ALL Expenses Covered By Passive Income? (Expense Management for FIRE)

Summary

The speaker shares his journey to financial independence, achieving it by 2019 through a combination of strategic investments and expense management. Starting with a modest salary, he prioritized savings and categorized expenses to fund necessities through fixed deposits and mutual funds. Real estate investments provided a growing passive income, with a current yield of about 3%. He advises those in their mid-20s or early 30s to start small, focus on stabilizing finances, and avoid high-risk investments. His approach emphasizes diversification and a long-term perspective on managing personal finances.

Takeaways

• 🎓 The speaker achieved financial independence by 2019, which is considered early compared to many Indians.
• 📈 He started his career with a salary of 5,000 rupees and experienced significant salary increases with each job change, reaching a package of over 1 CR annually in the last 3-4 years.
• 🏦 The journey towards financial independence began after a colleague noticed his low bank balance and gave him a lecture on the importance of saving.
• 💡 He implemented a strategy of categorizing expenses and allocating investments to cover different types of expenses, ensuring a stable income from fixed deposits and rental assets.
• 🏠 The speaker invested in real estate, which now provides a passive income of about 40,000 rupees per month from five properties.
• 📊 He emphasizes the importance of having a well-thought-out approach to financial planning, including diversification of investments to manage risk.
• 💰 The speaker's current monthly living expenses are approximately 1.2 lakhs, which are covered by a combination of rental income, mutual fund withdrawals, and dividends.
• 📉 Despite the lower yield from real estate compared to mutual funds, the speaker values the diversification and stability it provides in his investment portfolio.
• 👨‍👧 He advises young people to start saving early, even if it's a small amount, and to focus on stabilizing their finances rather than pursuing high-risk investments.
• 💼 The speaker's portfolio is diversified, with about 35% in fixed deposits, 18% in provident funds, 15% in mutual funds, and the rest in stocks, REITs, and other investments.
• 👉 He stresses the importance of not compromising on having a substantial corpus for financial security and the ability to enjoy life without financial worries.

Q & A

When did the individual achieve financial independence?

The individual achieved financial independence in 2019.

What was the individual's first job and salary?

The individual's first job was at Mast with a salary of 5,000 rupees.

How did the individual's career progress after Mast?

After 2 years at Mast, the individual switched to TCS for data consultancy services, where they spent almost 10-11 years. Every career jump after that resulted in a 30% to 60% increase in salary.

What triggered the individual's focus on financial independence?

The trigger was a lecture from a lady in the office who noticed the individual had only 500 rupees in their bank account, leading to a serious consideration of their financial situation.

How did the individual manage their finances after the lecture?

The individual started by categorizing their expenses and allocating their salary to cover only the necessary expenses. The rest of the money was put into fixed deposits, with the goal of using the interest for non-essential expenses.

What was the individual's strategy for achieving financial independence?

The strategy included categorizing expenses into six categories based on priority and frequency, allocating specific investments to cover different types of expenses, and ensuring a stable monthly return from fixed deposits and rental assets.

How did the individual's real estate investments contribute to their financial independence?

The individual started renting out idle flats, which led to a realization that rental income could grow faster than inflation. Today, they receive about 40,000 rupees a month from five rental properties.

What is the approximate market value of the individual's real estate properties?

The approximate market value of the properties is around 170 lakhs rupees, with individual properties valued at 50-60 lakhs, 50 lakhs, 30 lakhs, and 20 lakhs.

What is the individual's current monthly living expense and how is it funded?

The individual's current monthly living expense is about 1.2 lakhs rupees. This is funded by 40,000 rupees from real estate, 20,000 rupees from mutual funds, and an additional 15-20,000 rupees from stock dividends.

What advice does the individual have for someone in their mid-20s or early 30s starting their financial independence journey?

The individual advises starting small, even if it's with a half a percentage of savings, and focusing on stabilizing finances with low-risk investments rather than high-risk, high-reward options.

What is the individual's current asset allocation in terms of fixed deposits, provident fund, mutual funds, and stocks?

About 35% is in fixed deposits, 18% in provident fund, 15% in mutual funds, and 25% in stocks. The remaining percentage includes REITs and other investments.

Outlines

00:00

💼 Journey to Financial Independence and Career Transitions

The speaker reflects on their journey to financial independence, which began with a wake-up call from a colleague about their low bank balance. This led to a serious approach to managing finances by setting aside money for essential expenses and investing the rest. The speaker emphasizes the importance of categorizing expenses and creating a strategy for financial self-funding. They recount their career progression, from an MBA graduate to a data consultant at TCS, where they experienced significant salary jumps. The narrative also touches on the concept of passive income, particularly from fixed deposits and mutual funds, and the realization of the need for a well-thought-out financial plan in 2010 due to liquidity issues.

