How to retire early like Jack Ma?

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 1^stweek 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.

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The Best Financial Resolutions for 2018

 

The New Year is a great time to overhaul your life for the better. And what better way to do it is make those kind of resolutions that will act as a constant guide in that endeavor. For this, Resolutions, like goals, are best when they’re specific.

Financial resolutions made during beginning of the New Year can determine the shape of your short and long term financial objectives whether is it increasing your savings for retirement or putting aside a little extra for this year’s down payment of that property.

If getting your financial life in order is a resolution for you this year, here are some ideas that may help you get there faster:

1. Save Smartly!:It is common knowledge that

• Income -Expenses = Savings

We suggest change that equation from this year, make it

• Income – Savings = Expenses

This new equation will help create an automatic budget, and will ensure you only spend after saving.

Use automatic investment ideas like SIPs and STPs to transfer your monthly savings to dedicated investments for your goals.

 2. Have Contingencies, for everything!:

Dangers and risks are ever present. They can have sudden and significant impact on your finances if they are realized. So it’s better to be safe that sorry.

• Having a highly liquid corpus (available to you in 48 hrs or less) is one way of doing it.
• Another useful and highly critical step is getting adequately insured. While a variety of insurances are up for grab, focus on the basics first. Sufficient health cover for your family and yourself should top the list.
• Followed by insurance for specific risks such as critical illnesses, accidents and even insurance for your home.
• Another smart thing you should do is take a insurance for any big ticket loan you may be servicing, such as a home loan. You do not want to burden your dependents in the event of you passing away, do you? 

3. Have a Strong Debt Strategy:

• Home Loans / Education Loans

Not all debts/loans are equal. It is essential for you to know which loan is drawing the most interest from you. Also some loans are useful, such as home loan as you have access to an appreciating physical asset or a educational loan from which you stand to appreciate the biggest asset of them all, yourself! Plus it does not hurt that they have tax deduction benefits.

• Personal / Credit Card Loans

Personal/Credit Card loans should be ticked off at the first available opportunity, simply because they have high interest rates. If you had to choose between investing into a fixed income product or pay off a high interest loan, you should ideally opt for repayment. Interest saved is interest earned after all! 

4. Know what you want:

It is said “If you don’t know where you are going, well then, any road will take you there”. It is better to have well defined goals. A goal helps you focus because the end objective is clear. For example, it is probably not enough to say, “I will save some money for that amazing Europe vacation that I always dreamed of.” It needs a lot of planning and finances. You not only need to know the destinations you will visit, you also need to the travel routes you will need to take, how much funds you will need, where all do you intend to spend and so on so forth. The more crisp your goal is, the better actionables you will be able to achieve.

 

5. Invest in yourself:

In today’s highly dynamic world, the word of the day is “reskilling”. As a professional, now more than ever, you have to stay on top in your industry by constantly upgrading your skill sets. Therefore always ensure you have enough kitty set aside so that you can opt for those special courses which will give you that edge in your profession.

While not all resolutions can be worked on simultaneously, it is important that you start with some and even more importantly that you stick to them. Give your resolutions time lines so you know what to prioritize. And work towards strong finances and a worry free New Year 2018!

 

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Use Compounding to Create Wealth – Article by Shalini Dhawan in TOI

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10 things to remember to be a better investor – By Shalini Dhawan

In recent months, there has been a sense of euphoria about India and Indian financial markets. The current highs that the Indian equity market is witnessing, is on one hand creating elation and on the other hand causing regret, making many investors feel that they lost the opportunity.

Many investors may believe that those who are invested in the equity markets, turned out to be ‘better’ investors. One year ago, investors who did not invest in equities were looked upon as better investors.  So how can one truly be a better investor? I would like to say that all of us can strive to be better at investing by following a few simple steps:

1. Save and Invest:

All of us do understand that we need to invest but very few of us understand that we can invest only if we first save. Know how much you earn and spend to arrive at what you can save.

2. Understand where you are investing your money:

Today investors have a plethora of options to choose from – Equities, Fixed income, Commodities, Gold, International Funds, Real Estate. Each of these asset classes comes with associated risks and benefits. Know these details when you are investing. Understand the risks you are signing up for and resultant return expectations.

3. Understand why you are investing your money

Many a time when we make the investment we do have the reason or goal in mind. But over time, especially when markets go down, we forget these goals. We forget that we were investing for a goal which was many years away, and therefore there is no reason to panic.

4. Systematize your investing

Being busy individuals, handling paperwork, cheques, banking errands are the last thing on our minds. Hence the need to systematize. By this I mean, automate investments to selected avenues on monthly, quarterly yearly basis by using technology, available systematic investment plans (SIPs), triggers, alerts, ECS and such facilities available today.

