If you want to retire early, then this video
is for you. Today we'll meet a man who has a corpus of
more than 10 crores and has managed to retire completely before
the age of 40. We will learn how to start planning, how to
do the calculations for early retirement and what all things to keep in mind before
leaving your job. So watch this video till the end and to support
our channel, like the video right now. FIX YOUR FINANCE Hello and welcome to a new episode of Fix
Your Finance. Today I have Ravi Handa with me. Welcome to the show Ravi. Glad to be here. How's early retirement treating you? It has its good parts obviously. What are the good parts? You can spend time on things which you were
not able to do earlier. And what are some of the bad parts of retiring
early? You lose a lot of value and a lot of validation
that you used to get from a job.
You have described your retired life in 2023. Let's take it back to like 15-16 years back. So, what did you study? I have done engineering in computer science. And what was your first job? Where did you start working? I started working in the education sector
itself. I joined IMS Calcutta which is a CAT coaching
company. Okay. And what was your first paycheck? 25,000 odd rupees. When you retired in 2022, what were you doing
back then? Actually, before that, I used to run a business
from 2012 to 2021. Which was in the education sector. My company was acquired by Unacademy. So, the last 1-1.5 years of my working career, I was with Unacademy as director content sales. So, how many years did you work? I worked from 2006 to 2010.
Then I took a year break. 2011 is when I got married. 2011 is when I joined this IT company called
Mindtical. What was the trigger to start your own thing? When I was working for IMS, at that point of time itself, I started making educational videos on YouTube
around 2008. Gradually, they became popular. Not very popular. And this was CAT coaching for MBA? CAT coaching. First, I started with math. Then I went to GK through math. Then to LRDI, then to English. I kept on expanding. And how was the business? How did it work? Business was profitable from day one. Because there was no expense. Yes. In today's date, the cost of videos or ads
in EdTech has gone astronomically. In 2012, it was extremely simple. Because I don't think anyone was doing it. Or even if anyone was doing it, they were not such a big player that you cannot
really compete. On an average, what was the kind of profits
or salary that you guys were drawing? We had good years when we did revenues of
3 crores as well.
We had bad years when we did revenues of 25
lakhs as well. There was massive fluctuation. In 2021, your company got acquired. Correct. It got acquired and then there was that vesting
period wherein you had to work. Correct. And after that, you got an exit. Correct. So, were you actively looking for an exit? Yes. Again, I am telling you the same. So, during the COVID period of 2020, my wife was pregnant at that point of time, So, my wife and I used to sit and chat about
what to do with life. And this is what emerged that we have to sell the business at whatever valuation possible, whatever sort
of deal you get. Because getting out of business is the priority. After selling the company, there will be a
vesting period wherein you were working with Unacademy. Correct. What was your compensation then? Exact numbers I can't reveal because of the
NDA. But my salary was a little above 1 cr. And the ESOPs of the vesting, that was another additional 50 lakhs or a
little more than that.
Wow! So, you have a lot of money in Edtech, I am
guessing. Yes. But I didn't get this for my skill or my talent. Okay. This I got primarily because they were acquiring
my company and this is a way for them to pay out the
money slowly rather than on day one. What is your background? Which college did you study in? IIT Kharagpur. Did that also help in your, you know, starting your entrepreneurial journey? Absolutely. I am telling you, there are a few things which have helped me a lot in life. To take risks, to experiment. One, my parents were always independent. I have never had to give a single rupee to
my parents. The second thing which has really helped me
is my wife was very well educated and in a very good
job which allowed me to take a lot of risks. The third is that I went to a good college and through that college, you build a network. I have friends in senior positions in multiple
places. This is it. You are the sum of your privilege, your background and the people that you have interacted with over your life.
Okay, so now we will talk about your expenses. Do you live in a rented apartment or is it
an owned? It's an owned flat. I shifted to Jaipur in 2015 to be closer to
my parents and at that point of time, I purchased the
flat that I still live in today. Did you take it on loan or did you pay in
cash? No, it was entirely in cash because at that
point of time, I had been doing business for 2-3 years.
The second thing is your travel. So, do you have a car or do you travel in
cabs? I have a car but I don't really like to drive
that much. So, how much fuel do you spend on a monthly
basis? I have no idea. So, you don't track expenses in general? That way, no. So, The way I track expenses is at the beginning
of the financial year, I check how much money was in the bank account. Throughout the year, I just find out how much
money went out of your bank account. So, that's how I determine how much I spent
this year. So, on an annual basis, how much did you spend
in the last 3 years? Around 2 lakh rupees goes into maintenance.
Society, maintenance plus the other property
that I own. 5-7 lakh rupees is the vacation. Another 2-3 lakhs would be eating out, drinking,
parties. Parties, not the pub parties. Parents' 50th anniversary, the first birthday
of the child. So, all these parties add up. 3 lakhs or a little more than that would go
towards the house help staff. These are the big hits. Now, it is time for the main thing, which is talking about your financial independence
and retirement plans. The first and main thing is figuring out your
FIRE number. How much money would I need to not work and can retire comfortably. So, in which year did you seriously start
thinking about FIRE? Which year? Covid, 2020. 2020 is when I actually sat down and did the
numbers. Where I have this much money, I will put this
money here and there. So, it took me around 3 months, maybe 6 months to figure out how much money I exactly need,
how do I need to invest it. And then it took me a couple of years, 3 years
to execute that. So, if your annual expense is 25 lakhs, if you take a multiple of 30, it is 7.5 cr.
Right? So, what are some of the milestones that you
took into account? There are two major chunks that I have kept. One of them is nearly everyone likes and accepts
that you have to save money for your child's higher
education. So, I have earmarked 50 lakh rupees for that. Wow! I will give it to him at 18 or whatever appropriate
age. 7.5 Cr plus 50L. For this? Yes. 8 cr. Another 50L is what I wanted to keep as a
sort of play money for experiments that I would want to do. Angel investing is one of them. Crypto investments is one of them. I am doing a podcast right now, so it has
its own expenses. Yeah. You should check out his YouTube channel,
okay? Every month, two videos come up specifically
talking about how to achieve FIRE. Okay? There is a link in the description. Definitely subscribe. That is 50 lakhs, your play money. How is that going by the way? Angel investments and other investments? I have lost a lot of money in angel investments. I have lost a little bit of money in crypto
But the biggest problem in angel investments
is that it is extremely illiquid. There is no honesty. So, I had put 3 lakh rupees in a company in
2019. In 2021, it became 45 lakh rupees. Ravi Handa is happy that it is done. Did you get an exit? Exit? The company closed in 2023. It became zero. Oh shit. So, that is the problem with angel investment. That's why you have allocated an amount which you yourself have called play money. Correct. Any other milestones that you have covered? No, these two. 8.5 cr was your FIRE number. You said that you started investing a huge
amount since 2015. You started investing or saving more. From 2006 to 2015, did you manage to save any portion of your
salary? Yes, we were always saving more than 50-60%. We used to save this much. So, it was business, revenue was high, that's
why you didn't save. It was something which was there. Your expenses were always lower than what
you were earning. So, have you accumulated the 8.5 cr ? A little bit more than that. Very nice. How much percentage of that, if you are comfortable
sharing, how much percentage has come from selling
your company and how much percentage of the proportion
has come from your savings? I would say that selling the company probably
gave me 20-25%.
Which basically means that this was not a
result of a certain event. No, no. So, this was because my business was successful. The second factor was that my expenses were
very low. The third factor was that I always had substantial
investment in equity. The fourth factor is where I would say the
selling of the company comes in. The main money that was made was made by business. And let's say if you were doing your software
job, you would have been in the top positions, In that case, do you think this much wealth
accumulation would have been possible? If I was in India, then no. If I had gone abroad, then I would have been
way ahead of this.
Is that one of those things that you would,
you know, you look back and want to change? I regret it every week. If I had been a good student, if I had studied
in college, then I wouldn't have been in the coaching
line. I would have moved to the US or Canada or
Europe or somewhere after college. I can't believe that you are saying that you are not content with what you have achieved
financially. I am absolutely content with what I have achieved. Because I have bounced back from the mistakes
of not studying in college. Yeah. The 8.5 cr that you have accumulated, that too, what are the percentages where you
have invested? My current net worth would be somewhere between
12-13 cr. Out of this, 1-1.5 crore rupees, which is
my 4-5 years of expenses, I keep it in absolutely liquid low risk investments. So, this is my cash bucket. In the medium term bucket, I have taken a
balance advantage fund. I have long term bonds, gilt funds, which is another 4-5 years of expenses. So, a mix of equity and debt. Third bucket, which is my long term bucket, another, I believe, 6-7 crores would be in
that and then there is a piece of land that I own
which is around 2 cr.
Tell me one thing, how to go about it? Primarily if you are young you need to save,
develop as a habit sort of a thing but your focus should be on making money. Where will you earn money from? Either you will grow in a job or you will
join risky jobs like startups to get ESOPs or you leave the country, you go abroad you
earn a lot more there, you save a lot more there and you come
back and you know you can be in a very good situation or what you do is you get a higher
Suppose you have done engineering, MBA, Masters
in Engineering, there are plenty of avenues. Your main focus should be on making more and
more and more money. Because after one point your expenses can't
get less. So if you want to increase the alpha, the
difference in income and expenses that will only happen if you are constantly focusing on increasing
the top line. Let's say I have decided that I want to retire
early. What was the framework? What were some of the thought processes? One according to me even hoping for planning
for early retirement is sort of accepting a failure that you couldn't make your career
in your life better that's why you are going towards retirement. Yes financial independence is important, early
retirement is not. If you are in a job that you like, that you
enjoy or I will say if you are in a job or in a career that you don't hate, do not think
about early retirement. Early retirement became important for me because
I wasn't liking what I was doing.
So this is our quick finance round. You have to answer the questions as soon as
possible. If you had an unlimited budget, what would
you gift your wife? Vacation, luxury vacation. If money was out of consideration which in
your case holds true, what would you do for a living? I don't know I will keep experimenting with
it which is what I am doing right now. And the last question is for people who want
to achieve financial independence and you know are seeking early retirement, what are
2-3 nuggets of advice that you would share with them? For financial independence, increasing your
income as much as possible that should be your priority. The second priority should be that bulk of
your savings should go into equity. If you are chasing early retirement, I think
that is a bad chase to have. That should be, that is like surgery, that
should be the last option. Try changing your job, try changing the city
you work in, try changing the country you work in, try changing your careers. If there is no avenue, that is when you think
about early retirement.
Alright, that brings us to the end of the
episode. Thank you so much for sharing your journey. I am sure that a lot of people have learnt
a lot from today's episode and video. Make sure to check out his YouTube channel. Every month at least 2-3 videos are made on
this topic. Subscribe to his channel and if you liked
anything in this video, subscribe to my channel as well. Goodbye..
