Tag: how to retire early
How to ‘actually’ plan retirement ft. Pattu @PersonalFinanceCalculators | CRED Jagruk Talks S2E5
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
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]
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How to ‘actually’ plan retirement ft. Pattu @PersonalFinanceCalculators | CRED Jagruk Talks S2E5
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
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]
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Retire Rich: 2023 Ultimate Planning Guide (Step-by-Step)
Jason 0 Comments Career after Retirement Retire Wealthy
– What's going on you guys. Welcome back to the channel. So in this video today, we're gonna be going over a ultimate guide to retirement planning in 2021. You already know I got my seltzer here. I gonna go ahead and
crack this bad boy open. And we're gonna get this
video started shortly. So at the end of the day, most
people do not want to spend the rest of their life working. And since your expenses don't
just magically disappear, when you turn 60 or 65 or
whatever that retirement age is you have to do things in order
to plan for your retirement. And so in this video, I'm
gonna go through exactly what you need to know to
start off this process of planning for retirement. This is going to include a
number of different topics. We're gonna talk about, how to tell when you can retire based on your level of income. We're gonna cover three primary ways that people derive
income during retirement, when to start saving for retirement, which is as soon as possible obviously, where to save for retirement? And we're also going to cover, how to make your retirement money last? Now real quick here, guys I just want to say thank
you to today's video sponsor which is T-Mobile.
We're gonna talk about
that more later on guys but I just wanna mention
here that T-Mobile offers their Essentials Unlimited 55 and up plan which is going to be
offering unlimited talk, text and data on two lines
at just $27.50 per line. It is a great option for people who are approaching retirement
age, who are looking to minimize those monthly recurring expenses. Compared to Verizon and AT&T
you can often save around 50% with T-Mobile. Not to mention guys, T-Mobile is the only wireless
company that offers a discount on the 55 and up plans regardless of what state you live in. Other companies like Verizon and AT&T only offer those discounted
plans in Florida. So you may wanna check that out. In addition, if you're thinking
about upgrading your phone and getting the latest 5G technology, 5G is included at no
extra cost with this plan. But more on that later. Now I'm definitely not looking
to waste your time here with this video guys. So I wanna go ahead and
identify who this video is for.
Well, mainly this video is geared towards people who are
approaching retirement age. You're probably not ready to retire but it's something that's on the horizon in the next 5 to 10 years. And you're wondering what things should you be aware of right now, and how can you get your ducks in a row for when you do approach
that retirement age. This video is also helpful
for those who are just looking to prepare for
retirement early on.
Even if you're in your
20s like me or your 30s, there's things you can start doing today that are gonna be relatively painless. And trust me, you're gonna
thank yourself later, when you have a lot of money set aside for your golden years. Now, many hours of research
did go into this video. So I just have three small
favors to ask you here, guys. First of all, if you are sitting there and watching this on your computer, go ahead and put your phone on silence and put it away for a little bit, because you wanna focus
all of your attention on this video, and not be distracted with all those social media apps, you can go back to those shortly. Also guys, make sure you pause the video and grab a pen and paper.
And if you need one, go ahead
and grab a beverage as well. We are gonna be here for a little bit but I promise to you that I'm gonna answer probably
every question you have about retirement planning in this video. So you're not gonna have to jump to like 10 different videos to get all
of your questions answered. Lastly guys, if you enjoy this video just go ahead and drop a like, it shows me that this
information was helpful and I'm not asking you
to like the video now but at some point, if you're
watching it and you say, "Hey, this was pretty helpful." That little thumbs up button
certainly does help out. Lastly, a few quick disclaimers
I have to make here.
I am not a financial advisor. This is not financial advice. You need to do your own research before investing in anything out there. Don't do what some guy on the
internet just tells you to do. I'm not here to sell you any products. I'm not selling any courses
or anything like that. And lastly, I have been
getting a lot of scam comments down below where people
are impersonating me. They're trying to get
people to send money. That is not me. I wanna put up two comments
on the screen here. This is a comment that's from me. And you can see the check mark and the different way that it looks versus this scam comment that
doesn't have those things. So if you're communicating with
someone down in the comments and it's me, make sure I
have that check mark in place otherwise you better
bet that is a scammer, and they're trying to take your money.
Hopefully YouTube does a
better job at policing this but for the time being, it
is utterly out of control. And I don't really know what else to do other than make this disclaimer
in every single video. That being said, guys,
let's get right into it and start off with when can you retire? And to be honest with you guys,
it's a pretty simple answer but the way of figuring this out is a little bit more complicated and we're going to cover that later.