05:00

🏡 Real Estate Investment and Passive Income

The speaker discusses their venture into real estate, which started by accident when they decided to rent out two idle flats. They highlight the appeal of a 10% annual escalation in rent as a form of income that can outpace inflation. The speaker has five properties that generate a rental income of about 40,000 rupees per month, contributing to their financial independence. They also delve into the market value of these properties and compare the return on investment from real estate to that of mutual funds. The speaker underscores the value of diversification in their investment strategy and how real estate serves as a stable, long-term investment that is less sensitive to market fluctuations.

10:02

📊 Financial Planning and Current Living Expenses

The speaker provides a detailed account of their current living expenses, which amount to 1.2 lakhs per month, funded by rental income and dividends from their stock portfolio. They have ceased adding to their mutual fund investments and instead withdraw a portion annually. The speaker's financial portfolio is diversified, with allocations to fixed deposits, provident funds, mutual funds, and stocks. They express a preference for low-risk investments to secure their financial future and advise younger individuals to start saving early, even if it's a small amount, and to prioritize stability over high-risk, high-reward investments. The speaker also emphasizes the importance of having a substantial financial corpus to ensure financial security.

Keywords

💡Financial Independence

Financial Independence refers to the state where an individual has enough savings, investments, or passive income to cover their living expenses without the need for active employment. In the video, the speaker discusses achieving this status by managing his income and expenses effectively, which allowed him to cover his costs without relying on a regular job.

💡Passive Income

Passive income is money earned with little to no effort by the recipient. It often comes from investments or rental properties. The speaker mentions that his passive income primarily comes from rental assets, which provide a steady stream of earnings that contribute to his financial independence.

💡Fixed Deposits

Fixed deposits are a type of savings program offered by banks where an individual deposits a sum of money for a fixed period at a fixed interest rate. The speaker uses fixed deposits as part of his strategy to generate a stable monthly return, which is crucial for funding his critical and reduction expenses.

💡Mutual Funds

Mutual funds are investment vehicles that pool money from many investors to invest in a diversified portfolio of stocks, bonds, or other assets. The speaker mentions that he has allocated a portion of his investments to mutual funds, which are used to fund expenses that can be delayed, indicating a willingness to accept more volatility for potentially higher returns.

💡Real Estate

Real estate refers to land and any permanent structures attached to it, such as buildings. The speaker discusses his real estate investments, which include properties that generate rental income and have appreciated in value over time. These assets provide both passive income and potential capital gains.

💡Diversification

Diversification is the strategy of allocating investments across various financial instruments, industries, or categories to minimize risk. The speaker emphasizes diversification by spreading his investments across fixed deposits, mutual funds, stocks, and real estate, which helps protect his financial stability.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, the purchasing power of currency is falling. The speaker talks about considering 'inflation of consumption', meaning the increase in the cost of the goods and services he buys, rather than general inflation rates set by the government.

💡Stock Portfolio

A stock portfolio refers to a collection of stocks held by an investor. The speaker mentions an increasing stock portfolio, which has begun to provide him with dividends, an additional source of passive income that contributes to his financial independence.

💡Critical Expenses

Critical expenses are the necessary costs required for basic survival, such as food, housing, and utilities. The speaker prioritizes these expenses and ensures they are funded through stable income sources like fixed deposits and rental income.

💡Reduction and Delayed Expenses

Reduction and delayed expenses are categories the speaker uses to manage his finances. Reduction expenses are those that can be decreased, while delayed expenses can be postponed without significant impact. The speaker strategically invests to manage these expenses, aiming to minimize costs and maximize savings.

💡Corpus

Corpus refers to the principal amount of money in an investment or savings account. The speaker discusses building a substantial corpus through careful financial planning and investment, which is essential for maintaining financial independence.

Highlights

Achieved financial independence by 2019 through self-funding and passive income.

Worked in MBA, got recruited through campus for Mast, then switched to TCS data consultancy services for 10-11 years.

Career progression included significant salary increases of 30-60% with bonuses.

Began focusing on financial independence after a colleague's lecture on the importance of savings.

Implemented a strategy of allocating salary towards fixed deposits and using interest for discretionary spending.

Categorized expenses into six priority categories for better financial planning.

Survival and reduction expenses are funded by fixed deposits for stable returns.

Delayed and one-time expenses are managed through more volatile investments like mutual funds and equity markets.

Allocated specific investments to fund different categories of expenses.

Started investing in real estate accidentally but found it to be a growing source of income.

Rental assets provide an escalation of income faster than inflation.

Has a total of about 40,000 rupees monthly income from rental properties.

Compares real estate returns to mutual funds, highlighting the importance of diversification.

Fixed income instruments fund critical and reduction expenses, providing stability.