I want to say something to you but allow me to clarify first I wouldn't wish it on my worst enemy yet I feel I have to say these words because words are powerful your parents will die your loved ones will get hospitalized you are not immune to accidents and you were never born special whatever can happen will happen it's Murphy's law what I mean is do not wait for something bad to happen to finally get the motivation to prepare for life this is a story of a physicist who studied 14 more years after school to finally land his first job a physicist who never imagined something like this would ever happen in his family this is the story of Dr M patta bhiraman also known as pattu hi I'm pattu from previous [Music] true wealth has nothing to do with money but I told myself I'm never going to be in that position again but two is a professor of physics at IIT Madras who started learning personal finance out of fear his interest in the field of finance and his background as a researcher allowed him to dive deep into it in 2012 he launched his website called freefinkel.com shot for free financial calculators but two has developed several smart financial calculators that are used by not only common people but also used by sebi registered financial planners his Flagship product is the robo advisory template that helps anyone build their financial plan for retirement in a smart Excel sheet he also teaches personal finance through his in-depth data-driven research articles and his YouTube videos and as a matter of fact I personally learned majority of my personal finance lessons from his content and finally I am traveling to Chennai if you have a beautiful sunset to meet him and talk to him about life investing about the mistakes that we make unknowingly that have huge repercussions and how can we successfully build wealth it is truly an honor and a privilege to be able to do this with him so we are in Chennai so yeah number one um foreign but it's taking a little getting used to it and yeah hello sir hello before we proceed unnecessary disclaimer a podcast English because Hindi is not pattu's first language however subtitles this is talks season 2 episode 5 powered by cred let's listen to the conversation [Music] [Applause] [Music] so firstly I'd like to ask you you are a physicist you teach at IIT Madras what was your childhood like so I'm trying to you know understand how did you move from uh being a physicist now you are a finance educator how did it turn out to be yeah so first of all thank you for this opportunity pleasure is awesome so I grew up not too far from here in a big mansion and a huge joint family in fact the my extended family stays with me in a system of flats even today so for me my cousins are my brothers and sisters I was the only child okay I spent a lot of time alone in fact I believe that too much socializing is bad for you because it doesn't allow you to become creative so you know my parents allowed me to do whatever I wanted to do I always wanted to do something creative and the physics seemed like a good idea and they did not have any second thoughts about me doing physics it was in the early 90s there were many friends and relatives who said um you have only child how can you allow him to do physics you should you know get a loan and put him in an engineering college or you know in a mbbs seat or something like that but they let me do it they let me follow my dreams and one thing led to the other and I soon became physicist so uh what was your early career so the path to becoming a physicist is very long so I finished school in 92 1992 and I got my full-term job in 2006.
So okay so three years of BSE two years of MSE five years of PhD then a couple of postdoctoral stints and then you get a job so it's a long drawn process okay so uh have you have you seen a show called Big Bang Theory yes I have seen a Snippets of it not too much the main character of that show Sheldon is a theoretical physicist yes yes it helps kids understand that science is accessible to them yeah they can also do what they are doing yeah exactly so uh after your job how did you become a professor at IIT Madras so um I had these two research stints one in Germany one in Indira Gandhi Center of atomic research in kalpakkam after that I became a assistant professor in IIT in 2006 and since then I've been there okay so how did you get into investing I mean you create so much in-depth data driven content so you're probably the only creator that I have seen who believes in data and other people can feel it that you have done some research behind it and you bust a lot of myths around investing so how did you find that passion oh it's a long story I wouldn't call it a passion I just did it out of fear I would say because um I got my first tenure job uh in the Indira Gandhi Center for Atomic research in early 2006 five days after my first salary that was my first ever full-time salary my father's uh leg broke on its own okay because of uh he had a rare form of cancer and then after one month his other leg also broke so it was like until that time I was I knew nothing about uh Family Life Family responsibilities nothing I was a head in the clouds guy I all I knew was my lab I've just come home to sleep oh and so I knew nothing about a responsibility that then everything fell on me so I had to take care of it I and I knew nothing about money management and the hospital bills started piling up thankfully um I was married by then because I had a very nice brother-in-law who gave me a interest-free loan of about it amounted to three lakhs at relaxed in 2006 is a lot of money today true and uh uh so I realized that I was doing something wrong I had my father had no health insurance so I ran and got health insurance for my mother yeah and so that policy still continues to this day okay so three lakhs in debt basically that was my net worth minus three I started with that I it came to such a point that like you see in the movies my mother actually told me you can sell my mangalsutra if you want to you know make have money for treatment and so on I was because of a technical glitch I was out of salary for about three months okay so before I switched jobs yeah so it became to such a point that I mean I was all the money was just going away and thankfully I was able to get into IIT and this thing stabilized a little bit but I told myself I'm never going to be in that position again where I am going to be borrowing because I don't have money and therefore I started thinking what is it you need to do yeah so first you need to figure out what are the things you need money for what do you need money for in three months six months 10 months and so on it was uh soon enough my uh I mean we had a family started but I didn't realize that we have this first year ceremony right for the child so the first birthday is always celebrated it's a big but I did not uh know that I had to plan for it after the child was born okay it was oh I realized oh in three in the next two months we're going to have this big birthday coming up so I need where am I going to get money from so I told myself never again I'm gonna plan I'm gonna make sure when I need money I'm gonna have it and that's how it started and uh because math is not a you know it's not scary for me because I need math for physics so I started doing the calculations in Excel when I started doing Excel I mean I did not even know how to punch one plus one equal to two there I just learned and thankfully there are so many good resources available online there are so many forums you can learn as long as you know what you want to type in Excel you can find it many people just want to learn Excel yeah that doesn't work yeah you should know what you want to do then it works very well so that's how it so I mean uh both our careers Rohan is our editor he's just 18 right now and I also started as a video editor he also started as a video editor and that's how we learned video editing we did not have to pay any money to someone and we just you know uh searched on YouTube how to make a card how to color grade how to roots and that is a very uh good point because a lot of people say that we want to learn video editing so they are always looking for a defined chapter wise course but sometimes you you may not need that you just need to do one thing simple thing and you can figure out the rest later so that's a very good approach so while while learning investing I mean investing learning investing and learning video editing are two very different things and I feel latter is very difficult so what are the challenges that you faced uh because you were determined that you won't ever have to find yourself in that situation but then how how much time did it take you to uh firstly get to that comfortable situation and what what what were the challenges because you obviously had a science background uh you had you knew math but you know investing is a whole different area so how did you navigate that see um first of all the math and the analytics they are useful to certain points to understand certain truths about or practicalities about investing but day to day daily investing doesn't need that yeah otherwise only the super intelligent or you know super nerdy people who make money that's thankfully that's not the case so what I did was I was reading a lot all I did was I let my I had NPS so I was one of the first set of government employees who had NPS and at that time the uh the money The NPS account was not even set up it was not put into the market so it was basically held at the employer at earning some eight percent so what I did was I was just that was my only investment okay I did not invest anything so I just learned the mistake people do is they first invest and then ask questions yeah they first do something I want something for saving tax so let's just you know I want to give some proof to my employer yeah next week so I'm going to invest something and that's how the portfolio becomes cluttered it's a with a mistake start piling up thankfully I did not do that I didn't do anything I was just learning and then I slowly started uh buying my first mutual fund in fact there are two mutual fund offices in this road HDFC mutual fund is right next to us okay and there is sundara mutual fund right in the next street okay so I used to come to these offices and buy I did not even know at that time aside from my first investment that you have to you can buy things through a distributor and at that time it was the fall the 2008 the market was falling I did not know anything about all that I just started on a 1500 rupees Sip and slowly it started from there I would say I didn't do anything but learned that time of 6 months 12 months where I learned without doing much help me not make mistakes make big mistakes where I could not come come out from I did not buy an LIC policy or that kind of but the one thing is I probably I did not have my father was not around at that time to tell me to do those things probably if he had never got sick and if he were alive today I I would not be here I would have been that guy with the only fixed income in my portfolio with the 10 LIC policies or whatever so it's just I would say luck that's how it it's life yeah so uh after you witnessed the 20 uh sorry 2008 crisis how did you navigate because a lot of people you know pull out their money at times like this so how did you handle that situation so first of all I did not know it I did not know the market was falling I never eat to this day thankfully I don't see the nav or I don't see the market levels I just invest ah but what I did notice what was my the after the the the markets fell and then it recovered yeah but it required in 2009 sometimes yeah but from 2009 onwards to 2013 late 2013 the market went nowhere it was just up and down during that period I noticed uh that every day I would login my portfolio was always red yeah it was always in losses yeah so I was wondering what to do I I used to tell this to my wife and mother and they were scared they said what are you doing I mean you're probably making a big mistake here but I thankfully I learned to be emotional about retirement I always tell people that you can't remove emotions from anything everything that we do whether it is science or investing it's all some emotions are always going to be there too right so it's better to uh exploit those emotions in your favor instead of being emotional about my investments being read all the damn I thought of of being emotional about my retirement I told myself if I pull out now I will again find myself in that debt situation I was just a couple of years ago and I don't want that I want to build money so that I'm never going to be dependent on anybody ever again so that helped me through those five years of sideways markup for the first five years my returns were zero yeah then suddenly the market picked up and I had to learn my I looked at my portfolio one day and I thought what is this it's too much money then I had to learn units Place tens place and I had to count and then I realized that every day the market was gaining what I was investing every month yeah and then I that's when it hit me that's how Equity investing is you have to keep investing without worrying about when the market is going to move up or not it will someday when it changes your life will change and then just like that my life changed yeah so so during uh the four years that four or five years the market did not move a lot of people find it very hard to maintain patience so do you think being emotional about retirement and you know remembering your past days uh made you patient yes I would say I I actually had a very good piece of advice when I went for my IIT interview I met my teacher and he asked me how I was and I told him sir my father has come and Dad and said but to be happy that you're getting all these problems when you're young yeah I was like what are you seeing I mean come on man I mean I'm I'm in trouble and you're telling me to be happy he said 10 years later you will know that you have enough experience to handle problems later very well yeah so it is that experience that so it's it's somewhere it's lucky I mean that's how Okay so I've seen your logo uh free thin Cal logo what is the story behind that logo it's really uh it's an inverted percentage sign it's like saying that we can't get rid of our shadow our shadow is going to always move around with us yeah so if the ah just like that the risk is the shadow of return you can't get rid of risk whatever return you get whether it's fixed or not fixed there's always going to be some risk yeah so I wanted to have some kind of a so the percentage stands for return the inverted percentage is a way of saying you have to look at risks okay okay so uh talking about risks especially during 2009 to 13 uh obviously some you know some sometimes that thought must have crossed your mind okay how much risk am I taking yeah will it ever move up so how did you manage risk uh at the initial levels and how do you manage risk now see thankfully I had some time looking at inflation I had a I mean I was looking at my expenses and I projected my expenses down the line how how much my expenses would increase yeah um that told me that look there is no other way to handle my lifestyle in future or maintain my current lifestyle in future if I don't get a return higher than that because you have to pay taxes so my entire portfolio has to have a return or a growth rate higher than that of inflation after tax yeah so that was the thing that kept telling me hold on hold on be patient be patient and when I look at the past data and if you look at the sensex and plot it in let's say a logarithmic chart you can see that there is a step and then there's a this flat yeah it's for years and years it's flat and then it moves up so you don't know when it's going to move so you got to just paint so looking at past data has always helped me understand that the future is going to be at least like that yeah if not something very different so are there uh some people in your life who have influenced you in a great way they may not be from uh your field but uh you know it they made a turning point in your life there are many of them for example I had a wonderful teacher Mrs Bina gokla in 11th and 12th standard she thought as English and she made the subject come alive she taught us so many things about uh living loving hating and so on and that is when I realized my calling my calling is to teach I realize that's that's when I'll be happy it doesn't matter what I teach whether it is physics or Finance or the movies of gurud or whatever it is the subject is doesn't matter I just like to connect to an audience she was one who kind of made me listen to my passion okay my calling I should say then there have been so many people in finance as well one is PV subramaniam of subramani.com yeah so he has been in the markets for 43 44 years so he's been investing in stocks before the sensex even began I mean even the data began before 1979 so whatever analysis or inferences I make from hours of date data crunching he knows by just living through the markets yeah and he talks about risk and many people today don't give him credit but he was the one who was the first to say put it in an index fund don't today we have all these index investing and that's all popular but he was the one who first said don't spend too much time worrying about which mutual fund to buy just buy an index fund you're done okay so he's been a big influence for uh on me and also he is he had this audience uh ah trying to do DIY ready to do DIY and when he referred my blog at the early stages in 2012-13 so that audience you know also started following me okay so that so PVC Romanian is one influence the other is uh inspirational person is Melvin Joseph Melvin Joseph he's in uh he's a Regis semi registered investment advisor he's a fee only advisor working in Navi Mumbai so he's one of the first in the country and he had left a cushy insurance job and started out on his own doing this and he helps ah you know people he helps the Common Man Okay many financial advisors work with only High net worth individuals nris and so on but he has placed his uh price uh you know at a level so low that anyone can access it ok and he also helps children ah empowers children ah he helps other people pay for their education and so on through and initiative called key kids education and you okay so more than three thousand kids are being benefited by this so he's a guy because of his own Enterprise he's he's also very compassionate and he's also helped so many couples um with their finances and also uh widows and widows with their term insurance claim okay if there's any problem with the claims they go to him he does it pro bono all that is done proposed so he's a very inspirational wonderful wonderful especially with the insurance claims uh it's an ugly situation in India unfortunately true so that's one and also anybody who works without expectations inspire me for example I have at home the caretaker of my mother she works very hard she's very sincere and she works without expectation and that's always something that drives me uh that's been that said in our scriptures in Gita you work don't expect rewards when you expect rewards that's when all the problems start true true so though that's what inspired wonderful so this is a very simple and straightforward question what do you think is more important saving investing or earning I would say now I would say life has taught me that earning is the key okay first you earn because if you if you don't earn you can't invest or save but just don't spend too much okay then only you can do both because saving and investing you should know when to save and when to invest you save for short-term goals and invest for long-term goals you take on Market risk so that's fine but earning is the key so I would say young earners should focus on their skills and they should focus on trying to increase their income over the long term the problem with young people is I mean there's always been a problem with young people I've had problems when I was young that's when that's just the generational thing but they just wanted fast they want results too fast that's a problem you don't get that with money true true last night I got a message from my junior his one year Junior to me and I always sends me screenshot of his mutual fund portfolio and he says why is it charging me expense ratio I want to withdraw it I asked him why do you want to withdraw it he said it's been months it is stable I don't know it will ever go up so please suggest me some other Mutual then I wrote to him that that's not how mutual funds work so now he's asking me how does how do mutual funds work and that you know brings our first point people invest and then start to learn that is a very big problem I mean the today we have a serious problem because most people in the capital markets if they either direct Equity or Equity mutual funds they all come in in the last three four years almost 70 percent of them and they have all been influenced by the bull run that we have seen prior to March 2020 and then after from April 2020 to October 2021 that is so that's been their experience they think that's how their future will always be it will never be like that the worst thing see a crash is not a problem you don't have to worry about a crash because a crash is like too many people believing that something bad is going to happen and pulling out money yeah so thus at the same rate they will come back in yeah if the big crash will always be required followed by a big record worry but after the recovery there will be a Slowdown that happened in 2009 to 2013 that's happening now and that's the scary part because you're losing time yeah you lose five six years of your time if you don't plan well that time is lost forever because there are so many people who say I want returns in three years I want returns in four years that's and they don't have asset allocation all the money is in equity yeah you don't do that for three four years that's I mean it's just potluck you will get any return you want that's very dangerous that's where the planning is not there so what would you advise people uh who are in this phase of investing when the market is moving sideways it is going absolutely nowhere and you know maybe it will stay like that for two or three more years and that's what happened with you back in uh 2009 uh to 13.
So what would you advise such people who have entered the market after 2020 let's say uh now they will be they'll be disappointed like my friend is so what what do you suggest them to do I think first a pause and look at your own needs yeah so personal finance starts from us yeah why are you investing when do you need the money if you want the money in the next five years seven years don't invest in any form of equity okay stick with ordinary fds RDS that's fine nothing much is going to happen in five years have a long term view English money iniquity only for your retirement in your financial Independence for 15 years 20 years then you don't have to worry about what happens in the market in the next few years yeah so you have to plan so that and make sure you have enough money for short-term needs and then put a money away for long term needs that's what yeah but the the concern most people have is they want to you know do something with that money after let's say four years now they'll come to you and come to anyone with some experience and they'll ask them I want to get my money back in four years tell me some mutual funds there tell me some stocks when you suggest them that you should not go in equity they'll say that how else can I you know collect that much money in four years then there's a bit of wrong planning in on their part right so either you should increase your time duration or you should decrease your goal you can't do both at the same time that's the problem there they are punching above their weight all the time yeah it doesn't work you have to lower your dreams and lower your standards of living future standards of living whatever to do that you are a physicist you used your you know mathematics and analytical skills to learn investing and that's what you brought forward you rely a lot on data so how do you utilize that data to make your investing decisions I mean what are some some discoveries that you made that other people cannot you know discover so I I would say um all this number crunching has taught me lessons about risk about Market risk so people are always talking in the media about the market volatility is high now Market volatility is lower it doesn't happen if you actually look at the data and if you plot Market volatility versus time it will be a flat line Market volatility is always constant okay whether it's five years three years or 30 years there's always been a constant and one of the most important lessons I've learned is there is actually no prove that long term investing in equity will work OK all this power of compounding and stay invested that's all fine but there's no guarantee that it will work yeah all it offers you is that there is a reasonable chance of beating inflation okay that doesn't mean you will get the return you want yeah people expect 15 return yeah that is not the job of the equity Market the past tells us that whatever is the current inflation the equity can offer us premium above that yeah but that is very different from your return expectation so Equity can give you nine percent and if you expected fifteen twelve percent and invested less then you will not have enough money yeah so that's where we must learn that ah when they actually tell you in the disclaimer that the past performance is not representative of future performance they mean it so in the mutual fund industry actually means what they say in small font they don't that mean that much what they say in large font so you should revert our way of thinking but so those are lessons that I've learned from looking at past data but that does not mean if you stay away from Equity people always take extreme reactions when I say this they say oh there are no guarantees then why should I invest yeah then I ask them where is the guarantee that you will be you'll stay married when you marry there's no guarantee or marriage in work yeah when you join a course there's no guarantee that you will pass it there's no guarantee you will you know get a job you want so why are you asking guarantees and investing there are no guarantees in anything you do so that's true for investing as well but there is enough data to tell you that there is the risks are reasonable unmanageable that is all you want the risk should not be so high that you cannot manage it yeah so as long as you give enough time you can manage the risk with Equity investing and that's why people say stay invested for long term and so on that doesn't mean you should have Rosy ideas of you know the graph moving up like that's nice and smooth and and so on so and the other thing I've learned is about sequence of returns that is the same fund you start an sip in January I start an sip in July yeah he starts an sip in December we compare notes after three years after five years our our experiences can be very different true your return can be positive mind can be negative it can be very very high so that's the sequence of returns it's also called timing luck in the market so when you start and when you end depends on what path the nav follows for you and me so it's very very different so we'll have to combat that how do you combat it just like you can't take your marriage for granted anything you have to work on your relationship you have to work on your portfolio people are people are always in this LIC mode they because when you start an LIC policy you know that you're going to pay premium for the next 15 years so people say tell me which mutual fund can I start an sip for 15 years no it doesn't work like that it's not going to be the same mutual fund that is where the index investing makes a difference if you want to do all these gymnastics then you will have to be either ready to shuffle mutual funds actively manage your portfolio or stick with simple index funds you're done you don't need to worry about fund management risks so these are some of the lessons that life and numbers are taught me so speaking of guarantee a lot of people my father's age people may be your age who are who have seen the the government job era the job security era today that thing is almost negligible so I it's okay to hear the guarantee word from those people because though they have lived the guarantee while alive and uh you know they've invested in LIC policies that comes with a sovereign guarantee government bonds also come with a sovereign guarantee but uh do you think it's strange that when we hear the word guarantee from youngsters oh yes that's it's it's it's sad to see that people still want it see um the the problem is many of us don't understand basic economics uh people say that in the 1990s PP of rate was ppf ETF was 12 14 you would get LIC annuities for 13 and so on but that happened because the government was nearly bankrupt yeah the government became bankrupt in the early 90s and uh unfortunately in the debt markets uh the the more bankrupt you are the more interest people will demand from you yeah when you cannot pay more they will want you to pay they will want higher interest rates yeah and that's how it wasn't until the 90s and then the 2000s things changed so India has gradually shed its communist ah policies and it has become more and more capitalist whether it's good or not is another matter it's debatable but what it means is that all our investments have become Market linked known whether it's PP or VP of Guild trades everything has become Market leaks and if you look at the long term it's actually fallen down yes today interest rates are increasing RBI the report rate is increasing but that's not going to be there for it's it's going to increase but it's going to the the trend is going to be down yeah so we have to prepare for that and uh yeah youngster should not look at what their parents did or what their grandparents did that's a different era and most importantly it's not about returns their lifestyle was much more subdued yeah today everybody wants to live it up yeah whatever their income they want to live it up they say and social media they look at all these images of you know oh this guy has gone for a holiday in Thailand I will go further and Australia I'll go Australia and beat him and that kind of mentality is there the spending is too much that is the problem and if you accompany that with the want of guaranteed returns is a recipe for disaster true so uh speaking of uh government bonds and things that do come with a guarantee these days do you think that guarantee still means something I mean uh what if LIC goes bankrupt so will the government be able to pay off everything it's very unlikely that they uh that's what I said there are risks and there are reasonable risks buying an LIC annuity if I need it that's that's key if I need it there's no problem in fact I will have to I have an NPS and I will have to buy an annuity when I retire so I'll probably use LIC assuming it will still be around at that time and I think that that's a reasonable risk to take because that's like they say there are institutions which are too big to fail LIC is too big to fail SBI HDFC I see I see I say those are all institutions which are too big to fail so that's a reasonable risk to manage but but what I am hinting is uh when people say I am I'm buying lse because it has a sovereign guarantee ah that you should that is fine that argument is fine but are you buying it because you need it yeah that is the problem see I can buy an LIC policy after retirement for annuity yeah to get a pension that's no problem there I would prefer that you know instead of a private insurer for an annuity but I should not buy it that when I'm young and say I'm getting guaranteed returns uh and buy a policy and mix my insurance and investing before retirement that's bad true so it's the question the problem is people are they they're emotional about the wrong things you should be emotional about the right things for that you need little bit data you should look at all you need to do is look at how your lifestyle has changed over the past five years true some tracking of bear tracking of expenses if you do people you you can see that all our lifestyles have increased at about eight to ten percent at the rate of expenses have increased most of it has come from lifestyle creep lifestyle changes and not just uh you know because of the Dal travel increase in inflation and so on that is okay that is about six percent or so roughly approximately because of fuel costs but that's what we need to be looking at we need to my lifestyle is changing can I get rid of my start smartphone ah just because I've retired can I get rid of my cable connection my Ott platforms just because I've retired then that would be your failure right I mean in terms of planning so we have to maintain our lifestyle yeah or the other thing is don't think twice before spending and don't enhance your lifestyle just for the sake of it yeah so then it's a question of need then it doesn't matter whether you're looking for Guarantee or Capital link Market linked resistance or you made a very good point about lifestyle inflation people when you know when people see the data in the news the inflation uh the new number is 7.1 percent people think okay our mutual fund is you know capable of giving 12 plus percent but uh the the formula that builds the inflation number consists of three major ah ingredients the fuel cost clothing and food all three are rising at 12 so you know people plan with seven percent keeping in mind seven percent inflation but in reality majority of their expenses are being raised by 12 percent every year so we have to at least expect 12 percent and that will only come when we you know reconsider our needs a lower our expectations and manage our risk true yeah true the the thing is that 19 people want to do freelancing they want to do that's a good thing very nice to see but but when it comes to investing I believe when a youngster uh 18 or 20 year old wants to invest there for the wrong reasons they can be for the wrong reasons one reason could be I'll generate this much return and then you know I'll feel good about myself so that is that will ultimately land you in losses true so because a sense of maturity has yet to be developed true the same thing is with that's how I see trading as well many people get into trading and they do it because they want to get rich quick it never works like that trading is a lifetime job you learn you have to learn the markets the markets teach you about its risks the risk in day-to-day trading is very very different from the debate investing long term investing risk because the Dynamics are very different so ah it takes a lifetime to learn it yeah and if you look at if you ask any big Trader they will tell you I have lost most of my money at some point in time I've recovered but I did lose it so you're gonna have to bear those big losses and then only then go through that Evolution but people want they see all these Facebook ads about uh passive income from Stock Market trading I don't know how that works the only person who makes passive income is the guy who sells the course yeah so that is very dangerous yeah because it's not the it's not going to change your social station it's just going to give you some spending money here and there to do something extra I think that is wrong I think people young people should have a long term view like Jeff deso says look at your life over 30 years 40 years and think of where you want to be and work towards that don't think about the next one year yeah that's not how wealth is made yeah I just remembered a great example uh when I was little and whenever I go I used to go out and see there's a bridge being built or there's a shopping mall being built I used to ask my parents or I used to ask my myself that okay in two months if I come come here again I should see this you know fully functional and then I would get disappointed that it's still the same it looks still the same the road hasn't been built the building hasn't risen and then I realized that okay big things do take time they will not be built over overnight but I suddenly remember because that you know kept my expectations in check so whenever there's a new government project around my neighborhood I tell tell myself okay this is not for me maybe this is for my kids true that's a good example yes so um regarding the inflation that you asked me so the thing is that our day-to-day expenses inflation is about seven eight percent maybe but the danger is that many services in India are not regulated Health Hospital expenses in India are not regulated at all they can be anything same with the school fees and so on so these are increasing at the rate of 10 12 14 yeah so there's a point Beyond which you can't expect too much return you can't expect to beat 14 inflation yeah if you're lucky you can but that's not going to be a the risks Associated is no longer reasonable for that so there you have to compensate by investing more yeah that that's something that what happens is financial advisors are scared to tell the two clients invest more because they're scheduled run away yeah so we need to invest as much as possible and that the only way we can do is balance our spending today and so that we have we can fund our needs for tomorrow okay so uh you have a you know good investing experience what are some examples of your best and worst uh Investments um I don't think I have a best investment yet I see my life is not fluctuated like that it's been more or less I always looked at my needs and invested probably I would say that um if I had to do it all over again I'd probably get rid of my active funds and replace them all with an index fund okay the biggest reason is that if something happens to me today my wife can just take over that without worrying about uh you know which fund manager is doing better which active fund is doing better and any advisor can look at that portfolio and continue that without so the investments will not be disturbed yeah it can just continue across and Beyond me that is one and also for me today my I have my wealth has grown a little bit so I don't care about which fund works three star four star I don't care but the The Simple Choice which I keep telling to young people but they can keep asking me why don't you uh invest in active one I mean why are you investing in active funds why are you not investing in passive funds the reason is my portfolio has become so big that if I add a passive fund to it it'll be too small it will not make any impact but I tell young people don't make the mistakes I did yeah I I was still I did the same mistakes that anybody does looking at stars looking at recent performance uh that is the biggest mistake people do and they look at the last one year one and a half year two year performance and then they put in money yeah and if they and after they put in money the fund will drop it's the law of averages you can't ah it's a hot hand fallacy you cannot say that the first five balls have been hit for Force therefore the last Bond will also be hit for four it never works like that but that's the mistake I've made those mistakes and I like to think that uh I mean I could have done better true so uh speaking of picking mutual funds I saw one of your videos where you said just pick any mutual fund uh don't go overboard don't add too many funds in your portfolio and you said uh pickup fund that is not so popular ah why is that see it's like the code from The Matrix where agent Smith says that human beings are like viruses they see something good and they go and heard on it they accumulate and they destroy it and then they move on to that so when this when mutual fund investors see some good performing of mutual fund that outperforms significantly everybody goes there yeah and then the aom increases the fund manager faces the heat yeah and he cannot be as Nimble as before he cannot change talks he cannot churn the portfolio and then the performance drops the same thing happened to prashan Jain in 2009 after the Congress government got re-elected the markets moved up OK the markets reacted positively and then there's a lot of inflow into his two funds HDFC equity and HDFC top 200 at that time those with the names and the churn rate the ability in which he was churning the stocks it dramatically dropped and those mutual funds became more and more large cap oriented okay because he that's the only way he would maintain liquidity yeah and handle the portfolio so that's why I said stay away from popular fund managers and popular mutual funds so that you are in a space where uh it's not I mean nobody gets note if the fund doesn't get noticed yeah so you can happily invest that was how paraporic flexi cap was yeah and when I started investing it as an nfo yeah and I thought okay um this is this doesn't have a banking Channel yeah to push fund the fund so it will remain quiet for some time but uh in the last few years it is tremendously grown but now again people are complaining oh they are not investing enough in Google Facebook it's going down so it's it's a I mean they have a short fuse in terms of expectations they just wanted to so my Junior was asking me about the fund that is not performing that was equipment so I'm happy I'm happy if people move away from it yeah so uh speaking about unpopular advice popular mutual fund there's also a point to be considered that if a fund becomes too big people say that it's its ability to generate returns uh gets hindered do you think it's true if yes then how should we invest in a in one mutual fund for a very long term so if if that fund becomes too big what should we do I mean it's very hard to prove it I've tried to prove it that's very difficult to make a meaningful study to say that this because of the aom increase only the returns came down that's not possible because even today there are funds for example HDFC has a mid Cap Fund which has got a very large amount of AUM I forget the name um but it's doing well it's not it's not a stellar performer but it's doing quite well so it's very hard to prove it but it's just a matter of see the the problem is there are faces when all the mutual funds fall down then many people ask why is my mutual fund alone falling down no it's not your fund alone yeah the whole Market is falling so everything will fall that is okay but if there are some reasons where only your fund is falling then uh you should get rid of it so there are two choices one be an active investor yeah and be ready to switch funds every three four years because average it will keep moving up and down today there will be five star tomorrow it will be it'll drop down become five star again back down and so on you should be ready to switch or go through periods of under performance if you have the faith okay very few people have that anyway or simply be an index investor yeah be happy just forget about it you get some return very close to the index and you are happy and I think if the index is if we assume that the index is going to move up over the long term comfortably then all the funds even our average performer would do well yeah so that's why I said don't worry too much about which one you pick because it's not going to be the fund you're going to this is not a marriage yeah I mean it's a it's an acquaintance at best and you're going to change acquaintances for that you need to be professional about looking at a portfolio management the problem I see is that most people don't want to learn portfolio management yeah they don't want to look at it from the top so you should look at your need if you look at your Target Corpus you should look at your asset allocation then you should look at the assets and only then at the fund performance yeah people do the other way wrong yeah but they don't go beyond one performance yeah that is the problem okay so uh speaking of the new investors and considering the fact that more than 1995 percent of Indians don't have enough money to invest what would you suggest them how many mutual funds should they invest into I would say just one is enough just any sensex or Nifty ah not any I would say the ones with a reasonably low tracking error that is the one thing they should be looking at trying to increase income if they the income increases everything is fine in fact um I have seen this in my life and uh if advisor swapnil Kenda has also made this point that is let's say two people start one guy starts earning right after B let's say 22 Yeah and the other guys studies he does other you know higher education qualifies just like what I did when I went through the other guys only starts at 35 or 32.
The salaries will be very different yeah the guy who starts late will have a much better salary yeah and he can actually make up for the time lost yeah so I would say focus on trying to get your skills up make sure you are always employable you should be constantly employable either you should know how to do it on your own be an entrepreneur or you should be in demand if that is ok then you can spend some time without investing focusing on increasing your income you can always make up for it later okay but if you say this much is enough I'm not going to study further then would that would severely limit your ability to build wealth over the long term okay so just one fund uh is enough but the focus should be on increasing your income and when you have enough money then you can you know maybe think about uh adding a fund but no you can always make up for the lost time that's what I mean the point is people want to they are always fomo is a big problem if you look at all Financial ads fomo will be there have you invested in this have you not done this they will always try to push that for more button that is what we have to control it's you should tell yourself I am invested in the Nifty index I don't need to good look beyond that I'm fine I don't I don't need a mid cap I don't need a small cap they don't matter Nifty is good enough that control is the huge thing I don't because my friend is doing trading I don't need to do it yeah I I that control and that maturity is the biggest biggest problem reminded me of what uh Mr Rakesh jinjala said uh in during his last years someone asked asked him why don't you invest in crypto he said I don't have to go to every party so precisely yeah precisely that's a wonderful thing so uh you have a you are a physicist I can't even imagine what it's like to become one you have a job full-time job at IIT Madras and now you are into investing you make content around investing and which is very useful how do you manage both of these it has been a very uneven ride for me it's not been normal in the sense that um 10 years ago I was I started this website in May 2012.
a few months after that I was down with an autoimmune condition for the next one year I was almost bedridden I couldn't do much I couldn't teach I couldn't go to work against one so um learning about finances one way for me to get out of that funk it was I was in a very bad state of mind I thought this is how my life is going to be so it kept me occupied something to think about yeah but then after that I used to work on these calculators whenever I had time we have we have summer vacations winter vacations and so on so most of the content was made around that time and scheduled later on yeah so over the last few years I've learned the power of Delegation now I realized that I'm becoming old I cannot uh you know keep up at the same pace so now I have a team of people who wish to be anonymous there are there are people working in all the big tech tech companies all around the world and they helped me manage my site and they also produce content now most of them are Anonymous some of them they prefer their names they produce some products and so on so they maintain the site so I've learned to delegate it and I'm I'm looking forward to do something else now yeah I'm trying to because my if you look at my life I've done all the things that a physicist should not do I have looked worked in one area in of physics then stopped working on it and done something completely different then after a few years done something else so I would like to move on to something Beyond finance and do something else I don't know what that is I'm still waiting for what that calling is but I'm hoping that's it and so I've delegated it and I want to you know I'm shading my role as in free Finkel gradually okay so uh Matlab if I were to put it you are at the completion stage of a current phase see well I mean you've learned physics you've learned investing now you want to do something else see the thing I would say that completion meaning that I would like to do new things in the sense that um I have covered the basics yeah and if I do it again it will just be saying the same thing over and over and that repetition can be done by anybody I can delegate it to somebody what I I would at the moment like to do is to study more about Market risks okay it would not be uh immediately useful for day-to-day investing or investing in mutual funds whatever but I want to study the nature of the market risk how is it linked to chaos how is it linked to fractals what what can we do can we learn something useful from it okay that is something that the problem is that doesn't translate well into content yeah because very few people will read it yeah it it that's what happens with science and research you know it takes years and years for someone to finally find some conclusion that can be conveyed to the world but uh it's necessary if some some if some nobody will do it then we are going nowhere so those things will take computations and it will take you know I had to set the computer will take weeks to finish so I would rather do that privately and publish separately rather than on frequently help okay that's my plan so so we we got the sneak peek into what you are planning for yourself in the future so you teach some of the smartest kids in this country at IIT Madras do you think they also make some investing mistakes and are those mistakes similar to a common man's investing mistakes uh first of all I don't think the kids in IIT are smart it is just that um those kids have taken a decision to sacrifice their time and effort much more and much earlier than other people in the country yeah whether it comes to working for GE or any other entrance exam related to IIT or in IIT so they're not smart it's just that they've they spend so much time that they have accumulated some knowledge it looks like they're they're smart it's like what you have done if you if you do video editing alone yeah and nothing else after six months you're an expert yeah so that's that's how those kids are but other than that they're as normal as fallible as anybody else they have done they make the same mistakes or no don't make the mistakes as anybody else I don't see any difference okay the uh what I see today is that like I mentioned to you earlier young people are more interested in investing right yeah they don't want to invest the way that like their parents did of course there are many people who are still influenced by their parents but the number of people who want to do it right do it independently have also increased they're they're searching for content and that's how I I knew that was what I do at free even Cal will eventually work I knew that initially it was the many years where nothing happened nobody noticed free Finkel but eventually thanks to Google's machine learning has improved so much and you you don't have that kind of usual keywords stuffing that kind of SEO doesn't work I have been the biggest beneficiary of it and I've been able to cater to these kids who are looking for it so uh that's that's great I mean uh one one very important point that I'd like to discuss I I haven't had the chance to discuss in detail with any other uh expert yet do you think uh our expectations uh of wedding and you know our expenses are on wedding will hold us back will not uh make us achieve retirement plans I think so yes I think I'm I'm scared the uh I I'm scared to go to weddings these days to be honest because I see people are serving popcorn there are candy flosses there are drones flying yeah I mean I I just cannot I cannot stomach it there's too much and I ask about the expenses they say minimum 50 lakhs yeah in certain circles and that's a minimum and they have these huge photo shoots and so on most of it I would say don't spend because how much ever you spend your relatives are always going to find something to complain about the wedding it's always going to say this is this is bad that's bad you didn't do that well forget about that if you have enough money give it to the kids yeah let them start their career or start their family life in a you know solid Financial basis and say spend it well instead of but that's life I mean you're always going to have these pressures and it and it's infectious they I I overheard a conversation in IIT some years back there it is very trivial thing one guy who said that guy had ah two deserts in his daughter's reception so in my daughter's reception I'm going to have three digits that's how it's a very trivial thing but that's how people think and they want to outdo for no reason that's not you don't know that's not a goal nobody cares yeah right so yes it's going to be a problem yeah what is going to be a problem is that people want to change their social station the wrong way yeah they're only earning this much but they want to spend that much although they don't they want to spend that much and they and they borrow but if you want to change your social station you should do that by taking in risks with your career yeah ah it's a reasonable risk the right amount of risks and you should ah you know hold back your spending and ah you know even if you want to work somewhere as an intern without pay you should be ready to do that but people don't want that they want to they get the bonus it's gone and I usually go I go to these corporate meets and I ask them when does your money run out yeah yeah so I I I usually hear some people say some people say 20th 20th is very good these days it's a it's a record yeah okay so um if I go up North it becomes worse some people said one guy said third he said I run I get my salary on the first I run out of money on the third I said what are you doing how are you how are you even manage it that's how it is the spending has become too much everybody wants to change their social station by spending yeah that's never going to happen it you're going to go down that's the biggest problem we have so the reason I ask is because I see a lot of people uh you know borrowing money 20 lakhs 30 lakhs just to facilitate their wedding just to show that they can or you know three three desserts I know yes then the point that you made about kids that people you know they the the people who are spending 20 30 lakhs on marriage after borrowing money will again struggle to you know raise their children and then uh okay it's one thing to spend a lot of money on a wedding then at least people should understand we are not ready to have a kid yet so we should first you know pay our debt we should then start saving because in two three years we'll have to send them school so that whole planning is so messed up and sometimes I feel that why is it so difficult to understand it to me it feels it feels fairly simple to say that okay if I spend money I will not have money but it at the same time very difficult for people to understand yes it's a it's a big deal and if you have two children I think it's very difficult I I often say that inflation should be the best contraceptive one kid manageable two kids you're you're almost crude yeah three if because the second becomes twins you are done for what happens like what you said if you borrow and for a wedding you're going to spend the next five six years repaying that debt so you're scared about starting a family by the time you become old yeah you can't natural childbirth is gone you have all these fertility clinics everywhere now if you go via the fertility clinic minimum is twins yeah you never get one very rare if you get twins and to start with your your life is sealed that's it you can forget about you have to work until 60 70.
So that's where these things matter they will pile up that's that's the real power of compounding I would say negative compounding we should say that yes you should that's why I keep telling people don't do anything spend one hour doing nothing every day yeah put all your gadgets away maybe go for walk do some meditation but think about your life what is it I want to do think about all the nightmares that can occur to you it's very easy to dream dream forget it you will get it but think about all the bad things that can happen to you and how are you fighting for those bad things for example men there are I have uh I have a we had a PhD student a few years back in the department he went trekking he lost his footing and fell okay to death his parents were farmers they had no money this guy is the only one spending spending for his expenses and giving them money from his typhen yeah and what would they do so those are the things that those are the risks we need to think about what would happen so I I say that even if you are young and not married doesn't mean you don't need a term insurance policy you should look for your parents are your parents financially independent buy a term insurance policy put your parent answers normally they'll get something yeah so that's that thing that happens only when you think about yourself I'm not saying be selfish but think about all the bad things that can happen to you and how you can fight it but we are always thinking about what the other guy is doing how much return you get here Rama so we are being distracted by uh too much information and I feel uh thinking about bad things is not very well received in the community if you tell your friends okay last night I thought uh you know what if I died you people your parents friend friends everyone will tell you why do why do you always think bad things but I think there's a fine line between you know rationally uh you know imagining situations that are very much possible and overthinking correct so I I don't call this overthinking and I'm I I do this myself maybe not one or maybe more than one hour because that's what my personality has become but I always keep Imagining the worst case scenarios what if this could happen yeah but it's it's such a burden sometimes but I still don't call it overthinking no it's it's overthinking when it ah when you don't do anything when you when it paralyzes you uh negative thoughts should force you into action yeah whatever thoughts should force you into action you should do something to you know as a as an arrangement to fix that risk then you're fine that's currently a minus 50 50 I take 50 action uh yeah but yeah it's very important to think about those things and people people don't do it so any any last piece of advice that you want to give to our viewers oh I one lesson life has taught me is don't give advice even if somebody asks for it the reason for reason is uh I always believe that we are all victims of our experiences my lessons in life are based on my journey yeah and just like the Sip started on different dates can have different returns all of us are different Tom Cruise said something wonderful he said I have never seen a normal human being yeah everybody has a story and everybody's story is different so whatever advice I would give assuming that the mistakes that I made will be the mistakes you make or anybody else make it's always very dangerous so I so only the one thing that I've learned is that we should be ready to course correct at any point in time there are no set plans if things change we change if I mean if that like we say if the if the data changes the opinion changes but don't change opinions before the data so we should be ready to be flexible that's all I can okay thank you so much lastly uh for people who are building their retirement plans let's say some my let's say my goal is 20 years away uh what would you suggest them because if I were to retire today and