But the truth is when
you're able to retire is when you no longer need
to rely on active income to pay for your expenses. So most people out there have a mortgage, they have car payments, they have different monthly expenses. And so in order to retire, you have to make sure that all
of those expenses added up, and even those unforeseen
expenses that you can plan for. Well, your level of income derived from your different investments needs to be enough to
cover those expenses. Otherwise you may have to go out there and get a different job to supplement your retirement income. And so for most people that may not be the ideal retirement scenario. So short answer here, guys, you can retire when your passive investment
income exceeds your expenses, but the longer answer is there's a calculation we're
gonna use to figure this out, that we'll discuss later in the video.
So next up, what are your different
options for retirement income? Well, this pretty much comes down to anything out there that
can make you money, but there's pretty much three main areas where people derive retirement income. The first one is your personal savings and your personal investments. So maybe you're somebody
who's worked a job for your entire life and you've been slowly
contributing to that 401(k). And then maybe you also
have some IRA accounts. Maybe you have a Roth
IRA or a traditional IRA.
And then beyond that, you might have a nest
egg with your savings. Maybe you have the taxable
brokerage account as well. And the goal is for
eventually all these things to be able to provide income for you to not have to work in
order to pay for your bills. Now, the second area
where people derive income for retirement is social security. However, we've certainly
heard a lot about this in recent years, and I don't
think it's such a safe thing especially for young people
to be reliant on that in the future because
social security is kind of in shambles right now
where we don't know how long it's going to last. However, if you are
approaching retirement age, that may be something you can count on for the time being is deriving income from social security. However, social security
alone, 90% of the time is not going to be enough
money to pay for your expenses unless you're living in like the smallest apartment in your entire city and you pinch every penny. And at least for me that's not my idea of a good retirement.
And just a couple of statistics I wanna share with you guys
here about social security, 40% of those who are 60
and above are 100% reliant on social security as a means of income. And so, like we said, here,
there's three different ways people typically derive income, but most people are just fully
reliant on social security which is something to be worried about. And if you're a younger
person watching this video, you don't want to put
yourself in that situation. Another surprising statistic here is that the social security trust fund based on the current rates is likely going to run out around 2035.
Now, are they gonna let
it run out entirely? Probably not. What they're gonna do is probably decrease payouts over time, which means that those who are reliant on that as income are gonna start making less and less money if they have to decrease those payouts. So that is why you really
don't wanna be in the situation where your reliant on this
social security income as a means to sustain yourself. And then lastly, the third source of retirement income for most people that's becoming less and less common is something called a pension.
Now pensions vary from company to company. In the past, it was
typically a percentage of your highest earning year
basically paid to you in perpetuity until you are passed away. But what they found is that these things are not very
profitable for companies. And it's very rare to
find any companies today that still offer this pension. But if you're an older
person watching this nearing retirement age, you may still have a pension plan to derive income during retirement.
So your best case scenario
here for retirement is that you're deriving income from these three different sources. Number one, personal savings
and personal investments. Number two, social security,
number three, your pension. That's like the perfect
scenario for retirement. However, unfortunately
only about 6.8% of people over age 60 are deriving retirement income from all three of those sources. So the vast majority of people
probably don't have pensions and some unfortunately don't
have any personal savings or personal investments. So that's the big picture right now. And that's why it's very
important to have your ducks in a row and start thinking
about this early on and planning that way. You can try to have a a
three-legged stool here where you're able to derive
income from multiple sources.
You don't want to be fully reliant on social security or fully
reliant on pension income or personal investments, personal savings. You wanna have different
things that are able to generate income for you
that way you're diversified. Because basically people
who are deriving income from one source are balancing
on a one-legged stool. It's not very stable. You wanna have multiple legs
to that stool, ideally three. And of course in that personal investments and personal savings
category, there's a lot of different things that
fit under this category. For most people, it's stocks and bonds but a lot of people also invest in things like real
estate or precious metals. And there's a lot of people who literally will
just put all their money in real estate, build up, you know a portfolio of 30 or 40 units. And then they live off of
that rental income cashflow. So there's many different
ways to skin a cat here, guys but just understand that
your goal here should be to derive money from
multiple different sources and have three legs to that stool. So next up here, guys, let's
answer the question of, when should you start
saving for retirement? Well, short answer as
soon as humanly possible.
Now, what I mean by this is when you're younger and
your expenses are lower. Let's say you're in
your 20s and early 30s. Maybe you don't have kids yet. Maybe you're still
living with your parents. This is your prime opportunity
to put as much money as you can into your 401(k), maxing out Roth IRA contributions, and basically holding onto
as much money as you can and putting it in
something that grows value. Because the main factor in how much money you have in retirement isn't based on how much
money that you invest.