Has a monthly living expense of 1.2 lakhs, funded by a combination of rental income, mutual fund withdrawals, and dividends.

Advises starting financial planning early and focusing on low-risk investments for those in their mid-20s to early 30s.

Emphasizes the importance of having a substantial corpus for financial security.

Transcripts

2019 is when I reached a stage where uh

for 6 months I didn't have I was

completely you know self funded all this

passive income coming in was basically

uh feeding into the expenses that were

going

on first congratulations on achieving

Financial dep uh Independence uh early

compared to most of the Indians so what

are you doing currently So currently

I've just uh uh in a left click again so

uh in MBA I got recruited through campus

for mast after 2 years I switched to TCS

data consultancy services and there I

spent almost 10 11 years that's where

the inflection in my career happened

okay and every jump from there was 30%

50% 60% okay and um with with bonuses

and everything coun in I think the last

3 4 years the packages ran to almost 1

CR Plus on an annual basis okay so how

did you get started on financial

Independence so 5,000 was my salary the

first job in Mast about 78 months into

the job one of the ladies in the office

um just picked up the my bank passport

and she saw that there's only 500 rupees

in there that's it that was my balance

right so I was like blowing up

everything and uh she gave me a big

lecture I remember the lecture was 3

hours long because that's the time it

took to from seeps to get to my house uh

we were we were on a on a public

transport bus I still don't recall the

details of that 3 hours but but I do

know that after that I became pretty

serious on this okay so I spent some

time thinking and what I did was I

looked at what is the amount that I

actually need to spend this is the money

that I need then the salary comes in

this money is kept aside everything else

I went and put into a fixed deposit and

I was very clear that the interest that

will come out of it is what I'm going to

use to do this movies friends outings

you know buy stuff and all that okay

they will not come from my salary so the

first month I got only 17 rupees 17 for

me this was this money was now from not

from my salary but from the interest

that I was getting and 2001 is when I

got married now uh I was still living

this life where you know K expense

everything else used to go into the

Investments okay either fds or started a

little bit of mutual funds at this point

of time but it was sometime in

2010 uh when we ran into some liquidity

issue that I realized that it has to be

a uh complete strategy okay it has to be

a well thought out approach on how to

achieve uh you know self-funding we

never used to call it Financial

Independence this is how I have I have

approached my U planning first it I have

started categorizing my expenses not

every expense is the same time you can't

put everything in in one bucket some

things I need to

survive I don't have any earning this is

the money that I have to pay grocer

right so these are the expenses which

are what I call critical to survive then

I looked at the ones that are can be

reduced okay then there are those

expenses which can be delayed okay like

I want to now replace my car it's okay I

can do that next year maybe I can do

that year after next okay I don't need

that and then there are obviously

expenses that can be eliminated so now I

have have a list of six categories each

of them prioritize so the first priority

is survival then reduction then delayed

and and then we had expenses that can be

uh eliminated completely and those those

onetime expenses on the other dimension

I looked at the frequency in which these

expenses come so monthly

quarterly uh every 6 months annual and

then more than one year but on a

periodic frequency right so 2010 I

started allocating specific investment

some fixed deposits uh mutual funds

rental assets into specific expenses the

expenses for survival and the expenses

that can be reduced these are the two

sets of expenses which I have tried to

fund from the fixed deposits post office

Mis uh anything that can give me a

stable monthly return which included

rental income in those days I used to

think rental assets uh were fixed okay

but Co gave me another thing so I

started uh dropping the the the quotient

of the of the stability on on rental

income okay now when you look at the

other expenses that can be delayed right

expenses that can be delayed I can

afford to be a little volatile in it

mutual

fund right Equity Market same story I

think somebody says

like right so that's that's the thing

but and then came the those onetime

expenses like kids education the house

maintenance which is now popping up

right uh these were obviously I took it

you can't fund them so I took the chunk

of salary kept it aside

okay these were all around right

something some fixed deposit

something particular HDFC account I

redirected all my investment income

interest dividend H they all come into

that one account and I gave my wife the

ATM of that account and I started

tracking this

account

2019 was when a period

came I did not top up even a single rupe

in that account okay and that is when I

say I considered myself now I am a

self-funded or I'm financially

independent how much passive income do

you have from Real Estate so real estate

I started incidentally or accidentally

whichever we look at it so when I had

two Flats I moved to this new house the

flats for lying idle the broker said you

know why don't you give it off for rent

uh but the beauty part was that 10%

escalation was was the exciting Factor

right and I suddenly realized that can

be an income that can come and which can

grow faster than inflation uh so today I

have uh a total of about uh 40,000 that

I get from all my rental assets how how

