What is your F.I.R.E number?

 

Have you ever thought about retirement? How much money would you require to retire and lead the same lifestyle?  

What is your F.I.R.E number?

If you don’t know what F.I.R.E means, then you definitely need to get yourself updated.  

FINANCIALLY INDEPENDENT, RETIRE EARLY.  

This is a movement where you live below your means in your 20’s and 30’s and you have more money to invest for your retirement and other goals.  

FIRE number is simply the total number of assets you need to create to generate passive income. It may be stock dividends, bond interests, real estate rentals or any other form of income without you doing a 9 to 5 job!  

As the Guru of Investing, Mr. Warren Buffett once said, “If you don’t learn how to make money while you sleep, you will work till the day you die”. We can’t retire unless we have enough passive income to cover the ever growing expenses.  

Unfortunately, in India, we do not have any social security or government pension plans. The ones that exist cater to a very small audience.

So, how should I calculate my FIRE number?  

Simply take your total expenses (annually) and multiply it by 25.

 

WAIT…

before you run to your calculator to run this number there are some things to take into account.  I can bet most of you do not know your annual expenses. Some of you wise folks out there have done these calculations, but do we take into account the REAL and HIDDEN expenses?  

We usually forget to take into account expenses such as electricity bills, annual vacation, small vacations, taxation, insurance, buying the latest gadget, EMIs, Sneakers( YES, you sneakerhead), penny expenses etc.  

We need to take into account from buying cough syrup to an expensive car or vacation.  If you get your annual expense number wrong, then your FIRE number will be small (too easy to achieve) and your retirement may not be as comfortable as you think.  

Some of you may be wondering, Why 25?  

This is a reverse calculation knowing the withdrawal rate, which is expected to be 4%. The Trinity Study is the source of the 4% withdrawal rate. This rule states that if you only withdraw 4% of your initial portfolio every year, you can sustain your lifestyle for a very long period. And your withdrawal is adjusted for inflation every year.  

Why is this important?

I come across many people who have abnormally high expenses vis-à-vis their income and most of us do not realize that we are getting poorer and poorer by the day; funnily even the kids of rich folks don’t realize this.

If we continue to remain over invested in low yielding assets such as fixed deposits, gold, real estate and remain under invested in high yielding assets such as equities, we will never be able to retire. Forget retiring soon!  

This is an opportunity we have at hand and we must be wise with our decisions.

In my previous blogs, I have mentioned why I favor equity investments over other available investments.

Points to remember:-
1. I am not asking you to start living below your means and start compromising with your life, I just mean being wise and accountable. Remember this quote by Warren Buffett before every purchase, “If you buy things you don’t need soon you will have to spend things you need”
2. Track & document your expenses. The best way to track is to spend only one account. Do this exercise for a minimum of one year.
3. I am not against your investment in real estate, gold or fixed deposits- they are just low yielding asset classes for the ordinary man. 

 
Happy Investing!

How Rs.20,000/- a month can Make You a Dollar Millionaire!

SIMPLEST & REALISTIC WAY TO MAKE Rs.10 CRORE BY INVESTING.

 

POWER OF COMPOUNDING

 

     You will come across the definition of Compounding on many platforms and many people will know the meaning of it, but only a select few actually practice it in real life.Those select few are usually wealthy people and frugal people.

Many people ask me ‘when is the right time to invest?’ I always say invest today.
The reason to my answer is that timing the market to gain returns on your capital is impossible and time spent in the market is more important than timing the market. If you think you can get rich by investing a few thousand in a ‘TIP’, then god help you. If you think you can get rich fast, then you are wrong.

Having realistic expectations is important. In India, people want to become rich quickly. Let me tell you- Investing in the stock market may be the slowest way of creating wealth, but certainly is the BEST way of growing your wealth.

Founder of Zerodha, Mr. Nithin Kamath recently said that ’99% of the traders don’t make even a bank fixed deposit return in three years in the stock market’. If you apply a little common sense, then you have to only follow the 1% who is not losing their money.
Investing in Fixed deposits, Gold or real estate isn’t going to make you rich or wealthy. These instruments will only increase in value based on the inflation and sometimes demand and supply.

The stock market is known as the capital market, where you get your capital and you’ll get suitable returns over the long term. I am sharing my insight, but you need to have courage to buy, patience to hold.  All you have to do is, invest in a low cost index fund (nifty 50) and hold it for the long term.

An index fund (NIFTY 50) is like a mutual fund which invests in the top 50 companies of India. The fund exploits the idea of compounding by reinvesting the profits earned in the underlying stocks and holding the stocks for a long duration. Like any other mutual fund, the fund enjoys the status of a trust, which makes it tax efficient and investors pay tax only upon selling their investments. Over the long term, the deferment of the tax also helps you compound your money at a faster pace.  
Over the past 20 years,the Nifty index fund has given average returns of 14-15% CAGR.

The rule of 72- The Rule of 72 is a calculation that estimates the number of years it takes to double your money at a specified rate of return.  

For a nifty index fund, number of years to double your money =72/15= 4.8 years
This means that at an average of 5 years, nifty will double and so will your
investment.

 You can use this formula and calculate the number of years to achieve your goal.  
Now, after knowing this, let's apply to make Rs.10 CRORE.  

 Let us say you are 25 years of age. You need to invest Rs.10 lacs in a low-cost index fund and allow the magic of compounding to work.
 For age 30, you need to invest a higher amount of Rs.18 lacs in the same fund to get similar returns.
 
This shows the earlier you start, the easier it is to achieve your goal and with less capital.
 
            

      There are two things to remember: 

1.    Markets don’t go up in a straight line- they are volatile and returns may not be linear, but you have to be patient. You have to be focused on the time spent in the market and ignore the noise.
2.    If you showcase the courage to BUY, you must display the patience to HOLD, only then will you be a successful investor.