It's how much time you
allow that money to grow. So even if you're in your
20s or 30s watching this, and you're thinking, "I don't really have a ton that I could set aside right now." It doesn't matter how much you put aside, the main factor is the amount of time that you allow that money to grow. So just for an example here, guys if you're looking to have $1
million in your retirement let's say your 401(k) for example you could invest just $300 per
month, over a 40 year period earning the average return
from the stock market. Or if you wanted to do it in 20 years, you would have to invest $1,750 per month. That's almost six times
more money to get you to the same result. So you can either invest
a smaller amount of money for a much longer time or you're going to have
to invest a lot of money for a shorter window of time. So the sooner you start,
the better off you are. And I highly encourage you to check out a compound interest calculator and play around with some of those numbers if you are a young person
watching this video.
If you're already close to retirement age and you didn't do these
things, don't worry. I still have more options for you that we're going
to discuss in a little bit. And again, it's important
to understand that truly it's never too late to start saving and investing for retirement. So even if you are in your
50 and you have no assets, you should still do something. You know, doing something is
better than doing nothing. It's gonna be a lot harder because you don't have that much
time to let your money grow, but it's never too late.
It's just important to
understand the sooner you start the better off you are. So now, let's talk about where you should be saving
money for retirement. And there's a pretty simple
process to follow here that most financial experts agree on and I'm going to teach
it to you right now. So the very first thing you should do before investing your
money in the stock market and opening up different
investment accounts is to set up an emergency fund. And this is just simply a liquid account. It sits there in a online savings account or a savings account at your bank or maybe a certificate of deposit. And so what you want
here is a rainy day fund. So what most experts
recommend is setting aside three to six months of
all of your expenses. So what you wanna do is sit
down on a piece of paper write down every one of your expenses, your car payment, your mortgage,
groceries, utility bills and come up with that figure. Let's say for most people maybe it's $3,000 per month
is their monthly expenses.
Well, I would encourage you to save up six times that expense
in a liquid emergency fund. So your very first step is to have let's say anywhere from
10,000 to $20,000 parked in a savings account
where it just sits there in case of emergency. And then you're not going
to invest that money. You just leave it sitting there. And if you end up taking
money out for an emergency like a car repair or a medical expense, you replenish that fund and
you keep that amount there. And of course, if your monthly expenses
are going up over time, you're going to want to
adjust your emergency fund accordingly to make sure you
keep enough money in there. So that's your very first
step is, begin saving up money for an emergency fund and
aim have three to six months of expenses sitting in a liquid account. The very next thing you should do after you have your emergency fund in place is to take advantage of any employer match with the 401(k).
So if you're not familiar, the 401(k) is an employer
sponsored retirement plan which allows you to take money pre-tax and put it away for retirement. And it also gives you
a pretty nice write-off on your tax return, which is
something else to consider. Now, I don't recommend
putting all of your money into the 401(k) because
it's hard to access it and you'd have to pay taxes and penalties to get that money out. However, if your employer
is offering a company match, you should maximize whatever
they're offering you because that's literally free money. So back before I was a
full-time YouTuber guys, I used to work for a utility company and they didn't have a
pension or anything like that, but they did have a employer match. So every dollar I would put in, they would match me with an
additional 50 cents up to 6%. So what I would do is I put 6% of my paycheck into my 401(k)
and then they matched me 50%. So I got another 3% for free. So, effectively 9% of my total pay was going into my 401(k) every
single week automatically.
So after you have your
emergency fund established, or at least started. You don't have to have
all that money there before you move to step two. You just want to kind of start that and begin putting a little bit over there every single week to build up that fund. The next thing is to take advantage of those employer 401(k) matches. After that, if you have any
high-interest debt, you know like personal loans, credit
card debt, things like that. You wanna pay that debt off next, because the average
return you're gonna see from the stock market is somewhere
around 8 to 10% per year. And so if you have high-interest debt, like let's say you have a
credit card with 25% interest, the most wise move you can
make financially is to pay off that debt because you're
paying way more in interest than you're gonna earn as a return. If you had $1000 invested and you're gonna make 10% in one year, you're going to make $100.
If you have a $1000 on a credit card at 25% interest over
the course of one year you'd pay like 250 in interest. So even though you could invest
that $1,000 and make $100 you're still paying 250 in interest. So overall it's a net loss. So if you have high-interest debt, you got to get that paid down first before you begin investing in other stuff, just because that's your
wisest move financially. So after you have your
emergency fund in place and after you maximize your employer match and then you pay off your
high-interest debt, if applicable the next thing to consider is an IRA.
And in particular, I like the Roth IRA. Assuming you're able to contribute to this based on your level of income. Now I'm not gonna get into
a whole thing here guys on Roth IRA versus traditional IRA. I could probably spend 30 minutes on an entire video talking about that. So for now, we're just gonna
cover some very basic stuff about the Roth IRA. With your 401(k) as mentioned, you're contributing pre-tax income and you get the write-off. However, down the line when
you draw out of that account that is when you pay taxes. With the Roth IRA, you're actually contributing
post tax income. So you've already paid taxes on it, meaning you don't get any write-off. However, if you follow
the rules and you know you start drawing from
that by a certain age you don't actually have to pay taxes on the growth of your money.
