Feeds:
Posts
Comments

Posts Tagged ‘#expense’

ST_20180909_JACKMA_8_4265863

The Indian story is pretty simple and straight forward, as you grow you are told to study hard to find a good job. When you finally find that good job you work harder day in and day out trying to keep up with work pressure and your expenses. Then comes in Jack Ma announcing that he plans to retire early and says “I would rather die on a beach than in my office”. This one line is enough to reignite the dreams and fantasies to retire early and move to a quaint town away from the hustle and bustle of the big city. If this is your dream then read on to find out how you can retire early.

Rome was not built in a day and Jack Ma didn’t become a billionaire overnight. While you don’t have to wait to become a billionaire to retire early, you will need to save and create a substantial corpus to be able to take the plunge. This would require dedicated regular savings and beware, sacrifices will have to be made. You will have to try and save as much as possible which would mean spending less on your life style expenses, and trying to live a modest life.

  • List down all your goals-Just because you are going to retire early doesn’t mean you wouldn’t want to live a full life and realize you goals which could include travelling, sending kids overseas for higher education, buying your dream home etc. Yes you can achieve these goals and retire early too, but you will need a good plan which will take the cost of funding of these goals into account and adjust it against inflation.
  • Know your expenses-Most people especially the ones who live in a metro don’t know how much they spend on a monthly basis. Knowing your expenses is important for two reasons one it will help you know how big your retirement corpus needs to be and two you might need to cut down some unnecessary expenses to be able to save more. Take your life expectancy into consideration and your expenses till that time to calculate your corpus size.
  • Set the SIP for the 1stweek of the month- For most people the only investments that happen are either a minimum SIP started some time back or whatever is saved at the end of the month. This way you will never be able to retire, forget retiring early. Your savings and investments have to be planned and in line with the future goals that you have. So invest before you pay your bills. This is also what Robert Kiyosaki the author of “Rich Dad Poor Dad” believes is the secret to getting rich.
  • Ensure it’s not a one sided love story– Giving up a good lifestyle and a free hand on spending can take its toll. It can be very frustrating at times, that’s why its very important that your spouse supports this choice a 100% else you might find your self quite often at the receiving end which trust me is neither pleasant nor encouraging. From time to time you might need to remind yourself of your end goal and it should bring you back on track when you start to stray away. I would highly recommend not giving up on things that you love and keep aside some money for some indulgence every now and then if not regularly. Remember Jack Ma will retire at 55, so you will have to give yourself a considerable amount of time to prepare for the big shift.
  • Secure your self and you family-We can not stress enough on the importance of a sufficiently large personal life and health insurance. Its better to take one now while you are still young, this way the premiums will also be lower.

Albeit retiring early and getting away from the rat race and the pressures of the world, spending your days relaxing in a quaint house on the hills or by the side of a brook sounds so inviting, it can get boring and mundane after a while. Having spent so many years crossing one hurdle after the other throughout your life, doing nothing after a while doesn’t feel so enticing; so plan for a small business or some activity that would keep you busy in your free time or else you might find yourself missing and craving what you have left behind.

Advertisements

Read Full Post »

retirement

It is one of the biggest, if not biggest, money question that often keeps people awake at night. The uncertainty of whether what you have earned and saved is enough for that dreamy retirement life can be quite stressful. And it is this ambiguity that often leads to making incorrect assumptions which, in a vicious cycle, leads to misguided money decisions.

Through this blog, we hope to focus of some items that need to be looked at to better judge just how much preparations you need for your Golden Years.

  1. Goals:

First of all, it is important to accept that your retirement will not mean doing absolutely nothing for the remainder of your life. Chances are you would still be at least partially responsible for your child’s post graduation/ marriage. If not those, then planning for those holidays and long travel plans, or having a dedicated medical corpus or even starting philanthropy or your own consultancy would need financial planning and funds.

There even might be recurring goals to consider such as cars. If you drive a Honda City today, chances are you would want similar car throughout your life. Assuming a Honda City costs Rs 13.75 lakhs as of today, you would need Rs 65.8 lakhs at the start of retirement just to fund purchasing the same car every 5 years (accounting for 7.7% inflation)

 

  1. Your Current Expenses:

While we usually have approximate amounts in our heads, rarely do we know our exact expenses for a year. If you think you may know, even so the detailed expenses are not known. If you do track and compare average expenses of the year versus that of two years ago, you would probably see higher than expected changes. This is due to inflation and lifestyle changes. It is critical to keep tabs on your expenses, as discretionary expenses tend to creep up and inflate your overall expenses.

  1. Changing Expenses during Retirement:

It is common notion that expenses will reduce once you retire. But data and experience shows otherwise. For example: Travelling and Medical costs tend rise whilst dependent cost tend to go down and groceries tend to remain the same.

Also, how expenses change depend on the stage retirement you are at. Early on during retirement sees uptick in expenses due to higher travel and entertainment costs. Then they slowly start coming down in the intermittent phase of retirement. Towards your super senior years, they tend to same constant.