5. Consistency pays

As we all know from the current scenario, emotions do interfere with investing, sometimes they work for us and sometimes against. As we usually decide with our hearts and not our heads, create a discipline to invest a certain amount every month and systematize it.  There are many examples of SIPs in diversified equity mutual fund schemes generating sizeable corpuses, where investors have consistently run SIPs.

6. Discipline is key

Discipline yourself to refrain from wavering from an agreed asset allocation and investment strategy. It is easy to get swayed, just because someone else invested and made a short term profit and his investment option seems superior. Look at your agreed investment strategy periodically. Portfolio churn is not necessary value adding to your portfolio.

7. Take professional help

As is the case where we need dieticians, doctors, lawyers, etc. sometimes we need professional help to nudge us into an investing habit. Hire a SEBI Registered Investment Advisor to help you with your financial life.

8. Monitor and Review

After the effort of making a investment strategy and implementing it, comes the time to check whether the plan is working for you. Review if you were able to stick to the savings plan and investments plan. Were you able to maintain consistency? Review whether improvements are possible to the savings plan. Control what you can control i.e. items such as saving and investing. Review your investment products every six months to see how they are performing against an appropriate benchmark.

9. Correct and Act

Make corrections if you have swayed away from agreed savings/investments plan, asset mix and exit underperforming investments, even at a loss. Here is where a professional nudge would help. A professional could provide that much needed nudge as she is not emotionally connected with your investments.

10. Repeat the Loop

Repeat this loop consistently and religiously to better your investing experience.

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Make a FINANCIAL CONSTITUTION – Article by Vishal Dhawan in Khaleej Times, Dubai

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Financial Vows Every Newlywed should take..

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Make 2015 Your Best Year Ever! Vishal Dhawan in Men’s Health Magazine

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#AddMeaningToFinances #FinancialResolutions #BestFinancialPlanners Vishal Dhawan brings up some simple ways to assure you a peaceful financial life – TOI

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How to ensure that your kitty is big enough?

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Can’t depend on kids in sunset yrs

Recent census data seems to indicate that the median household size is now less than four for the first time in urban India. This means that family sizes are shrinking, and over 70% of households are not multigenerational any more. As India as a society becomes more nuclear, planning for retirement becomes even more critical, with children not being a dependable retirement plan any more.

We find that most investors tend to start working seriously on their retirement plans between the age of 35 and 40. Considering that life expectancy in India is increasing rapidly and medical advancements make it very likely that we will live much longer than we currently envisage, creating a corpus that can outlive us can be quite a challenge. To put it into perspective, someone starting his retirement planning at 40 will save and invest for 15 to 20 years till he turns 60, and expect these savings to support him and his family for a 25 to 30 year period.

Most investors have certain investments in their portfolio that are earmarked for retirement. The moot question is – Will those be enough? Since a monthly expense of Rs 40000 per month today would be close to Rs 2.75 lakhs per month after 25 years assuming an inflation rate at 8%, these may just not be enough. So how does one plan to retire rich. Here’s our six step guide:

Step 1: List – Make a list of your current monthly and annual expenses

Step 2: Analyse – Critically evaluate each expense head to see whether these expenses are likely to increase or decrease post retirement.

Step 3: Inflate – Apply an appropriate inflation rate to these expenses to arrive at the likely expenses at retirement age.

Step 4: Estimate – Estimate the corpus required for the inflated expenses to support you during the period of retirement till death.

Step 5: Invest – Evaluate the amount you need to save each month/year to achieve the desired corpus. Invest the amounts in a diversified portfolio that can help you achieve the desired corpus.

Step 6: Monitor – Revisit the plan annually to ensure that it is on track.

Since the rate of return on their investment portfolio is a variable that investors can target to change if they wish to achieve their targeted retirement corpus, we strongly advise that investors look at investment strategies that, although riskier over shorter time frames, have the potential to outperform over longer periods. Investments in asset classes like equities for a retirement portfolio should be looked at very closely for their potential to deliver superior returns over longer time frames.

In addition to the quantitative aspects of retirement, we also urge investors to answer two questions when they plan for retirement

1. What would your ideal day be like when you retire?
2.  And will this continue to be your ideal day if you do this day after day?

We find that these answers are also very difficult for most investors to find, as a calculator cannot answer this for them. We urge investors to think deeply about these answers today so that they are prepared for retirement not only financially but holistically.

This article was written by Vishal Dhawan, CFP^CM 

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