So it's a very powerful account and it allows you to grow
your wealth tax free. The other advantage of the Roth IRA is you can pull out your
contributions at any time. So if you were putting a $2,000
per year of contributions into that Roth IRA, every single year, you can pull out those
contributions at any time, tax free, penalty free. You just can't touch the earnings or the growth of your money. So let's say you're putting
money into a Roth IRA. And then 10 years later, you decide that you want to invest in a
business or something. You can pull that money out
and pull your contributions out and not have to worry
about penalties and taxes.
So I liked the Roth because it's flexible, you can choose where you put that money. You can put it in stocks,
bonds, precious metals there's all kinds of different Roth IRAs. And you have access to that money where you can take out your contributions, if you do need to access it. So now assuming that you have
the emergency fund in place, you're maxing out your 401(k), you've paid off high-interest debt, you've maxed out Roth IRA
contributions for the year. After that, that's when
I would put that money into a taxable brokerage account where you're able to invest that money, you're able to touch it
you're able to access it.
The only thing is you pay
taxes on your dividends and taxes on those capital gains. But for the most part, that is the generally agreed upon plan for where you should save
money for retirement, is in these different things
that you have control of. And this is all within that category of your personal savings
and personal investments. As far as your pension goes that's all based on your employer, most of them are not
offering any pensions today. However, if they offer it and it's something you
have to contribute towards, if you expect to stay with
that employer for a long time and make a career out of it,
that is definitely a wise move.
And then you automatically pay into social security if
you are a W2 employee. So that's not really something
you have any choice over. So now let's go ahead
and cover how much money that you're going to
need in order to retire. Well, it's kind of a moving target and it's going to change
based on your lifestyle. I mean, are you looking to live in a one bedroom apartment and
drive a ten-year-old vehicle and you know, eat canned
beans for a living? Or do you want to retire
on a beach in Miami? So it all depends based on your lifestyle.
But there is again, another
generally accepted calculation that financial experts use, to calculate necessary retirement income. And it's something called the 4% rule that I'm gonna teach you right now. Also guys, just a quick reminder, I know I mentioned this earlier, but if you have found any
value in this video so far, a like would certainly be appreciated. It helps this video to be
shared with more people. And if you have any thoughts or questions leave me a comment down below. But anyways let's talk
about this 4% rule now.
Now, as far as the math behind this goes, I'm not going to get into it. If you wanna watch,
there's plenty of videos about the 4% rule that we'll
go into a lot more detail but essentially it's a
very simple calculation. What you're going to do,
is you're going to multiply your desired retirement income by 25. So let's say for example you wanna have $40,000 per
year of income in retirement. If that's how much money you want, you want to multiply that by 25. And that will tell you a rough idea of how much money you should have in your savings and your investments in your personal investment
and savings accounts. So for example, if you
wanted $40,000 per year, you would multiply that by 25 and you would come to the conclusion that you're going to want
to have $1 million saved and invested in these different accounts in order to sustainably derive $40,000 per year from that account
without running out of money.
Now, if you wanna be a
little bit more conservative, there is the 3% rule which
is going to be a multiple of around 33, but anywhere
between 25 to 33 times, your desired annual retirement income is how much money you
should have set aside saved and invested for retirement. So obviously guys, the main thing here is the
less money that you need per month based on your lifestyle, the less money you need saved and invested and the sooner you can retire. That's where that whole
FIRE movement comes from or Financially Independent Retire Early, that's people who live off of
as little money as possible. They save as much as possible and they aim to be retired in their 30s. And they're able to accomplish that by living off of as
little money as possible. I did a whole video on this
called how to retire by 30. If you guys wanna check it out at the end I will include a link down below. So now what I want to
cover here is what to do, if you're somebody who
doesn't have 25 to 33 times their desired annual income in a savings or retirement account.
Maybe you're already in
your 50s or early 60s. And you're saying, "What am I gonna do? I don't have money that's just going to fall out of thin air to put in this account,
what options do I have?" Well, let's cover those right now. The main things that you can do are surrounded by things
that you can control. And the main thing you can
control is how much money you're actually spending
during your retirement. So essentially you have two options.
You can try to make more money or you can try to spend less money. Now I'm more of a fan of
the offensive approach here which is figuring out
how to make more money. And so let's talk about that now. The first thing you could
do is figure out some kind of side hustle that you wanna
start maybe in retirement or maybe you wanna do this
before retirement and save up extra money and take all
that money and invest it. I've done a lot of videos
about side hustles. We're not going to get into them here but just understand that
this right here, this laptop this provides a lot of
opportunities to make money.
And it's certainly not rocket science, and I know a lot of people who in their later years have started
YouTube channels and blogs and these different things that allow them to make extra money on the side. So the first thing you wanna consider is, "Hey, let me look into
starting a side hustle." Second of all, pretty simple, spend less money now, pre-retirement. That way you can save
more money to invest. So if you're in your 40s
or 50s, and let's say for example, you're driving
a brand new luxury car and you're watching this
video and you're realizing, "Oh crap, I'm not
preparing for retirement." Maybe you make some
small sacrifices today, that allow you to save
and invest more money. So maybe you trade that car in and you get an economy vehicle and you take that difference
in your monthly payment, and you put that into your
Roth or your 401(k) instead. Another option, pretty simple, spend less money in retirement. We're gonna cover that
more in a little bit. I'm gonna give you guys some
tips on how you can do that.
And then lastly, option number four not the best one, which
is delaying retirement. Maybe you wanna push it
until age 70, age 75, which will allow you
to stay working longer. It will allow you to contribute money towards retirement accounts
and investment accounts longer and allow that money to
have more time to grow before you have to start drawing. So now what I wanna cover
here is a rough idea of how long your retirement
money is going to last. And I don't wanna sound morbid here guys but the truth is, you want
your retirement money to last until you pass away. And then you also wanna make
sure you have enough money sitting there to cover medical bills, funeral costs, and things like that because most people just
don't wanna be a burden on their family when they pass away.
Where they're out of
assets, they're in debt and then their family
has to scrape together 10 or 20 grand for a funeral. So it's not something that
we like to think about or really talk about but it is something that's important to prepare for. And so your goal here should
be to have enough money that you can have your money outlive you and cover some of those costs and maybe have a little
bit of money to pass on to your family as well,
maybe towards, you know college expenses or things like that. But anyway, let me give you
a couple of pointers here on, how long that money will last in a couple of different
factors to consider. Well, first of all how
long your money will last is going to largely depend
on your investments. Some of them are lower risk and some of them are higher risk. And so if you're investing
in higher risk assets, they may be more volatile but you may also see greater returns. On the other hand, if
you're super conservative and let's say you only put your money in fixed income assets, you may find that you're not taking on enough
risk, and you could find that your money doesn't last
as long as you need it to.
So, one of the main things
you have to understand with retirement is that asset mix. And for most people, it's a
split between stocks and bonds. And so that's the main
thing you wanna focus on is that allocation. If you'll have too much money in stocks and not enough in bonds, you might be taking on too much risk and your portfolio could be very volatile, going up and down in value all
the time, stressing you out. If you're too low-risk you might not be growing
your money fast enough and it might run out too soon. So figuring out that asset
mix is very important. Now as far as that number goes, there's a couple of different
rules of thumb out there, but one that most people agree upon is the 110 or the 120 rule. And it's based on your life expectancy. So, I actually am a fan of the 120 rule, which basically means
you take your current age and subtract it from 120. And that tells you how
much money you should have in stocks and the rest should be in bonds.
So for example, I am 25 years old, I would take 120 minus 25,
and that leaves me with 95. That tells me that 95% of my money should be in stocks and
only 5% should be in bonds. Whereas if we take a 70
year old, for example we would take 120 minus 70,
and that leaves us with 50. And that tells us that
50% should be in stocks, 50% should be in bonds. Now, of course, guys that
is a very basic example and it doesn't take into account your unique personal situation. So for exact numbers I
would actually recommend speaking with a financial
advisor and you don't necessarily have to have them manage your money, you can pay them for a
one-time consultation where you're basically saying,
"Hey I want you to tell me what my allocation should be, and help me understand how
that changes over time." But by far that's one of
the most important factors to consider is your asset
mix or asset allocation? Now in general guys, that 4%
rule that we discussed earlier has been pretty successful,
and most people have found that it lasts them around 30 years, which is a pretty long retirement.
That's about how long most
people expect to be around once they retire. However, the success of that
4% rule is largely dependent on that asset allocation we discussed. Because if you're not
taking on enough risk, and you're only earning
a very small return, you're going to dwindle
that money a lot sooner. Another important factor
to consider is taxation. And this varies based on the types of accounts that you have. As mentioned earlier, the Roth IRA is an account
where you put your money in and you pay taxes on the way in. But when you draw from that account you don't pay any taxes. Whereas with the 401(k)
it's tax-free going in but when you come out, you're
actually going to pay taxes.
So this tax situation
is largely dependent on your own investment accounts. Maybe one person has all
of their money in a Roth and somebody else has all
of their money in a 401(k). Those are vastly different tax situations. And this is a scenario again
where a financial advisor can look at this for you, and help you with some tax planning. And you can understand what
are the tax implications associated with your
different investments. So now that you have a
general idea of the factors that will tell you how
long your money will last, let's talk about some different ways to make your retirement money last longer. So the first thing you can do to make your money last longer, which is getting more and more popular is something called downsizing. So most people end up having a home where they raise their kids. And let's say that you're still
together with your spouse. You may now be in this situation where you have this three or four bedroom house, you're paying to heat all those bedrooms.
And you're maintaining this big house, when you're only utilizing
like 25% of that space. Even if your mortgage is paid off, you're still paying for
utilities and landscaping and things that on a much
larger property than you need. So you could downsize into an apartment or downsize into a smaller house. That's becoming more and more popular with the goal of reducing
your fixed monthly expenses. Another option, going back
to the side hustle idea, maybe you Airbnb, a part of your home or you do one of your bedrooms
or something like that, to figure out how to generate
income from that unused space.
But downsizing is a very popular option. Another one is reducing
your fixed expenses like your car payment, as
well as things like your utility payment and things
like your phone bill. So this is where I wanna
talk more about our sponsor for today's video, which is T-Mobile, because they have specific wireless plans designed for people in
retirement to save you money on those fixed monthly costs. So, 55 and up customers who live anywhere in the United States, not just Florida are able to get two lines
of unlimited talk, text and data on T-Mobile's network,
starting at under $30 each.
Which if you have an existing phone plan you have a general idea
of what you're paying, and I can tell you guys right now I'm paying a heck of a lot
more than $30 per line. Now you might be wondering if you're getting some really
cheap plan in the process and the answer is no. In fact, it comes with a lot
of different bells and whistles and extra perks. For example, it comes with the industry's best scam protection, unlimited
3G mobile hotspot data, international texting, no
annual service contracts, your very own dedicated
customer service team, as well as additional
free items here and there and discounts every single
week through T-Mobile Tuesdays. So oftentimes if you
switch from a carrier like, AT&T or Verizon, over to
T-Mobile with this plan, you could save upwards of
50% every single month. And while it may not sound
like a lot of money upfront when you factor in that cost
over the next 20 or 30 years, these little things you
can do to save money on those monthly expenses
really are going to add up. So if you are interested
in those 55 plus plans through T-Mobile, switching
carriers is very easy.
If you're ready to make the switch, you just have to stop
into a T-Mobile store, or you can call 1800 T-Mobile or visit T-mobile.com/55, and I'll go ahead and
include links to all of that as well as the phone number down below, if you guys wanna go
ahead and take advantage of those discounted plans. Now another thing you can do
to make your retirement money last longer is falling
into that category of delaying your retirement. You can also delay taking social security, and this can lead to you having
a larger monthly benefit. So for every year that you wait, you're going to get an
additional 8% in social security, every single month. And if you wait until age 70
to start taking social security you can get up to 24%
more every single month. So if you can delay retirement, and delay taking your
social security benefit, that can result in
additional monthly income. Another great strategy is exactly what we're talking about here, which is having a retirement spending plan before you stop working.
So you do things in advance
to get your ducks in a row. You cut down on recurring monthly expenses like your phone bill,
maybe you take advantage of something like
T-Mobile's 55 and up plans. Maybe you downsize, or you
decide to Airbnb a spare room as us as a side hustle. You just start planning early on before you hit retirement
age, and then you think, "Okay, I haven't planned for this at all. Let's get something going." You're better off to plan in the beginning and get your ducks in the row early. Another suggestion that I have is utilizing credit card reward
points, because a lot of people in their later years want
to travel during retirement. We're in a unique situation right now with the global pandemic,
but once it's safe to travel, that's a popular thing
in your retirement age is seeing the world.
Well, if you're able to
effectively use credit cards and get free points for
travel or free miles, that's another way to get
more bang for your buck. And as long as you're not paying interest on those credit cards and you're paying them
off every single month, I would highly recommend utilizing
credit card reward points and bonuses for travel. Lastly, one of the
things that you can do is make investments in your health to make sure that you're
not having a lot of medical stuff coming up in retirement.
Hopefully you have some
plan for health insurance. So let's say now that worst case scenario, you're somebody who is
in retirement right now and you're slowly realizing that you're going to run out of money. You don't have enough for that 4% rule and maybe you only have
one leg to your stool, which is social security. What options do you have available to you, if you know, you're going to fall short? First of all, as covered
earlier, you can reduce expenses or pick up a part-time job or side hustle.