many properties uh five properties right

now and what will be the market value of

these properties the Two Flats will

probably uh uh the value would be around

50 60 lakhs I bought it for 8 today I

can dispose them off for about 60 uh

this shop would probably be around 50 um

I bought it at 20 25 or something okay

uh the one one uh next to the market uh

I got it for 18 probably it will it

might be double now 30 okay and and that

one is about 20 that one didn't didn't

appreciate the the the last one that I

bought it's pretty new also okay so

we're talking about 60 and 60 that's 120

and then 150 and 20 170 170 and you get

about if I say 40,000 5 lakh rupees a

rent yearly yeah right so that is 3%

yield right so if you like and I I

genuinely have this question and when

people say passive income real estate is

like if I compare it with mutual funds

mutual fund give about 12% return right

and plus it is tax- wise beneficial

right uh if you put that 1.7 CR uh in a

mutual fund that you'll kind of get

you'll get 12% so which is about 20

lakhs four four times there are better

ways there are better returns there's

always a better everything that can

happen right uh so to me this is like a

diversification so uh rental assets yes

if you look at the market value I'm I

could probably earn some more better

return some other place but to me it's

like this uh when I was funding for my

daughter's education I know there's

going to be a big thing coming up okay

uh I said okay here is this asset which

I have now tacked to your education

should you need that money then I

dispose this and and pay off right uh so

I'm not looking at disposing it today

use that money to get a better return

some other place even if you look at

where I am today right um most of my

expenses are critical to live right

survive as well as the the reduction

expenses right uh these are being funded

by fixed income instruments which give

lower returns so on winw also now we

have Bank fds small Finance Bank fds uh

which you about 9 9 9.5% return that's

actually a great thing because uh if I

look at my Corpus also today almost 40%

is this a lot of financial planners have

come to me and said oh you know what if

you can move it there I will you can get

20%

25% know portfolio

management if you look at the full

picture don't just look at at one

dimension look at the full picture there

is something that I want which cannot

change I cannot comprom

and this has to be funded by something

that is not exposed to to much risk

comparison

inflation I okay and

inflation like somebody said in one of

the interviews on your channel inflation

should be looked at inflation of your

consumption

okay how is it that increasing I don't

care what the government is doing okay

see the government plays for the masses

I am not the mass I like to think I'm

above the average mass right you definit

so so what I consume has a different

rate of inflation and that is what we I

look

at okay what are your current living

expenses monthly so I I I can tell you

precisely it's about uh 1.2 lakhs per

month so everyd is fund 60k a month H

okay uh real estate is giving me 40K

uh and like I said I have stopped the

accumulation phase of mutual fund and

what I do is I withdraw about 3

3.5% uh annual basis pay so I'm pulling

approximately 20K out so that's 60 40 20

that's 1.2 what I've also realized is uh

with my stock portfolio now increasing

the dividends have started flowing in so

I've got another 152k of dividend per

month so this is my buffer okay 1.2

Christmas now the negotiations at home

has started I'm waiting for that mutin

to come

okay it's an annual event for me okay so

it will happen I mean let's at the same

time we need to enjoy life also right so

if I look at your Corpus how much is in

fixed deposit how much is in Delhi State

about

35% is fixed deposits a decent chunk

about 18%

is in Provident fund maybe about 15% is

in mutual fund not not a big thing

because I started late now I think about

25 uh% is in uh stocks whatever is the

gap in between some

REITs some

other and what about real estate I don't

count them as my investment kind of

thing so that that whatever we

calculated earlier 1.5 1.7 is is a

separate it's counted in my net worth

it's not counted as my Corpus let's put

it that way for the house purchases that

I did I had to empty my bank balance

okay today I'm aware of

Reit objective rental

income okay without bothering about

market value and all this stuff then

then I would rather do Reit right what

advice would you have for someone in

let's say their mid 20s or early 30s who

are starting their journey of financial

Independence okay what I would tell them

is start don't wait start small if you

think you cannot save anything start

with half a perc I will also tell them

one thing this is you know if you look

at most of the advice given to youngster

they say You are young you can now

dabble in stocks if you lose you have

time to earn I will give

a different advice I'll

say this is a time when you need to

stabilize your Finance an is everybody

says high risk High reward I ask people

what is the corollary of this the actual

statement that you should look at is low

reward is low risk requirement low you

can play with low risk so you don't need

to go for high risk you know options

trading reward expectation low low risk

there are other things that you can play

around when you are young right there

has been statements told to me uh that

money is not important right but I read

a statement somewhere I forgot whose it

was but he said money is not important

that's true but make sure you have lot

of it before you actually make that

statement

okay I don't mind compromising some

things now I don't mind if some people

get angry with me I don't meet their

requirement or one thing because I want

to have that Corpus where eventually it

will not

matter today I don't track

money