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Kartik is in his late forties. He is professionally qualified and is doing well in his corporate job, with a high monthly salary. But he has a matching lifestyle. Both his teenage children go to expensive schools, and he plans to send them overseas for higher education. He lives in a large house and is still paying off its home loan EMIs. He has made sporadic but substantial investments in shares and mutual funds, which have done well.
Kartik has taken another home loan to buy a second flat which he has rented out. The double EMIs and other lifestyle expenses mean there is little surplus left each month despite his excellent remuneration.
I asked Kartik to imagine how he would live his life if he had the money to take care of all his existing and future needs. His eyes lit up as he began to describe the altered lifestyle he would adopt. While Kartik is doing well in his job, he is tired of the corporate treadmill that involves long hours and incessant travel. He yearns to achieve a balanced lifestyle that will provide him professional satisfaction and also allow him time to be with his family and pursue his passion for classical music.
“How much money would be enough for you to live this alternative lifestyle?” I asked. Kartik had never bothered to calculate this amount, always assuming what he had was insufficient to meet his requirements. We did a detailed calculation after considering what he would be able to make if he quit his current job and worked as a consultant. We fleshed out the amounts required for his children’s education and his own retirement.
Our calculations showed that if he sold the real estate, paid off the two home loans from the sales proceeds, and used the leftover surplus, plus his existing investments in shares and mutual funds, he would have sufficient funds. He would be fine if his consultancy income would suffice to meet his current expenditure. Given his skill levels, Kartik was confident he could land consultancy assignments easily.
Kartik was incredulous. “I have always had this F*** Y** money and did not know it.” My response was: “If only you had taken the trouble to calculate, you would have realised you had generated the required Free Yourself fund a while back.”
Kartik’s plight reminded me of the huge elephants used to transport large logs in the forests. They are held by only a short rope tied to their front leg. No chains, no cages. It is obvious that the elephants can, at any time, break away from their bonds, but for some reason they don’t. When asked, the keepers reveal they used the same size rope to tie the elephants when they were young. At that age, these ropes were enough to hold them. As they grow up, they become conditioned to believe they can’t break away, and hence never try to.
The safety of a monthly salary and the unnecessary EMIs were the “short rope” in Kartik’s case. This life planning exercise gave Kartik the confidence to negotiate with his existing employers for a suitable consulting role that would allow him time to pursue his desires without compromising too much on his compensation. Truth be told, it is one of our profession’s greatest pleasures to see the exhilaration on a client’s face when he realises, he can break free anytime he wants.
The writer heads Fee-Only Investment Advisors LLP, a Sebi-registered investment advisor; Twitter: @harshroongta
(A slightly different version of this column first appeared in the Business Standard on July 25, 2022)