Brief Summary
This video discusses the financial planning needed to generate a passive income of ₹30,000 per month for life, adjusting for inflation. It highlights the common mistake of underestimating the required investment amount and failing to account for inflation and unexpected expenses. The video emphasizes the importance of having a corpus of at least 40 times your annual expenses to achieve financial independence and maintain your lifestyle over the long term.
- Underestimating investment needs for passive income.
- Ignoring inflation's impact on future expenses.
- Importance of a large enough corpus to sustain long-term financial independence.
Introduction: A Personal Financial Scenario
The video starts with a personal anecdote about a friend's friend who wanted to generate ₹30,000 in passive income per month for the rest of their life. The speaker discusses the gap between the individual's expectations and the reality of what it takes to achieve this goal. The information shared in the video aims to help viewers understand how to calculate their own financial needs for achieving financial freedom.
Current Financial Details
The individual has ₹5 lakh invested in stocks, ₹3 lakh in mutual funds, ₹5 lakh in PF, ₹1 lakh in bank savings, and ₹2 lakh in NPS, totaling ₹14-16 lakh in financial assets. Additionally, they own a property worth ₹15 lakh and gold worth ₹20 lakh. They have no debts and one dependent, their 5-year-old daughter. Due to health reasons, they can only work for another two years, during which they estimate they can save an additional ₹10-12 lakh.
Financial Summary and Expectations
The individual has liquid assets of ₹15 lakh and hard assets of ₹35 lakh, resulting in a net worth of ₹50 lakh. With two more years of work, their liquid assets could reach ₹20-25 lakh. If needed, they are willing to sell their property for an additional ₹20 lakh, bringing their total liquid investments to ₹40-45 lakh. They expect to generate ₹30,000 per month in passive income for life through SWP, bonds, or other investment options.
The Flaw in the Expectation
The speaker points out a significant flaw in assuming a 10% return rate to generate ₹4 lakh per year, as it is a risky and practically unachievable expectation, especially without additional income. A more realistic post-tax return expectation is 7-8% per year to avoid depleting the principal. Additionally, the current expense of ₹30,000 will not remain constant due to inflation, which averages around 7% in India.
The Impact of Inflation
Due to inflation, the monthly expense of ₹30,000 today will increase to ₹32,100 next year and continue to rise each subsequent year. Every 10 years, expenses will roughly double, requiring ₹60,000 in 10 years and ₹1,20,000 in 20 years to maintain the same lifestyle. Ignoring inflation is a major planning blunder, and the expected passive income must increase annually.
Additional Real-Life Considerations
The speaker highlights additional factors such as increasing medical expenses, significant costs for dependents' education or weddings, emergency funds, and the possibility of living a long life (90-100 years). Market fluctuations and taxation also play a role. It's important not to be overly aggressive with withdrawals or return expectations to avoid self-deception.
The Required Investment Amount
To safely withdraw ₹30,000 per month, adjusted for inflation, a minimum investment of ₹1.4 crore is needed today. This number is derived from the principle that one should have at least 40 times their annual expenses saved. The speaker uses a financial calculator to illustrate this point.
Using a Financial Calculator to Illustrate
The speaker inputs ₹1.4 crore into a financial calculator, assuming a monthly withdrawal of ₹30,000 for 50 years, an 8% post-tax return, and a 7% inflation rate. The calculator shows that even with increasing withdrawals each year to adjust for inflation, the investment can sustain the individual for 50 years.
Understanding the Long-Term Impact
The calculator demonstrates that after 10 years, the monthly withdrawal would be ₹60,000, and after 50 years, it would be over ₹8 lakh. While ₹8 lakh may seem unrealistic, it is equivalent to the lifestyle that ₹30,000 provides today, considering inflation. The key is to have 40 times your annual expenses invested to sustain your lifestyle for the long term.
Consequences of Underestimating Investment Needs
If the individual had proceeded with only ₹40 lakh, the investment would only last for 10-12 years. Realizing this after quitting their job would make it difficult to re-enter the workforce. Before retiring, one must consider whether their passive income will grow with inflation, whether their investment value will last for 30-40 years, and whether they can manage emergencies or health issues.
Key Questions to Ask Before Achieving Financial Independence
The key question to ask is: "Do I have 40 times my annual expenses invested?" If the answer is yes, you are financially stable and independent. For anyone aiming for financial independence, accumulating a corpus of at least ₹1 crore is a bare minimum.
Conclusion and Call to Action
The speaker encourages viewers to check out another video on practical ways to accumulate ₹1 crore. They also ask viewers to like the video if they found the information useful, subscribe to the channel, and click the bell icon for notifications.