  1. Medical Costs:

As per Willis Tower Watson Global Medical Trends Survey Report 2018, medical inflation in India is currently at 11.3% p.a. In other words, the cost of the same surgery will double every 6.5 years! Your retirement needs to plan for this.

  1. Lifestyle Expenses:

Urban inflation is around 7.7% p.a. on an average in the past 20 years. But that does not account for everything. We aspire for better things during our retirement. For example, you would have a Sony Home Theatre System which would cost approximately Rs 35,000. But aspirations would strive for a Bose System which is closer to Rs 90,000. That is a 181% jump! It is crucial to have both sets of inflation accounted for during retirement.

  1. Life Expectancy:

An incorrect assumption of life expectancy can have significant consequence. Data shows the life expectancy of Indians is closer towards 70 years and above. Furthermore, it is a fact that women have higher life expectancy than men. So planning for your spouse’s life expectancy is something which is not given adequate thought.

Life expectancy in developed countries are much higher. And as India steadily progresses to that status, it can be reasonably assumed that our life expectancy will only increase.

These are just some items, amongst others, that need to be carefully looked at to ensure you are planning for a good enough retirement corpus and are financially well placed to live your retirement years in peace.

To provide an even deeper understanding, Plan Ahead Wealth Advisors is conducting a seminar on Planning for Retirement on the 7th of July 2018.

For a complimentary invite do write in to us or leave us a comment to this blog.

Read Full Post »

Landing airplane

This 7th of December is the International Civil Aviation Day and marks the 50th Anniversary of the signing of the Convention on International Civil Aviation.The purpose of this day, as pilots all over might be well aware of, is to recognize the importance of aviation to the overall development of the world.

And while pilots draw great confidence from being able to manage the process of reaching passengers to their destinations safely and comfortably, a more pressing question can be that are they confident when it comes to management of their finances?

The profession of a pilot demands almost all their time all year round. Hence they are left with limited personal time which they wish to live to the fullest. And like most busy professionals,more often than not money management seems to come at the end of this wish list. Pilots go through meticulous preparation and planning for their flights daily but sometimes are unable to do so for their finances.

While money is not the end, it is definitely a means to achieve certain objectives. Proper planning and structure to a pilot’s personal finances can result in he/she being prepared for all kinds of life events and responsibilities. Events such as:

  1. Sudden Illness:The requirement for pilots to be medically fit is of prime importance as they are responsible for the lives of hundreds of passengers daily. Every pilot needs to ensure a good health cover to cover sudden illness and hospitalisation. A pilot may wonder why would he need insurance when he is already covered. But if one actually things about, it might be prudent to have a separate health insurance cover for times when you may not be employed or between jobs or in cases where employer insurance is inadequate.
  2. Need for upgradation of Skill Sets:Like all professions, skill updation is a critical requirement that must be met by all pilots on periodic basis. But these do not come at a cheap cost. Ensuring enough provision and funds are kept aside and is available at the time of requirement can go a long way in avoiding last minute stress.
  3. Contingency Needs: A major issue plaguing the aviation industry is the availability of opportunities. The last few years have clearly demonstrated that problems are plenty in the Indian aviation sectors. For eg. Airlines have closed down, pay cuts are becoming common, or there have been significant delays in salary payments. Such events can have huge financial implications on pilots and their families. Having contingency funds parked in highly liquid assets can help bring some normalcy in such difficult times.
  4. Retirement and Sunset Years:Insufficient planning for your golden years i.e. Retirement can cause stress. In case of pilots, who are among the top earners amongst professionals, this only magnifies the problem. Why so? Pilots more often than not tend to have busy lifestyles with high discretionary expenses. As such they are accustomed to a lifestyle that will only get more and more expensive as years pass This year on year rise in prices is called Inflation and it is an important factor that more often that not, is grossly underestimated. Furthermore, like any other busy professional, even pilots like to keep themselves occupied during retirement years. The interests or activities that they might pursue would also usually have financial implications. Activities such as investing into various ventures, pursuing hobbies or dream goals, continuing leisure flying by enrolling in the local flying club can be just some of the examples. To be able to fund these without affecting retirement corpus requires careful planning early on.

Take the case of pilot Mr. Sharma. Currently aged 30, the household expenses for him and his family is Rs. 12 lakhs per annum. Even if we assume a general inflation of 8%, the same Rs. 12 lakh will become Rs. 1.75 crores at the age of retirement at 65. ( Rules permit pilots to fly till the age of 65 ). In other words, Mr. Sharma would need to have a big enough corpus at retirement that will provide them atleast Rs 1.75 crores every year that will help them maintain current lifestyles.

Pilots are aware of the importance of planning. Each flight requires hours of pre flight preparation which means going through weather reports, system checks among other items to ensure that the flight goes by without any hitch. Similarly having a strategic plan in place for one’s finances can also help prepare for any “rough weather” that could come along in a pilot’s financial life.

 

 

Read Full Post »

%d bloggers like this: