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How Much Is Enough To Say "FY"?

Everyone who’s rich tells you they didn’t really care about the money when they started. To a large extent, and to most of us that struggle with just carrying on our existence, this is bullshit. We’re all looking for that elusive early retirement, that point at which we can say something to the world with the acronym "FY". And for most of us, this means money.

You could live your life in a noble way and not care about the kind of money you need to actually do the FY thing. Because, let’s say, your ambition is to not have children and live in a cottage while fishing off a small island in Lakshadweep. This would be great and require little or no cash other than to actually get there. I would envy you and tell you to immediately stop reading further.

Now, all the rest of you have worldly desires and responsibilities, and need money to live comfortably. How much, though, does it take?

I thought about this recently, because in this whole race it was suddenly becoming more about playing the game rather than finding that point at which we say we’ve won. We worry about money even if we have money; we worry that if we did have more we could do so many things. How much, though, is "enough"?

I’ve had various answers over the years. I always knew I needed some money. At some point I randomly decided that I needed 10 crores, because that would be awesome. This has been a fixed number for nearly 14 years (I decided the 10 crore number sitting in a beach in Goa, at midnight ringing in the new year, with no mathematical basis whatsoever)

But now, I’m older and need a justification for everything. (Isn’t that sad? Whatever happened to just winging it? But I digress).

The Numbers

To be very comfortable, I’d like a nice house. Not necessarily big, but definitely one with an outdoor garden, and a fancy car and all that. Let’s say this house costs Rs.4 cr. (I’m never ever going to retire in Mumbai – that would be FM, not FY – so it doesn’t matter to me that 4 cr. buys you approximately half a matchbox there)

If I spend Rs. 100,000 a month today, a luxurious lifestyle – allowing me to travel to New Zealand whenever I wanted, for instance – would probably need me to have Rs. 500,000 per month.

At those levels, inflation doesn’t hit you quite as much, so costs probably go up about 6% a year.

I can, today, get a tax free yield of about 8% for 20 years.

If I plan to live about 40 years more – till I’m 80 – I can then calculate what I need to retire today. Expenses are 500,000 per month, go up by 6% a year. Returns are 8% a year. What do I need?

 

image

Whoa! I need about Rs. 15.8 cr. for the ultimate "FY" situation.

And then the Rs. 4 cr. for the house.

So, to retire to a life I would call luxurious, I will need Rs. 20 cr. today.

(The numbers will change every few years. If I was 50, I’d need 17 cr., and so on.)

In a way that helps temper ambition. That’s the money I need. Anything beyond that is a bonus, but it’s not really necessary – in effect any money more than that should be considered as a responsibility to help others, to better the world and all that. That’s really a lot of responsibility, and there’s a part of me that wonders if it’s really something I want to shoulder, but it would be criminal to avoid it.

I don’t know how to reach this goal, but I know that what I’m building – the Capital Mind business – has the ability to take me there. It comes with very little cash flow (nearly no salary or income while I spend energy building it) but it does have that pot of gold at the end.

I could make do with a lot lesser, of course. But this is not about making do. It’s about Effing…er, the absolute FY principle.

To others it may mean stock options at your job, or the prospect of earning a truckload of money as a salary. But whatever it is, money isn’t the end goal by itself – it’s just a milestone that allows you to do what you really want. To everyone it’s different; if you want a Bentley, your FY requirement just went up another 5 cr.

But however you go about it, it’s useful to know the number that you really want. You may never achieve it – many of us don’t, and many of us don’t want to say FY either – but keeping that goal achievable makes life substantially more exciting.

  • Mohit Satyanand says:

    If you wanted a Bentley, you’d want to replace it every 3 years, too. And you wouldn’t get more than 50% of it’s list price when you sold it. So you need an additional income of 17% of the cost of the Bentley every year – about 85 lakhs. You just doubled your ask..!

    • That’s true Mohit – which is why I am happy driving my 12 year old Palio πŸ™‚ Of course, it needs money now and then but nowhere near that Bentley!

      • kazaan says:

        Don’t knock the 12 yr old Palio. I got one too, and I just accused my garage wallah of fleecing me the last time I was there. He pulled up my account to say the last 7 years I’ve gone there I have paid him a sum total of 1.5lacs!! – try beating that with any other 12 year old car?

