138. (2. Building Finance Intuition) Path to Financial Independence

Rama Nimmagadda
6 min readNov 17, 2023
Photo by me taken in 2017 at Yellowstone National Park, USA

“When you understand that your self-worth is not determined by your net-worth, then you’ll have financial freedom.” — Suze Orman

About a year back, when I asked my then seventeen-year-old nephew what he wanted to do in life, his answer was immediate — he wanted to become an investment fund manager. Upon asking why, he said he wanted to become financially independent by thirty-five. I thought he was a little too early to be thinking about financial independence. Perhaps I was wrong.

“More important than the how we achieve financial freedom, is the why. Find your reasons why you want to be free and wealthy.” — Robert Kiyosaki

Financial independence is probably among the most coveted desires among us modern human beings. The now well accepted notion of “work-life” balance implies that work and life are separate. To live “life”, there is a need to “work”. So, the goal is to reduce “work” so that more “life” can be lived. Financial independence is the state in which one need not “work” to live “life”. Just to be sure that financial independence is different from retirement. Classical “retirement” is generally more a curse. I believe that a future with no meaningful, stimulating challenge translates to a monotonous wait for death (morbid thing to say, I know). Research studies show that early retirees, early — because of well-planned finances, tend to suffer higher mortality than those who end up working well into their 60s or 70s due to inadequate financial resources. While this research is done on US population, I think this applies to most of rest of the world as well.

Apart from rare occurrences such as huge inheritance or winning a big lottery, the only legal way to achieve financial independence is by living within one’s means and investing the resultant savings meaningfully. As simple as that — simple but not easy! As boring as that — boring and not exciting!

Living within one’s means is not as easy as it reads. Our brain’s tendency to adapt to material possessions makes us constantly crave bigger or larger possessions. It is not surprising that the average size of car has only been increasing with time. Ditto with size of houses as well. Most of us find ourselves on hedonic treadmills.

“Too many people spend money they earned..to buy things they don’t want..to impress people that they don’t like.” — Will Rogers

Easy availability of credit combined with savvy advertising makes it very difficult to resist buying things — even when we do not necessarily need or worse, want them. Keeping-up-with-the-Joneses has become even more difficult to resist with the emergence of Social-Media. Many want to better people in their social circles in terms of things they possess or experiences that they can showcase. Bigger TV, smarter home, and more exotic vacations. The trouble is these things are costly. Vacations are costly, electronic gadgets are costly and even eating out can add up very quickly.

“Whenever we spend money instead of investing it, we are actually taking from ourselves — we are taking both the time we spend to make the money and the future freedom it can buy.” — Grant Sabatier

The second step in becoming financially independent turns out to be a big impediment too. Owing to their circumstances or genetic predisposition, few may be able to save enough money from their paychecks while living comfortable lives. The problem is where to invest that money. With the plethora of investing options that are available today it is very difficult to pick appropriate products.

For most people, taking help from a financial advisor can be helpful but then a bad advisor can prove very costly.

“To become financially independent you must turn part of your income into capital; turn capital into enterprise; turn enterprise into profit; turn profit into investment; and turn investment into financial independence.” — Jim Rohn

For a small minority of folks, doing the planning oneself (Do-It-Yourself — DIY investing) perhaps is the best way. Personal financial planning is a bit like a spiritual journey. In both these pursuits, what needs to be done is not at all complex, the trouble really is in actually going through with it, consistently. Self-disciplined folks who are curious and interested in finance can make great candidates for DIY investing. I know this because I was able to do this myself successfully and have come across a few who have also done it themselves. Investing is more an exercise in human behaviour than in esoteric financial knowledge. DIY investing is possible because one can outsource time consuming activities such as stock picking to professional managers, by investing in broad based index or equity mutual funds. Real estate investing tends to have an emotional component to them. Combined with high ticket sizes, real estate investments are hard to assess and incorporate, particularly as part of an overall financial portfolio.

The best time to start investing for financial independence is as soon as you start earning. But I know people in their 50s who are yet to seriously start on this journey. Somehow, they seem to believe that there is still time. Starting early is important because even when one has started the journey well in time, a number of un-anticipatable curve balls can upset the plan — can undo years and years of progress in very short order. I will explore few of these “curve balls” in future blogs along with ways to mitigate them as much as possible.

Bottomline

“Real wealth is not about money. Real wealth is: not having to go to meetings, not having to spend time with jerks, not being locked into status games, not feeling like you have to say ‘yes,’ not worrying about others claiming your time and energy. Real wealth is about freedom.” — James Clear

The most important thing for achieving financial independence is the will to become independent. Many resist this. When we live only once, what is the point in sacrificing today’s desires in order to save and invest money for the future? This is a good point and is valid, sometimes. A healthy balance between expenditure and investments keeps life exciting and worth living. Striking this balance is an art form in itself. Once the will is set, it is just a matter of saving and investing. Based on availability of time, energy and aptitude, one may work out details of investing by themselves or take right external help. If you are contemplating action then start right now — don’t wait for the right plans, they will emerge along the way.

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Thanks for taking time to read this. In this newsletter, I share my learnings that could help you improve your decisions and make meaningful progress on your goals. I try to share stuff that I have personally experienced or experimented with. If you find this newsletter worthwhile and if you do not mind it, please do consider sharing it with others.

A bit on my background

I help people make better decisions.

I coach people on “Making Better Decisions”, “Financial Intuition” and “Building Great Careers”. I’m open to run sessions on these topics in institutions — this will help me create larger impact.

I’m also an Investment Advisor (RIA) registered with the Securities and the Exchange Board of India (SEBI). As an RIA, I analyze and prepare financial plans to help people achieve their financial goals.

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