A few days ago a post appeared in my facebook feed in which a friend of mine was asking for investment advice. I was thinking, is he gone mad? How can a sane person can ask for investment advice to whoever sees his Facebook posts? This incidence inspired me to write this second part of my blog post.
In the last part we saw how a wrong frame of reference can land us into trouble, just like a faulty map (remember those instances when we are finding a place by using Google maps, and because of bad reception our location is shown at wrong point leading us to a wrong way.). We also learnt, how can we compare our expenses to our earnings, here also we are going to do the same thing, that is compare our earnings with our investments.
A simple reference point we can set is how much I earn in a particular time? That is if I am earning Rs. 1000 per 10 hour work day then I am earning Rs. 100 per hour. Then I can think like if I am investing Rs.1000 in one investment which will give me Rs.100 back every year for the rest of my life, then I will have to work 1 hour less every year.
Suppose after cutting for holidays, leaves, vacations etc., you work around 250 days a year, then you must be earning Rs.250,000 per year. Also imagine that you are saving 50% of this income, that is you are saving and investing Rs.125,000 which will give you Rs. 12,500 every year which is twelve and a half days of work.
If you reinvest this passive income from investment and 50% of your job income for 12 years at 10% return on investment, then your passive income for the 13 th year will be Rs.267,000, that is your passive income will exceed your salary. At the same time your investment amount will be Rs.2,673,000. What do you say about it?
Early retirement huh?? ;-) or
FIRE- Financial Independance Retire Early??
I know this calculation is pretty simple, I have not included the inflation rate in this calculation but your job income is also going to increase along with the inflation.
The whole point of this blog post is to provide a proper frame of reference. I am not providing any investment advice. You have to decide it for yourself, no-one else can know your financial condition better than you. And now a days there are pretty easy and cheap investment solutions out there. Making investments has never been so easy. You can make investments by just touching your smart phone screen a couple of times. If your head spins with a thought of how to research stock market, commodities like gold, silver, copper, crude oil, bonds, IPOs, debentures etc., there are mutual funds which can do just that for you, then there are low cost index fund etc.
You just have to stop making excuses, take the responsibility of your finances, think for yourself and start moving.
That's it for today folks.
Have a nice day...
Sumit,
The POWER is when,
You use ODDS,
To get EVEN.
The POWER is when,
You use ODDS,
To get EVEN.