A lot of people in
retirement end up working 10 or 15 hours per week on the side. Number one for something to do, and number two, just to
have extra spending money. Another option is to tap
into the value of your home with a home equity line of
credit or a reverse mortgage. That's pretty complicated, not gonna get into that
too much in this video, but if you want to hear more about that leave me a comment down below, and maybe I'll do a whole video talking about the reverse mortgage. Another option that you may explore is, if you have a life insurance policy, you may be able to tap into the value of your life insurance policy and get something called the cash value, if you draw on that early. Again, complicated subject
maybe a topic for another video but if you have a life insurance policy, you should sit down
with a financial planner or financial advisor and ask
them about those options.
And one thing I want to mention here is, if you're somebody who's in retirement and you know that your
money supplies dwindling, don't ignore this problem. There are things that you can do. The longer you wait the
worst it's going to be. So I would start addressing
these issues now. So just to wrap up here guys, one of the main things
that I want to recommend as a call to action is it
may be worthwhile to sit down with a fee only certified
financial planner.
It's gonna cost you a couple
of $100 out of pocket, but they're going to be
able to help you answer a lot of questions you may have, such as asset mix, asset allocation. There'll be able to look at your different retirement accounts
and help you understand the tax implications,
because on the surface retirement planning is pretty simple. It comes down to your
expenses, your income, your lifestyle needs, and basically what you're looking to get
out of your retirement. But when you look into
the individual details that each person has with
their different accounts, that's where it becomes more personalized and more complicated. So I think you're going
to get a lot of value out of a fee only
certified financial planner that you pay an hourly rate to, that way you can get unique information about your personal financial situation. At the end of the day here guys, if you fail to plan, you're
essentially planning to fail.
And I want to discourage
you from doing that. This isn't the most exciting topic and it's certainly not on
the top of my to-do list but retirement planning is very important. So I encourage you to take
action on this advice today. I thank you so much for
watching this video. I hope you've got a
lot of value out of it.
Let me know down in the
comment section below what your thoughts are on this. And if you made it to the
very end, let me know too because I'm always curious
how many people stick around for full videos. Lastly, one last, thank
you here to T-Mobile for sponsoring this video. I have a link down below, if you wanna check out
T-Mobile's essentials, 55 and up plan, which is a great option to minimize your monthly recurring
expenses in retirement, to make sure that money lasts longer. If this is your first time
seeing me make sure you subscribe and hit that bell for
future notifications, and on that I hope to see
you in the next video.
Our $3.7 Million Fat FIRE Strategy | New Investment Strategy to Retire Early by 45
Jason 0 Comments Career after Retirement Retire Wealthy
In september 2021, i published a video about our fat fire strategy in the amount of 2 8 million dollars and that video is still by far the best performing video, and it was like the 15th video i’ve ever made for this channel with less than 150 subscribers, our fat fire strategy, became the core of my youtube channel here at fireside chat and that video had a complete breakdown of our fire expenses like housing, health care and discretionary like travel, entertainment and fine dining. A lot has changed since that video was published in september 2021. We’re seeing a high inflation rate, like we’ve, never seen before, unless you’re a baby boomer who experienced high inflation in the 70s, the stock market, like the s p 500. Dow and nasdaq is down 20 25 or even 30 since the beginning of 2022. I also had a significant life event and i recently got married to my beautiful wife, whom i dated for over four years, and we’re still fine tuning our fat fire strategy to make sure that we can retire early together for uh by age 45. After doing several fat fire calculations based on our income, expenses, inflation and investment, we’re going to have to change our fat fire number from 2 8 million dollars to about 3 7 million dollars, and this is the most conservative conservative fat fire number. We came up with and we would also like to live in several locations and not just stay in one place during our retirement, which will increase our baseline expenses. If you’re brand new to my channel, my name is sai and welcome. So in this video. I’m gon na go over how we’re investing to achieve fat fire of 3 7 million dollars and how we’re, prioritizing our savings and investment based on our future expenses, so we can retire early from the 95 workforce. This is a juicy video and i hope you get a lot out of it. Also don’t forget to check out my grammarly affiliate link in the description below so the first thing we had to figure out was our fat fire number. Now we have several fire strategies like lean fire, which is for people who want to live a minimalistic lifestyle coast fire, which is for people who want to coast into normal retirement and barista fire, which is for people who want to take a part time job to Pay for health care expenses, while using their nest, eggs to pay for their retirement lifestyle, be sure to check out those videos, and i will put those links in the description below but fat. Fire is the lifestyle we want where we can truly enjoy our lives by traveling, the world and living in several locations. We don’t know what those countries are just yet, but we plan to travel overseas at least once or twice a year to do some research. So the first thing we have to do was to figure out our annual expenses. Originally, we would have been happy with just 100 000 a year in passive income using the 4 withdrawal rate. So what that means is that, with a 2 5 million dollar investment portfolio, we would withdraw 4 of that portfolio