01 June, 2019: this the stone that will turn all your lead into gold. Remember that money is of a prolific, generating nature. Money can beget money, and its offspring can beget more – Benjamin Franklin
For the class of one-year MBA students at IIM Bangalore, a talk by Vidya Bala, Head of Mutual Fund Research at fundsinida.com, was an eyeopener.
Early retirement might be an objective for a few in the cohort, but financial independence was relevant to all. ‘FIRE’, as Ms Bala explained, is an acronym for ‘Financial Independence, Retire Early’, which, she said, implied leading a frugal life in order to create income-generating assets, and providing enough for sustaining one’s lifestyle without a regular salary. Millennials, including myself, highly underrate the concept of financial independence and even more sparingly practise it. As Dave Ramsey said, “We buy things we don’t need with money we don’t have to impress people we don’t like.”
According to Ms Bala, the steps we need to take to achieve financial independence starts with defining our financial goals and assigning relevant timelines to each goal. The compounding effect of money and understanding how money grows itself if invested recurringly is the next stepping stone. “Starting to invest early not only leads to better returns but also provides the opportunity to learn from mistakes made early, at a time when investment amounts are small,” she explained.
Pointing out that the tricky part is to understand different asset classes, their associated risk, liquidity of the assets, expected post-tax returns and the nature of the markets, she suggested matching one’s financial goals with the asset class by taking into consideration the liquidity of asset and the timing of the financial goal. “In today’s complicated financial markets with a plethora of instruments and an overload of information, making investment decisions is tougher than ever. Given the constraint of limited time, not every person can identify assets that best suit their goals and eventually track them to ensure optimal returns. One needs to either opt for a ‘Do it yourself’ strategy and devote sufficient time to investment management or engage a financial advisor,” she added.
Vedant Mimani is a current student of the EPGP 2019-20 batch at IIM Bangalore. He graduated with a B.Com (Hons.) degree from St. Xavier’s College (Autonomous), Kolkata and completed his Chartered Accountancy along with his graduation. He worked in the statutory audit department in KPMG Bangalore, where he handled audits of various listed and unlisted entities in the Services, Manufacturing and e-commerce sectors. He moved on to take up a position in the Global Internal Audit team of Accenture after four years in KPMG. His stint at Accenture allowed him to not only remotely work with global peers, but also travel to many countries.