Mutual Funds.
—Buy cheap Mutual Funds with expense ratio < 0.6%.
— For Stocks, go for Zerodha or Groww where fees is practically 0 to buy/sell stocks.
— Money that you lose as fees also compounds. Hence, avoid it.

17. Use Credit Card

— Option 1 — Don’t Use credit cards.
—Option 2 — Use it super responsibly by paying 100% every month.

18. Build Credit Score

One day you might need to take a loan. An excellent Credit Score will get you the best rate of Interest in the market. Use Credit Cards by paying in full to build a Credit Score.

19. How much do you need?

You need 25x of your yearly expense. Let’s say if you need 2 lakhs per month to live a good life. You need 25 * 2L = 6 Cr. That’s your FIRE number.

Think

1. Long Term
   — All bad behavior comes from short-term thinking. Be it money, work, or relationships.
2. Compounding
3. Diversification
4. Opportunity Cost
5. Respect Rich people and learn from them. They teach you if they sense the student in you. They avoid you when they sense envy. #GoodVibes

Potential Killers of Financial Freedom

All I want to know is where I am going to die, so I’ll never go there. — Charlie Munger

It’s based on — Inversion and The Power of Avoiding Stupidity
Avoid the following things in life and you will be better off than most:

• Lifestyle Inflation
• Laziness and Procrastination. Not taking the obvious next step.
• Futures and Options.
• Leverage
• Borrow to Invest
• Complex financial products
  These are sold mostly by:
  — Relationship Managers from your bank. Mostly good-looking people of the opposite gender.
  —Uncle or relative selling policies to Dad
• Illiquid Assets — Vacation home or agricultural land.
• Big-ticket Financial Fraud.
• Fear of Unknown

6 Monthly TODOs

• Cancel Subscriptions
• Full Body Health Checkup. Proactive treatment of any disease. You don’t want the stupid disease to compound.

Yearly TODOs

• Portfolio Rebalancing.

While on the path to Financial Freedom …

• Don’t be cheap. Spend on what makes you happy. Drink that Latte.
• Don’t let Friends take a backseat. Go for Drinks.
• Don’t let Family take a backseat. Call Mom.
• Don’t let Love take a backseat. Buy that flower. Give that compliment, Spend time with her. Help her with chores. Fix that broken tap.
• Don’t live in the excel sheet

Further Readings

https://www.collaborativefund.com/blog/the-spectrum-of-financial-dependence-and-independence/