        • Vigi, I remember that car! πŸ™‚
          Guess what, I’ve found interesting mechanics who have helped replace nearly every part of the car other than that magnificent engine (aircon compressor, silencer, radiator fan, battery twice, etc.) and also have spent a bomb on it, but that’s sunk cost πŸ™‚ It is still cheaper, it seems, than buying another car!
          But you know what, assuming Rs. 7K per service, two services a year, 7 years, that would by itself come to Rs. 90K for any other car. Add to that changes of stuff you need – sparks, battery, tyres, etc. you will spend the 1.5 on pretty much any car no? πŸ˜‰

        • Nitin says:

          Lol Deepak. Eventually I too drive a 12 yr old palio and looking out for a good mechanic who can take care of my car. Frustrated with Vecto motors. Anyway offtopic, do let me know if you know any good mechanic or service center πŸ™‚

  • ram says:

    >>money isn’t the end goal by itself – it’s just a milestone that allows you to do what you really want.
    “do what you really want” or “have what you really want”?
    If you really meant “do”, you may be falling for what Randy Komisar calls ‘the deferred life plan’ in his book on startups called ‘The Monk and the Riddle’

    • Do, have, all the same to me. Whatever makes you happy. This is not a philosophical lesson in do is better than have etc. This is a pureplay financial goal in figuring out how to live your life in whatever lifestyle you think is desirable. I don’t judge – it’s what you desire that matters.
      Sometimes it’s inevitable that you must want something in order to do something. To drive a fast car at your whim and fancy can be done in an FY manner only if you own it πŸ™‚

  • Prashanth says:

    Deepak, is everything all right? Did somebody rub you the wrong way? :-Z

  • Kumar says:

    & as they say “Will u reside in the same house in all these 40 yrs :).
    Wouldn’t u required another house after a few yrs (say 20) & the same house wouldn’t cost 10 crs πŸ™‚

  • Bhupesh says:

    I have a constant figure but floating target of $1 Million. So exchange rate makes it easy or difficult for me.
    What worries me or would take my target higher are the new costs compared how we were brought up or live now >> Education, Medical expenses, higher life expectancy, New medical procedures.

  • rakesh ojha says:

    tax free yield of 8% for 20 years? are you referring to long term Gov bonds? they are not tax free. or quasi govt bond?
    why would you not hold some money in an stock index fund? (40-60%)

    • Rakesh: I’m using base assessments – if I had the money, most of it would be in equity πŸ™‚

      • rakesh ojha says:

        but lately you have shown preference for liquid fund. is that the short term money only?
        or it means you are uncomfortable with your long term money in stocks right and hence liquid fund now, but you would keep them in stocks over long term.
        in other words, what are your preferences for parking your savings in short?
        I think it can be separate personal finance post!

        • I’ve only been talking about stocks in Premium, but have a large percentage of money in stocks. I don’t know about term, I just hold until my stop loss is hit πŸ™‚
          Fixed income savings – it’s currently about the same whether it’s short or longer term πŸ˜‰ Both are giving around 8.5%

  • Lame Duck says:

    It’d be great if you’d put up the Excel file as an attachment for anybody else to figure their own FY. πŸ™‚
    Great post!

  • Murthy says:

    Yadyadaacharathi sreshtaha, tattadevetarojanahaaaa.
    Swayat pramaanam kuru they….lokastadanuvartate ….
    —-Lord SriKrishna in Bhagavad-Gita
    Excellent article on the issue.
    Your thinking changes as per your age. You are your own hurdle. You should have put 100Cr. Target in Goa that night.

  • Murthy says:

    Also,I believe the law of attraction. The figures just do not come on their own. Say, if my target was 1 crore in 2010, I sat down, and figured that I already had the money. I said FY then, and everyday continued to say so……
    Your 10 Cr. Figure was too out of your imagination, and the worth of your blog was 10 Cr., in Goa. It is the same law of attraction made you to realize your dream of having 15 or 20…….because you already possess it.
    I remember an old experiment related to “FY” feelings, of an infant brought up in a closed cubicle, until puberty…..then one day exposed to open world…….I heard the Basic Instinct was there, irrespective of the lack of imagination or experience………….
    If you do not publish this, I can understand……

  • Krish says:

    Superb article. Looks like ‘retirement’ is not affordable, at least to me. I can’t afford Louis Vitton items and never bought or tried to buy. Same as retirement. Work till death is my new motto.

    • You don’t need Louis Vitton if you don’t already want it. I want expensive things, but they’re about stuff I want to do. Like carabiners and harnesses and rope and climbing shoes and that….
      But yeah, at some point the complete FY retirement is off the radar. Then, you work the compromise. New Zealand once a year, smaller house, no garden….