today is let's say 20 2008 subprime crisis my retirement would be screwed so what do you suggest how do they navigate that yeah there are a couple of ways to do it the the first thing is to invest as much as possible like I like I always say I don't know if I can say it like invest like your assets on fire yeah at all times so accumulate as much as possible and uh decide on what your asset allocation is going to be after retirement years before retirement okay so um when I started out I always thought that 60 Equity is too much for me okay but uh because my net Health has grown today I'm comfortable with 60 equity and now I want to have 60 Equity throughout my life that means that 40 fixed income should be enough right to handle most of my needs in retirement so things change like I said you have to adapt but for that you need to plan uh you must be ready to have my thumb rule is at least for first 15 years in retirement you should have enough fixed income assets to get inflation protected income okay if you do that then you can handle those kind of negative uh market returns uh Market you know sideways markets and so on at least for 15 years but then you'll have to manage the rest of the portfolio actually so one important point is the way Indians are managing retirement money is dramatically shifting so our parents generation 100 fixed income fixed deposits small savings schemes annuities and so on now that's changing to me little bit into mutual funds debt mutual funds so more and more my generation will be having a proper bucket strategy with very little dependence on pension your generation will be even more so we don't have the necessary expertise to cater to that right we also don't have the market history to understand the risks yeah so it's a very dangerous situation to be in so we should Safeguard as much as possible with fixed income assets but also have some Equity Capital let us say 20 to 30 percent not more than that to handle inflationary ah increases in retirement so it's a very tricky situation yeah so one one important point that you made uh retirement planning has been dramatically shifting so people earlier would invest in LIC policies and you know they had fixed job security uh everything uh even today if you look at our parents I mean my parents uh and my parents uh of my friends and family they would you know that the go-to investment that they would pick is either real estate uh or uh you know I need anything FD or something like that but even then if they want to invest in mutual funds they would go 100 in equity so why do you think is that I think that's that's the advice they get is the problem because the people in that generation they want to ask advice to people you ask advice you're always going to be sold them bad mutual fund most of the times and you're all uh that's that's where they need to do a little bit of research or you need to work with a semi registered investment advisor who's fee only without any conflict of interest but many people are not willing to do that they don't want to ah you know spend that money for advice and do that so it's a tricky situation which requires some thought and ah my problem is it's okay if the guy has got a lot of assets elsewhere yeah and 100 Equity being the only fund is okay as long as it's a small portion of the portfolio yeah what is now happening is that that is increasing alarmingly it's a it's a changing face as we speak and more and more assets are going to be in ah in the in mutual funds after retirement and that's going to be difficult managing because if you have these sudden shocks either a crash or a series of negative returns uh the retiree is going to be in trouble so that requires careful careful planning true thank you so much sir pleasure agreeing to do this and uh I hope you have a good investing research ahead thank you so much wish you all the best I hope you got to learn a lot from this episode it is time that I ask you for a favor do share this episode in your friends and family WhatsApp groups and after you've done it come back here and write it in the comments that you've shared this episode I'll personally respond and appreciate your effort also download cred app from the link given in the description and in the top comment use cred app to pay all your utility and credit card bills you will earn credit coins in return which you can then use to get huge discounts on your favorite products trust me they are discounts like you've never seen I like cred app because it encourages you to be disciplined to pay your bills on time and it rewards you to do the same so make sure you download cred and share this episode I'll see you in the sixth episode of jagruk talks season 2 powered by cred bye-bye jelly ham Papas podcast [Music]Read More
Is it possible in this day and age to become a millionaire? Or perhaps the better question is why would you want to become a millionaire? I mean in media today Millionaires and billionaires for that matter are often not depicted in the best light. Characters like Scrooge McDuck or the always supremely evil C. Montgomery Burns come to mind here. And of course right now in real life we have the ever-present Donald Trump as one of the main poster boys of the super wealthy. So I suppose with that kind of media influence hovering over us our entire lives it’s not surprising that most of us have a fairly negative view of the super wealthy and many really do not want to become a part of it. Especially since the majority of us don’t personally know anyone who’s Super Rich so we don’t have anything to really balance the scales, and that’s all we can really draw upon is what we see in the media.
And that’s really unfortunate because there’s a lot of really great wealthy people out there. But most of them are not in the public eye and even the ones that are in the public eye like Bill Gates don’t get as much media attention as someone like donald Trump does. And as a result there are a lot of misconceptions about millionaires and the wealthy in general. Hey guys, Daniel here from Next Level Life and it recently occurred to me that I’ve been neglecting a huge part of what it takes to have that next level life that we all dream of… because whatever your dream life is, you need to have the finance resources in place first to be able to live it.
So with that in mind I’m going to be starting this new series on my channel covering various topics in the field of personal finance. And as you can see by the title for my first video of the series I wanted to talk about a simple plan that, if stuck to, will practically guarantee your future millionaire status as well as take a moment and really define what a millionaire is and is not. Because believe it or not even for the average American it is possible. No you know what possible is too soft of a claim because it’s more than possible. In fact if you follow a few simple steps it’s almost guaranteed. Don’t believe me? Well hopefully over the course of this video as well as the rest of my personal finance videos that will be coming out soon I’ll be able to convince you. So without further ado, let’s get started. What is a millionaire? A millionaire is simply someone who has a million-dollar positive net worth. Meaning after subtracting debts and other liabilities and expenses they have a million dollars worth of stuff leftover between their cash their house and all their other assets.
That’s really all there is to it. It has nothing to do with how much money you make. It has nothing to do with what type of person you are or how well-known you maybe, it simply means that your assets are valued at least 1 million dollars greater than your liabilities. But how can the average American get to that $1000000 positive net worth in their lifetime? I mean $1000000 that’s 6 zeros, i’d imagine that most of us have never written a check with more than three zeros. Unless of course you bought a new car or house with cash and if that’s the case kudos to you, you may not even need this video because you’re already probably well on your way to that million-dollar net worth. Now I said that if you follow a few simple steps it’s not only possible to reach that million-dollar marker, it’s almost guaranteed.
Let’s find out how. Well I did a few calculations and found out that over the course of the last 40 years the S&P 500 has returned an average of percent per year not including dividends. Now technically speaking past results are no indicator of future returns, but until we see the future returns this is the best we’ve got to go off of. So assuming that over the next 40 years the market does roughly the same as it did since 1978 you could invest $2per month over the next 40 years and become a millionaire. Again assuming no dividends. Now 261 dollars may seem like a lot but when you break it down it’s not even $10 a day, and there are lots of ways to save money. You can cut cable, or go down to a lower internet speed, or not eat out quite as often, or use coupons when you’re shopping for groceries, or you can do none of those things and instead find a way to make a little bit of extra income.
Maybe you start mowing lawns or shovel and driveways on the side, maybe you start selling old clothes that you don’t need anymore online, or if you’re young you might be able to start teaching people how to use social media better. You’d honestly be amazed at how many people would pay you to do that. There’s a ton of options out there, all you have to do is pick the one or maybe few that work out the best for you and start your own Journey on the path to becoming financially independent. Now there’s a couple of things that I want to clear up before ending the video for those of you who are a little bit more Analytical in nature. That percent is the geometric mean rate of return that the S&P 500 has had since 1978 according to Yahoo finance. All I did to get it was go through each year and look at where the market was in September because as of the recording of this video September just ended.
Then I put them all into the Excel spreadsheet and calculated the return. And I think the reason why we hear so many different rate of returns thrown around by Financial gurus is because of the inflation effect. I’ve heard gurus say that you can expect to earn anywhere from 6 to 10% per year in the market. And depending on what time frame and type of average you use any of those numbers could be true. For example if you go from 1978 and use an arithmetic average the average return on the market would be about percent per year. Inflation is generally assumed to be about three to four percent so if you adjust for inflation your realized return would be somewhere in that 6 – 7% range. If you don’t adjust for inflation of course you’re at nearly a 10 percent return. So there you go there’s a simple formula to retiring with the amount of wealth that most of us would consider to be rich.
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This whole concept of economic self-reliance retire very early doesn'' t work. Let me tell you why. It took place to me.
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If you have spent any time researching retirement planning online, you have heard of the 4% rule. If you haven’t heard of it, the 4% rule suggests that if you spend 4% of your assets in your initial year of retirement, and then adjust for inflation each year going forward, you will be unlikely to run out of money. To put some numbers to it, if you wanted to retire and spend $40,000 per year, adjusted for inflation, from your portfolio, you would need to retire with one million dollars to adhere to the four percent rule. This rule is alternatively described as the requirement to have 25 years worth of spending in your portfolio to afford retirement. 1/25 equals 4% – it’s the same rule. While it is simple and elegant, the 4% rule is probably not the best way to plan for retirement, especially if you plan on retiring early. I’m Ben Felix, Associate Portfolio Manager at PWL Capital. In this episode of Common Sense Investing, I’m going to tell you why the 4% rule is not a rule to live by.
The 4% rule originated in William Bengen’s October 1994 study, published in the Journal of Financial Planning. Bengen was a financial planner. He wanted to find a realistic safe withdrawal rate to recommend to his retired clients. Bengan’s breakthrough in determining a safe withdrawal rate came from modelling spending over 30-year periods in US market history rather than the common practice of simply using average historical returns. Using data for a hypothetical portfolio consisting of 50% S&P 500 index and 50% intermediate-term US government bonds he looked at rolling 30-year periods starting in 1926, ending with 1992. So, 1926 – 1955, followed by 1927 – 1956 etc., ending with 1963 – 1992. The maximum safe withdrawal rate in the worst 30-year period ended up being just over 4%. From this simple but innovative analysis, the 4% rule was born. More recently Bengen has adjusted his spending rule to 4.5% based on the inclusion of small cap stocks in the hypothetical historical portfolio.
While the 4% (and the 4.5% rule) may have basis in historical US data, there are substantial problems with these rules in general, and specifically in the case of a retirement period longer than 30 years. In his 2017 book How Much Can I Spend in Retirement, Wade Pfau, Ph.D, CFA, looked at 30-year safe withdrawal rates in both US and non-US markets using the Dimson-Marsh-Staunton Global Returns Dataset, and assuming a portfolio of 50% stocks and 50% bills. He found that the US at 3.9%, Canada at 4.0%, New Zealand at 3.8%, and Denmark at 3.7% were the only countries in the dataset that would have historically supported something close to the 4% rule. The aggregate global portfolio of stocks and bills had a much lower 30-year safe withdrawal rate of 3.5%. Considering returns other that US historical returns is important, but, in my opinion, one of the most important assumptions to be aware of in the 4% rule is the 30-year retirement period used by Bengen. People are living longer, and many of the bloggers citing the 4% rule are focused on FIRE, financial independence retire early.
In Bengen’s study the 4% rule with a 50% stock 50% bond portfolio was shown to have a 0% chance of failure over 30-year historical periods in the US. That chance of failure increases to around 15% over 40-year periods, and closer to 30% over 50-year periods. FIRE likely means a retirement period longer than 30 years. Modelling longer time periods using historical sampling becomes problematic because we have data for a limited number of historical 50-year periods.
One way to address this issue is with Monte Carlo simulation. Monte Carlo is a technique where an unlimited number of sample data sets can be simulated to model uncertainty without relying on historical periods. Even with Monte Carlo simulation, there is an obvious risk to using historical data to build expectations about the future. The world today is different than it was in the past. Interest rates are low, and stock prices are high. While it may be reasonable to expect relative outcomes to persist, such as stocks outperforming bonds, small stocks outperforming large stocks, and value stocks outperforming growth stocks, the magnitude of future returns are unknown and unknowable. To address this for financial planning, PWL Capital uses a combination of equilibrium cost of capital and current market conditions to build an estimate for expected future returns for use in financial planning. This process is outlined in the 2016 paper Great Expectations.
