Learn how your income is related to the happiness index
In less then a week from now, we as a nation will celebrate our Independence Day. This year, too, it will be a sombre affair. As a nation we have suffered a lot during the second wave of the pandemic. I have also felt the pain of losing someone dear to me, but I am dealing with it. I want to have the free-dom from this fear and pain which so many of us have felt during this crisis. When we say freedom, it carries a multilayered meaning for all of us. Freedom from fear is something the social scientists are working on and will keep working on in the years to come. But let me give you another concept of freedom – that is, financial freedom. If you have not heard the term before, let us explore.
The concept of financial freedom is a state where you don’t have to work for money for the rest of your life. Confusing? Let me clarify a bit more. If you are working and earning salary, it is active in-come. If you have a large or small or any kind of business and you are making profit from it, it is also active income. But if you earn income without getting involved in your earning, that is called passive income. One example of passive income is the fixed deposit account you have in your bank. But to survive only on the income coming from interest is unheard of and seems almost impossible. Or, you might think you need to inherit a big chunk of wealth or win a lottery for that.
But there is an increasing number of people who are planning to become financially independent. In fact, when I interact with the young generation, especially engineers and other professionals, most of them want to be financially independent by the age of 50. The idea here is to spend less and invest more. Build a corpus before 50 and live a retired life and pursue your interest. One young engineer wanted to pursue a painting hobby, together with world travel. Few doctors wanted to build an or-phanage or an old age home and work for free. But before that, they wanted to become financially independent.
The question is: is it really possible? Trust me, it is. The term is also known as retiring early. For this, you need a lot of discipline. This is possible even for a person who starts his or her career at 25 and wants to retire by 40. For this, he/she needs to curb his/her expenses and rely on growth-oriented in-vestments. If you have plans like that, you can talk to your financial adviser.
Another aspect of this topic is how much of an income is adequate to have a happy and healthy life. In this context, I want to draw your attention to the fact that in a recent study in the USA, it was found that people who have an annual income of $75,000 are a happy lot. When their income increases be-yond that, their happiness index does not increase proportionately. If I bring the same figure to India, with purchasing power parity (PPP), it comes out that those who are earning a monthly income of Rs. 1.5 lakhs, are a happy lot. Any increase beyond that will not necessarily make you happier, if we be-lieve the research paper from the USA.
Now to have a steady passive income of Rs. 1.5 lakhs in India, you need a corpus of at least three crores. From three crores, if you get an interest of six per cent, your ideal income of 1.5 lakhs is pos-sible. But please note that this calculation is in today’s date. If you have the goal of becoming finan-cially independent after ten years, this three-crore corpus has to be inflation adjusted.
Dipankar Jakharia