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Introduction
If you’re planning to retire by 40, you’ve come to the right place. Whether you’re in your 20s, 30s, or even later, it’s entirely possible to retire early by following simple yet effective financial guidelines. These are the principles that helped me retire at 40, and they can work for you too.
When I retired from corporate life at 40, I was ready to focus on my passions, explore new ventures, and dive deep into financial education. Achieving financial freedom is truly life-changing. So, if you’re looking for ways to break free from the corporate grind and take control of your time, stick with me as I share the key steps to retiring early. Let’s dive in!
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Why Retire at 40?
You may be wondering—why 40? Why not 50 or 60? The truth is, retiring at 40 allows you to enjoy life while you’re still young, energetic, and physically able to explore all the things you love. By 60, travel, food exploration, and adventure can become more challenging due to physical limitations. Retiring early means you can fully embrace life, traveling and experiencing new things while you still have the vitality to do so.
Imagine starting work at 25. With 10-15 years of hard work, saving, and investing, you can achieve financial independence by 40. That means no more working just to pay the bills, no more feeling stuck in a job you don’t enjoy. Instead, you’ll have the freedom to chase your dreams, start new projects, and live on your own terms. But here’s the catch: many people struggle at 40 because they made some key financial mistakes early in their careers—think EMIs, high living costs, and lack of planning. I don’t want you to be one of them.
Setting 40 as your goal helps you escape corporate life and gives you the time, energy, and resources to live a life on your terms. Let’s break down how to achieve this.
How to Achieve Financial Freedom by 40
There are four main pillars that will help you achieve financial freedom: income, expense management, investing, and tax planning. In this guide, we’ll cover income and expenses, while investing and tax strategies will come later. Ready?
Pillar 1: Increasing Income
First things first: if you want to retire early, your income is critical. The more you earn, the faster you can save, invest, and reach financial freedom. But how do you increase your income?
It all starts with choosing the right industry and continually upgrading your skills. Your career can either grow or stagnate. It’s important to keep assessing market trends and identifying high-growth opportunities. Stay valuable and adaptable. If your career is progressing, your income will rise, and so will your financial freedom.
I personally focus on industries with strong earning potential, and I invest time in developing new skills regularly. The goal is to align your career with opportunities that will pay well for years to come. A higher income accelerates your path to financial independence, so it’s essential to stay on top of market trends and skill development.
Pillar 2: Managing Expenses
The second pillar, and one that is often overlooked, is managing your expenses. Let’s face it: you could earn a high income, but if your spending is out of control, you’ll never achieve financial freedom. Managing your expenses is just as important—if not more important—than boosting your income.
Here are some strategies to manage your expenses wisely:
1. Avoid Peer Pressure Spending
It’s easy to fall into the trap of overspending to fit in with social groups. Whether it’s buying expensive gadgets, branded clothes, or indulging in costly habits like smoking or drinking, peer pressure can often drive us to spend unnecessarily. If you enjoy these things genuinely, that’s fine, but don’t overspend just to keep up with others. True friends value you for who you are, not for the things you buy.
1. Be Smart About Brands
Brands often charge inflated prices for items, even when high-quality alternatives exist at a lower cost. This is especially true in places like India, where you can access quality goods from local markets or online platforms at a fraction of the cost of branded goods. Always ask yourself if the brand premium is really worth it.
2. Spend Where It Matters
Many people blow money on lavish dinners or expensive experiences just for the social status. If you don’t genuinely enjoy five-star hotels or fine dining, don’t waste money on them. Instead, spend on things that bring real value to your life. Whether that’s investing in experiences, hobbies, or future goals, make sure your spending aligns with your values.
3. Bargain & Compare Prices
Being a smart buyer means not just negotiating prices, but also making sure you get the best value for your money. Practice comparing prices, looking for discounts, and bargaining—especially when making big purchases like cars, homes, or investments. Over time, the small savings can add up significantly.
By focusing on these strategies, you can control unnecessary spending, prioritize savings, and make smarter financial decisions. These habits will help you achieve financial freedom much earlier than 60, making 40 the perfect age to retire.
Smart Spending on Big Purchases: Cars & Homes
Two of the biggest expenses in life are cars and homes, and making smart choices when it comes to these purchases can save you lakhs of rupees. Here’s how to approach them:
1. Buying a Car: Go for Second-Hand
A car is typically your second-largest expense after your home. The value of a car depreciates rapidly, which is why buying second-hand can save you a lot of money. Second-hand cars often come at a fraction of the cost of new ones, and you avoid the immediate depreciation once you drive it off the lot. Platforms like CarDekho offer verified, nearly-new cars that come with warranties, making second-hand purchases much safer.
2. Buying a Home: Ready-to-Move or Resale
When it comes to buying a home, avoid under-construction properties. These homes take years to complete, meaning you’ll pay rent plus EMI for an extended period, which is a financial strain. Instead, go for ready-to-move or resale properties. These homes save you money by avoiding construction delays, and you can often negotiate with sellers who are eager to sell. Resale properties also typically come with pre-done interiors, which saves you 3-5 lakhs on furnishing.
Building Savings & Investments
Now that you’ve learned how to control your spending, the next step is to build savings and invest them wisely. Let’s break this down:
1. Control Expenses in the First 5-7 Years
In the early stages of your career, focus on aggressive savings. Aim to accumulate 50-60 lakhs in the first few years, which will lay the foundation for your financial freedom. By living below your means and cutting unnecessary expenses, you can set yourself up for financial success.
2. Invest in Mutual Funds & Assets
Once you’ve built a solid savings base, start investing. Mutual funds are a great way to invest without taking on too much risk, and they can help grow your savings significantly over time. If you’re aiming for early retirement, consider allocating your savings toward assets that will generate passive income.
3. Margin Trade Facility (MTF) for Passive Income
The MTF strategy is a powerful tool for generating passive income. Here’s how it works: Let’s say you invest 1 crore in Nifty Bees, and borrow an additional 4 crores from a broker at a 7% interest rate. The average return on Nifty is around 12%, which results in a 5% net gain on the borrowed funds. This means you could generate passive income of around ₹20 lakh per year—helping you reach your financial goals much faster.
By leveraging the MTF strategy, you can amplify your returns and achieve early retirement much sooner.
Smart Tax Planning
The last piece of the puzzle is smart tax planning. By diversifying your investments across family members or trusts, you can reduce your tax liability. Also, book your profits strategically to minimize taxes and maximize your investment returns.
Conclusion
Retiring by 40 is completely possible if you focus on boosting your income, managing your expenses, and making smart financial decisions like investing in mutual funds and using the MTF strategy. By applying these principles, you’ll not only secure your future but also live a life of freedom and fulfillment.
Start early, stay disciplined, and make your financial independence a reality!