Using the December 2017 PWL Capital expected returns for a 50% stock 50% bond portfolio we are able to model the safe withdrawal rate for varying durations of retirement using Monte Carlo simulation. We will assume that a 95% success rate over 1,000 trials is sufficient to be called a safe withdrawal rate. For a 30-year retirement period, our Monte Carlo simulation gives us a 3.5% safe withdrawal rate. Pretty close to the original 4% rule, and spot on with Wade Pfau’s global revision of Bengen’s analysis. Now let’s say a 40-year old wants to retire today and assume life until age 95. That’s a 55-year retirement period. The safe withdrawal rate? 2.2%. I think that this is such an important message. The 4% rule falls apart over longer retirement periods. So far we have talked about spending a consistent inflation adjusted amount each year in retirement. One way to increase the amount that you can spend overall is allowing for variable spending. In general this means spending more when markets are good, and spending less when markets are bad. The result is more spending overall with a lower probability of running out of money. The catch is that you have to live with a variable income or have the ability to generate additional income from, say, working, to fill in the gaps when markets are not doing well.
We also need to talk about fees. Fees reduce returns. Fees may be negligible if you are using low-cost ETFs, but they become extremely important if you are using high-fee mutual funds, or if you are paying for financial advice. The safe withdrawal rate in the worst 30-year period in the US drops to 3.56% with a 1% fee, making the 4% rule the more like the 3.5% rule after a 1% fee.
Adding a 1% fee to the Monte Carlo simulation reduces the safe withdrawal rates by around 0.50% on average. In both cases this is a meaningful reduction in spending. Of course, fees need to be considered alongside the value being received in exchange for the fee. This value should be heavily tied to behavioural coaching and financial decision making. There have been two well-known attempts to quantify the value of financial advice, one by Vanguard and one by Morningstar. Vanguard estimated that between building a customized investment plan, minimizing risks and tax impacts, and behavioural coaching, good financial advice can add an average of 3% per year to returns. Morningstar looked at withdrawal strategies, asset allocation, tax efficiency, liability relative optimization, annuity allocation, and timing of social security (CPP in Canada), to arrive at a value-add of 2.34% per year.
PWL Capital’s Raymond Kerzerho has also written on this topic, finding an estimated value-add of just over 3% per year. Based on these analyses, one could argue that paying 1% for good financial advice could even increase your safe withdrawal rate. I would not go that far, but the point is that while fees are a consideration, they may be worthwhile in exchange for good advice.
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Hi, my name is Phil. I’m a video creator and online instructor. I’m also a personal finance nerd. Because of that, I want to create a series of videos that breaks down some of the most mystifying topics that plague our society. In a world where people’s finances are typically locked away and not-talked about, I believe opening up the gates of financial conversation will help everyone live a better and smarter life. In this first video, I want to explain the shockingly simple math behind early retirement – thanks to one of my biggest heroes, Mr Money Mustache. While the ability to retire may seem like a distant and unreachable goal for many, the premise comes down to one thing. You need to invest money so that it earns more money.
This could be investing in stocks or bonds, real estate, or any other of investment vehicles. As soon as your investments earn enough money for you to live on each year, you are able to retire. Let’s break it down further to know when you can retire. The most important concept is knowing your savings rate, basically how much you make minus your expenses. If you spend 100% of your income, you will never retire… because you will never be able to invest any money that earns money for retirement. If you spend 0% of your income, you can retire right now… because somehow you are living without needing to make any more money. Between 0% and 100% are a number of savings rates that correlate with the years it will take to retire. For this, let’s assume your annual investment return is 5% (which is conservatively low) and your withdrawal rate is 4%… meaning you spend 4% of your net worth each year.
For example, if you have a $1,000,000 net worth, and you live on $40,000. If your savings rate is 10%, you will be able to safely retire after years. Safely, meaning you will never run out of money. If your savings rate is 25%, you can retire in years. 50%, you can retire in years. And if you can somehow save 75% of your income, you can retire in years. Now getting to that savings rate might not be easy in our world of societal pressures, keeping up with the Joneses, and bad habits. But you can get closer by making smart decisions, avoiding debt, and living simply. The key take away is… Cutting your spending rate is way more powerful than increasing your income because no matter how much money you make, decreasing your spending will speed up the process. A note, The math behind early retirement works if you are working a minimum wage job or a 7-figure CEO salary. It’s all about the savings rate. So if you want to retire in 10 years, the math tells us that you need to save 66% of your income. Now there is a lot that I didn’t talk about – like how to invest, and how to cut expenses to get to a high savings rate.
Those will come in a future video. For now, get excited about the honest truth about retirement (and early retirement at that!)! Let me know what you think in the comments below? Is this exciting or bogus? Until next time… start being money smart. .
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How much money do you think you would need to be able to retire? It’s a question that a lot of people have asked their financial advisers and it’s one that seems to have a different answer for just about every time it’s asked. And the reason for that is simple the amount of money that you need to be able to retire depends entirely on how much money you think you can earn in retirement through interest and dividends and maybe even a part-time job if that’s your thing, and perhaps even more importantly how much money you’re actually going to need to survive in retirement. And that number seems to change each and every time you ask as well because projections of things like medical expenses change as time goes on. And I’m sure those of you who are nearing retirement watching this video know medical expenses just seem to be going through the roof, particularly for retirees. But that doesn’t really help us it doesn’t give us a goal to strive for as we’re going through our working careers. We may not be able to come up with an exact number that we’ll need but can we come up with something that’s at least going to be close? Well today I’m going to talk about something called the 4% rule and how it gives us that goal to shoot for.
I’m also going to be talking about some other factors to keep in mind when you’re using this rule of thumb as well as some situations where you’re going to want to avoid the 4% rule in entirely. Let’s get started. So what is the 4% rule? It’s a rule of thumb that’s used to determine the amount of funds that you will withdraw from a retirement account each year. It’s also sometimes called the safe withdrawal rate because the money you take out usually consists mostly of interest and dividends, and thus your principal either stays the same or goes down a little bit but not too much. In fact in 1994 a financial advisor named William Bengan did an exhaustive study of historical returns in the market focusing heavily on the severe Market crashes of the great Depression and the early 1970s and concluded that even during those hard Times no historical case existed where the safe withdrawal rate exhausted a retirement portfolio in less than 33 years.
And for most of us 33 years would easily cover our retirement. The idea behind the rule is that once you have approximately 25 times your annual expenses saved for retirement you should be able to retire with reasonable certainty that you could survive until death on your savings. Because at that point the amount that you take out for your annual expenses would be approximately 4% of your retirement savings. And when I say 4% of your retirement savings I mean your entire retirement savings anything that’s been earmarked to use only in retirement this includes 401ks IRAs and any other ways you’ve saved a nest egg for retirement.
For example if you had $450,000 in your 401k and $50,000 personal IRA then you would have $500,000 in all of your retirement accounts and your initial withdrawal on the first year retirement would be 4% of that $500,000 or $20,000. So some other factors that you’re going to want to keep in mind when using the 4% rule in addition to keeping an eye on your expenses, is to account for inflation. The 4% rule believe it or not actually allows you to increase the amount you withdraw to keep Pace with inflation. You can account for this either by just setting a flat 2% increase to your withdrawals each year which is the target inflation rate by the Federal Reserve or by just looking to see what the inflation rate was for the current year and adjusting based off of that. Now you might be wondering how this could possibly be I mean if you increase how much you would withdraw to keep up with inflation won’t you eventually run out of money? It’s a legitimate question but as it turns out no.
And it’s because over the long term the market goes up. Now there are a lot of numbers that are thrown around by financial advisors about how much the market actually goes up I’ve heard anything from 6 to 10% a year on average. I’m going to be conservative here and go with the 6% end of the scale. So let’s go back to the example I’ve been using in the video you start off retirement with $500,000 in savings, and in the first year of retirement you withdraw $20,000 or 4% of your savings. And I’m also using a compound interest calculator here, and it assumes that whatever you withdraw is withdrawn right at the start of the year.
So the $20,000 is going to be withdrawn on January 1st of every year. I’m only noting that because it makes it a worst case scenario you were to say withdraw $20,000 over the course of an entire year but you did it in installments of $1,600 each month you would be able to earn interest on the rest of the money that you hadn’t yet withdrawn throughout the rest of the year and thus you’re ending net worth would end up being a little bit higher than it will be in this example. So on January 1st you withdraw $20,000, meaning you only have $480,000 left in your nest egg. But over the course of the year the market goes up by 6% which means the value of your portfolio at December 31st would be $508,800. Now in year two of retirement you increase your withdrawal by 2%. So on January 1st of the second year of your retirement you withdraw $20,400. That brings your portfolio value down from $508,800 to $488,400. But again the market goes up 6%, which by December 31st brings the total value of your portfolio up to $517,704. If you were to continue to calculate this out for 30 years you’re ending net worth would be $787,716.90, almost $300,000 dollars more than what you started with in retirement! But of course this is just a rule of thumb so there are situations where you’re going to want to avoid using this all together.
One of those situations would be if your portfolio consists of a lot more higher risk Investments then say your typical index funds and bonds that are usually in a retirement portfolio. This is because obviously a higher risk investment can go down a lot faster than your typical retirement portfolios, which can be extremely devastating especially early on in retirement. Also this rule of thumb only really works if you stick to it year in and year out. And if you’re not going to be able to do that then you don’t want to use this as your retirement goal, because even violating the rule for one year to splurge on a major purchase can have a severe effect on your retirement savings down the road because the principal from which the interest and dividends that you get to survive is compounded from gets reduced. Let me give you an example of how this works: Say that in addition to taking out the $20,000 your first year in retirement, you decide to treat yourself with a new car and figuring that you’ll be traveling a lot during retirement you want to get one that’s good, big, and comfortable as well as reliable.
So for this example let’s say you get a new Toyota 4Runner for about $35,000. Now I know that you could probably find it for cheaper used, but not everybody likes to buy cars used I know my dad didn’t and besides this is just an example. So you drop $35,000 on a new car and you still have to have money to live so the $20,000 still does come out of your retirement, meaning that you only have $445,000 leftover. Now admittedly the market still does go up about 6% leaving you with a nest egg of $471,700 at the end of the year.
And even if you were to stick to the 4% withdrawal rate for the rest of retirement which, would be 30 years in this example, by the 27th year you would be taking out more than you earned an interest and dividends as well as how much the market went up. And by the 30th year of retirement you would withdraw $35,516, but with interest, dividends, and Market appreciation your portfolio would have only gained $33,209 in value.