    • kazaan says:

      πŸ™‚ – Your new moto – there is a more visually dramatic term for it – “die in harness”

  • Deepak,
    Good post. I had done a rather abstract/mathematical analysis of this question here: http://www.nileshtrivedi.com/2012/07/10/how-much-is-enough.html in which I found the typical thumb rule (annual expenses for your desired lifestyle divided by the margin by which your investments beat inflation) to be a slight overestimate. If your investments beat inflation by 3%, you need about 25 times your annual lifestyle expense as FU money (instead of 33times as suggested by the thumb rule)

    • Also want to emphasize that one of the easiest mistakes to make is to think that our expenses of a desired lifestyle are a given and not in our control. Like anything else, you can train your brain to see something as desirable or not.
      Since then, I have taken up minimalism/frugalism and that has brought my goal of achieving FU money much more closer. But yeah, this may not be the right advice for all. πŸ™‚

    • Murthy says:

      Trivediji,
      That’s some awesome maths. I once again request our Government to introduce Financial Literacy along with mathematics I our schools. Would be great fun…

  • ap16j55 says:

    Good write-up. Every one has to think and arrive at a goal.
    In the calculation, it appears that taxes are not taken care. If one is planning an income of 500000 PM, tax will eat up about 10-15 percent. One’s estimates need to be tweaked to that.
    It will be interesting if various means of deploying a corpus in a tax efficient way are discussed on this blog.

  • girish says:

    I liked this assumption of 8% return on net worth. (Although we wont put everything in debt instruments). I think 5 lac per month is not a realistic expense even with foreign trips and other such things. In my opinion, a corpus of 6 crore is good enough. at 8%, 48 lac per year the first year and compound it with retained earning + initial corpus. 6 crore is certainly not a hard target to achieve before 40. (For housing needs, one can defer it to fund from the retained earnings)

  • Chandra says:

    Great post! Once in a while, you write posts like this which is like a wake up call for anyone who wants to get their personal finances in order…and just puts everything in perspective which is also the reason for coming to your blog on a daily basis since the last 4 -5 years now.
    Keep up the great work!

  • Bhushan says:

    Statistics and those averages….. I hate them. You have considered avg inflation of 6% and uniformly applied it over 40 years. Make one change. Consider inflation of 10% for first 10 years and 2 % for next 10 years (mind you, avg is still 6%). You will see your corpus emptying in 35 years !!
    Worse, if Hyperinflation hits anywheer in between, you will go straight to Lakshadweep πŸ™‚

  • Leo says:

    SORRY to say inflation is not 6 % …it is a monster if u see what happens with money supply ….rbi policy is or the mandate is to printing 16.%+money supply year on year this is more than 1% per month…..so key is to make more than inflation

  • Krish says:

    I did some rough calculation of achieving 20 cr in 20 yrs (will hit my retirement age) with current PF savings of 20 lacs.It needs CAGR of 25.89%, looks doable for someone who is just about to hit 40 yrs age. Need to find some good stock or MF to get this magic CAGR.

  • Ganesh Nayak says:

    I did an excel in 2010, to calculate the FY value.. It came out to be almost exactly 10 Cr. Considered 8% inflation, 9% increment in salary and 10% return on investment. Retirement at 60.
    Problem with salary income is to keep the salary hike higher than inflation, which is very difficult once we reach mid level in the company.
    Unfotunately I did not save anything till recently and still have some debt. Net of debt my savings is only 5L.. A long journey ahead to 10 Cr. and I am already above 35.

  • krishna says:

    Great post. You have well articulated what most young (entreprising) Indians are eager to know.
    I’d like to point out a couple of accessory points,
    – there is a difference between money & wealth. Wealth is what makes you feel complete, fullfilling and excited – mostly your passions & your friends. So one may make FY money and (later) may not feel wealthy if he has no friends to have a laugh with or no passions to use the money for.
    – frugality is a virtue that is central to wealth acquisition & retention. Ignore the Joneses. The reason why the rich man did not hesitate to buy a second-hand Mercedes.
    – envy is the killer sin – you may make a 100cr and be greatly happy, but all that joy evaporates when a friend/batchmate of yours makes 1000cr. You are now so screwed – unless you manage yourself.
    Keep on the good work.

  • Murthy says:

    Krishna ji,
    There is no point in getting envied. The FYM Target is decided by the individual, and can not be compared with others.
    Ya, Money and wealth are different, but from a pure Capitalisting Point, both are synonyms. If you have any other idea, you are not a capitalist. Look at cash rich companies…. Cash strapped ones….. Both have wealth. But there is a difference. So, wealth always is not having money…..they say cash is king….but if huge amounts of moeney lies idling in the bank account, you are a poor manager…..

  • Sumant says:

    My best wishes, Deepak. Though I haven’t commented, I have seen you go from strength to strength during the past 2 years, and I’m sure you will reach your FY moment far sooner than you currently expect. Best wishes !