And that could put you in a pretty dangerous position should the market go down for a couple years, or if you have some kind of medical emergency. Now I don’t want to make it seem all bad, I mean unless you retired early, after 30 years in retirement you’re probably in your 90s and don’t need the money to last very much longer and even in this example you still do end with $586,000. It could be worse right? However I do want to bring your attention to the difference that this made. This one purchase made your ending net worth that you could have left as inheritance to your children or grandchildren or even donated to charity go from $787,000 all the way down to $586,000, that’s a difference of over $200,000. And all that’s with just one splurge. But that’ll about do it for me I hope you enjoyed the video and if you did or if you learned something be sure to like And subscribe I’ve got a lot more of these Finance coming out in the near future as well as some more book summaries and other fun stuff.
But with that being said, thanks for watching and have a great day. .
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I’m going to do a video on 5 simple things you can do to help your financial situation and I realized that I need to do a follow-up to the retired at 40 story video because there’s a huge need for financial education in this country and really everywhere it pertains to every single person doesn’t matter what your financial status is you can always use help and there’s always little tip tips and tricks that and things that you can do to better your status it always amazes me how scared people are to talk about their finances to put something on paper to basically take a look at where their money is going what’s getting saved and how everything is getting spent and I’ve met people time and time again that are highly educated very smart people but they know nothing about finances and they are terrible with money management so before we get into the 5 tips I want to strongly urge you to make a financial statement for yourself figure out where your money is going currently and figure out how much you’re saving and basically figure out where you can trim the fat for so many people a financial statement or just finances in general is like a bad word they’re just terrified of it but the only way that you’re gonna be able to improve your finances is to face the music alright so now that you’ve had a chance to go through your financial statement you definitely know where your money is going but how can we save more and what you really need to aim for is about 6 months of reserves especially if you’re getting ready to invest money into something or if you’re doing some kind of career change or some life-changing thing
and all of these five tips will more than likely be a line-item on your financial statement so let’s go to financial tip number one hey I’m going to have to call you back I’m shooting a video right now so this first thing is something that we’ve all become very very accustomed to in the last 10 to 15 years and that is a cell phone and people tend to spend absurd amounts on their cell phones whether it’s the bill or the cell phone itself mainly the cell phone itself so that’s my first financial tip is shop on eBay or Amazon for a cell phone that’s refurbished or used or one this may be just a couple years old I actually just purchased a cell phone on ebay because I’m having trouble with my current one and I got on to my cell phone providers website and the most expensive phone that’s like mine now is $1,200 that’s insane to me so I got on eBay I found one that’s similar to the one I have right now it’s new but it’s a couple years old and I got it for less than $200 another thing that you can do is ask for some kind of loyalty benefit from your cell phone provider cell phone providers are constantly trying to earn your business and if you’ve been with them for a long time and you can convince them to keep you around by offering you some kind of benefit they’ll jump on the chance just by going into my provider recently I have a cell phone bill that was about a hundred and ten dollars a month I told them that I’ve been with them for close to 15 years they knocked it down to sixty-seven dollars and I have unlimited everything now tip number two is what I call going to youtube University or getting a YouTube education
we live in the most amazing time ever right now there is information everywhere and it’s so easily accessible don’t ever stop educating yourself it’s so easy to find out how to do things these days you’re doing yourself a huge disservice if you don’t take advantage of that so how does that pertain to saving money well you can save money by doing tons and tons of things yourself instead of paying someone else to do it just look at the platform that you’re watching right now for instance you’re watching a video on how to do something so that how-to can be anything from changing brake pads on your car to changing the oil on your car to fixing a leaky faucet or the toilet flapper not working on your toilet all the way to how to the meal which brings me to my next point number three so food is a necessity in life but is it a necessity to go out to eat or go to Starbucks once or twice or every day the amount of money that people spend on food and going out to eat fast food Starbucks McDonald’s it really adds up quick and I don’t think that people realize how much money they’re actually spending on it because it’s just five or six or seven dollars here and there but if you add that up over the course of a month or a year or five years or ten years I think the result would be pretty staggering cook your meals at home pack your lunch for work make that fancy coffee at home it’s not that tough to do there’s so many great ideas and resources on YouTube and Pinterest and vlogs and blogs this channel included if you need a place to start scroll through my channel I have lots of cooking videos if you want to take that a step farther you can start growing your own food and if you don’t have a big green house like this you can grow a lot of food just in five gallon buckets even on a little deck if you don’t know where to get started see tip two number four is something that really hits home for me because me and my wife are both self-employed and we have been for 15 plus years so number four is insurance and although I don’t like insurance companies because I think they’re a giant scam it’s a necessary evil and you can also use that to your advantage you can put them against each other insurance companies much like cell phone companies are begging for your business and they’re constantly trying to outdo each other with with certain benefits or promotions so make them put their money where their mouth is and put them up against each other constantly and not just insurance companies you can do this with all kinds of different companies you should always be price checking these companies the ball is in your court make them earn your business
all right I’d saved the best for last tip number five is taking advantage of bank account and credit card bonuses and this tip is begging for a separate video all on its own because I could go on about this for a long time but if you’re not taking advantage of credit card bonuses for sign ups or credit card cash back or travel miles or if you sign up for a bank account a lot of them will give you a large sum just for putting your money with them now I want to be clear I’m not promoting just going out and spending a bunch of money on a credit card but more putting the things that you already spend money on into the credit card it’s money that you’re spending anyways put your mortgage on a credit card if you can insurance is a good one it’s not super expensive but at least we’ll get you a couple hundred bucks on your credit card unless of course it’s health insurance and then you’re talking in my case thousand to twelve hundred dollars a month here’s another good one groceries it’s something that you always have to have and depending on how much you go to the grocery store it could add up to three or four hundred bucks a month sometimes six hundred maybe even more no-brainer here put your gas on a credit card you can always put your utilities on your credit card too if your utility company will allow it next from tip one your cell phone bill now depending on how much some of these are and if you are allowed to actually put them on your credit card you’re talking some pretty major money that you can get a bonus from if you’re getting two percent cashback that really adds up not only that but you’re increasing your credit score while you’re doing that so as long as you’re financially responsible and you pay this every month you’re reaping a large benefit a lot of credit cards will give you a 2% cashback
they’ll give you a $500 signup bonus that’s free money in my opinion the free bank bonuses or even better than the credit card in my opinion because the bank account is something that you have to have anyway a lot of them will give you $500 for a small deposit as long as you put your direct deposit with them all the way up to I’ve seen $1,000 before and if you have a little bit more money to play with some of the online money market accounts like Capital One will pay you up to 2% or some even up to 2.5% just for keeping your money with them so some of these things may not seem like it’s saving you a ton of money but when you take up those extra fives and tens and occasional hundreds and you put them to work for you as opposed to something that you’re normally spending you’re not only saving the money because you’re not spending it but you’re putting it to work and doing something else with it and you’ll find that your your finances will start to collect very quickly so if you found the video helpful and you enjoyed the content take a second to give me a thumbs up it really helps out the channel and it helps the YouTube algorithm get this video out to people who actually need to see it also don’t forget to subscribe we do some gardening some frugal living
some food preservation and cooking some gardening and you get to join me and my family on our retirement at the age of 40 after you’ve clicked subscribe click the bell notification also and it will notify you every time a new video comes out and it’ll keep you in the loop of the community all right I appreciate you sticking with me through this whole video so I’m gonna give you an extra bonus tip with an extra 100 or 200 or 300 or more dollars per month that you’re saving with just cutting back on a few things you take that extra money and you pay down debt with it the faster you get out of debt the closer you’re going to become to financial freedom
and whenever you’re paying off debt always choose the smallest balance first because it gives you that extra little boost and if you can pay it off faster it gives you that extra bit of confidence to rock into the next one so once you’ve paid down your smallest debt move on to your next smallest debt take that money that you’re saving from the smallest debt that you’re not having to pay any more and add it to the money you’re saving from the 5 tips that I’m giving you and apply it to the next smallest debt and when that one’s paid off you roll it into the next one you roll that one into the next one and so on and so on in the meantime this is retired at 40 check out these other helpful videos if you have a minute remember to live a life simple and we’ll catch you next week oh hey I’m gonna have to call you back and shooting a video right now this is right my god get out of debt
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– Impossible is probably the
response most people will have when they see the
thumbnail for this video, but let me show you how, by taking action, you really can retire in
two years by investing in a certain type of property. (upbeat music) Hi, my name’s Tony Law from
Your First Four Houses, and I teach people how to build
a small property portfolio that generates a great income
for them so they can give up their day job if they
wish because they’re now financially free. So for 21 years, I ran a kitchen
business where I exchanged my time for money, but
in less than two years, I managed to replace that
kitchen income with a passive, or relatively passive, rental
income, and I want to show you how you can do exactly the same. So for this exercise, I’m not
gonna assume that you need 10,000 pounds a month to
retire and live comfortably. In fact, depending on
where you live in the U.K., the average household
incomes seems to be somewhere between 28 to 35,000 pounds
a year, although personally, I might struggle to live on
that if I’m being really honest, so let’s just round that
up to 42,000 pounds a year which quite conveniently
helps me with the maths because it means that’s 3,500
pounds a month that you need as a passive rental income. Now, for some that may seem
a little on the low side, but I think most people
could probably retire and live quite well on that
if they’re being really honest if you had no other bills to pay. So we now have a clear goal. We need to earn 3,500
pounds a month passively moving forward, so let’s
just break this down. How many rental units does
that actually equate to? Well, it obviously depends
on the type of deals that you’re doing and the
strategy that you’re following. In fact, to be honest, I’ve
got a property that by itself, one single property, after
all bills have been taken off, would cover that amount of
money, although for transparency, I’ve also got other properties
that only cashflow a couple of hundred pounds a month give or take, and it always surprises me,
there are people out there that have got properties
that simply don’t cashflow at all, I just don’t understand
that, but let’s just say, for the sake of this
exercise, that on average, my property portfolio cashflows
about 500 pounds a month after all bills, so if you
wanted to hit 3,500 pounds a month, how many properties do you need? Well it’s seven, isn’t
it, nice and simple. It’s seven at 500 pounds a
month, but can you acquire seven properties in two years? Yes, I know you can. Maybe in year number one
you might do two or three which will leave you maybe
four or five in year number two as your experience and
confidence grows, but I know that you can do it. Is it gonna be easy? No, you’re gonna have to
put in some massive effort to hit this target. You’re gonna have to
take a tonne of action, but I know that you can do
it, and if you want a list of 15 tasks that you can
do in the next seven days, check out this video because
I’ll run you through exactly what you need to do in
order to hit that target. You see, the thing about
property investing that is quite magical, quite amazing
actually, is that you need to work really, really
hard for a couple of years, and if you do, you can replace
your income in its entirety after just maybe a
couple of years of work, and if I can in some way
help you in your journey, well that would make me very happy. I recently updated my 50 point
checklist that will run you through all the tasks you need to take before buying that next
investment property. If you’d like a copy, simply
click on the link here or in the description box
below and I’ll send it straight out to you.
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