every year in the amount of one hundred thousand dollars. We would also have uh three hundred thousand dollars or ten percent of our total portfolio in cash or cds on the sideline. In case we experience a bear market, like we’re, seeing now in 2022, so we wouldn’t have to sell our stocks at a loss from our investment portfolio. Our baseline expenses will increase based on inflation, but that doesn’t mean every single expense. In our household is going to dramatically increase our mortgage payments, for example, will remain the same because they would be at a 30 year fixed mortgage rate, and another possibility is that we pay off our home completely if the mortgage rate stays above six percent for the Next 10 years, which would suck, in my opinion and, however, paying six six percent interest for our primary residence, wouldn’t be worth it anymore. If the stock market performs seven percent on average annually, even if the market performs 10 annually, the margin isn’t wide enough for us to justify to keep making mortgage payments. Then let me know in the comment section down below if you have a different, take or different approach on our strategy, i would estimate our baseline expenses between housing utilities, transportation, groceries and healthcare expenses to be anywhere around 50 and 75 000 a year based on a Three percent annual inflation rate and the only wild card we have is healthcare, and i can only imagine our healthcare expenses to continue to increase over the coming years and especially if we decide to retire in the us. We’re also going to have several properties in different states or different countries, and that will increase our basic housing expenses with our fat fire number at 3, 7 million dollars, the 4 withdrawal rate will be 148 000 a year. The 3 withdrawal rate will be around 111 000 a year if we end up not spending too much money due to a bear market or other short term catalysts. After the baseline expenses, we could spend anywhere between 36 and 61 000 a year on travel and entertainment. Keep in mind that we’re going to recalculate our fire number every year, based on our future expenses and inflation, make sure to watch the entire video, and i will show you our passive income sources and the investment strategy by the way. If you need help creating your own fire strategy, you can schedule a free one on one 20 minute financial coaching session by visiting fischer com, coaching for our fat fire strategy. We’re going to prioritize our savings and investments in this order. Cash for annual expenses like taxes – and we want to have at least 10 to 15 percent of our net worth in liquid assets. So if our net worth is a million dollars, then we want to have at least one hundred thousand dollars in cash or cash equivalent assets. The second priority is our retirement accounts like tsp pensions, iras and hsas, and i will talk more about that in a little bit. The third priority is our non retirement assets like the taxable brokerage accounts for our early retirement between the ages of 45 and 60. The fourth priority is our travel fund, entertainment and our daughter’s college fund. I also have a fire checklist that we follow and you can download for free by visiting fightcech com contact. We have our emergency fund in a completely separate savings, account that we do not touch unless it’s for emergency medical expenses or anything else that’s unexpected. Our rule is that we only use it if it’s an unexpected emergency, and i strongly encourage you to check out this video i made about the emergency fund and i will link that video in the description below just keep in mind that the differences between A rainy day fund and an emergency fund is that in a rainy day fund you need to cash right away for a blown tire, and an emergency fund is to cover your living expenses. While you’re looking for a new source of income and since we’re debt free and we have a fully funded emergency fund, we maxed out our tsp iras and hsas between my wife and i we contribute up to 50 000 a year, including our Employer matches and she has the nevada state pension fund, which is a lot different than the traditional retirement accounts like 401k or tsp. She contributes 15 of her income and her employer makes a 100 match to her personal contribution, and i can contribute up to 20 500 and another eight hundred dollars from my employer match to be exact. We contribute a total of forty, nine thousand six hundred and thirty one dollars, and we expect the contribution limits to increase over the years. We also prioritize our roth iras and since we exceed our roth ira income limits, we have to do what’s called a backdoor roth ira, and i will link that video in the description below we each contribute six thousand dollars to our traditional iras as non Deductible contributions and then we convert the six thousand dollars to our roth iras. That’s a total of twelve thousand dollars between the two of us and just keep in mind that the rules for roth iras are different like contributions, conversions and earnings. And i strongly encourage you to watch the video about the five year conversion ladder, so you have a better understanding of the roth ira conversion rules. We don’t plan to touch our roth iras until we’re in our 60s or 70s, because we want our roth ira race to grow tax free as much as possible and as long as possible. We expect to have about four million dollars total in our roth ira race. By the time we turn 60 Hsa is another investment account that we own through our employers, and i understand that not everyone is eligible to contribute to the hsa, especially if you have tricare hsa stands for health savings account and it’s completely different from the Healthcare fsa, which stands for flexible savings account and the hsa comes with triple tax advantages, so we can contribute to it in pre tax dollars, which lowers our taxable income. We can invest what we put in the hsa into an index fund like the s p, 500 index fund and the interest and earnings will grow tax free. We can also withdraw from our hsa tax free as long as as we use it for medical expenses and we keep every receipt from medical, dental and vision expenses we paid in cash, so we can get reimbursed for those expenses during our early retirement. When we turn 65, we can withdraw from our hsa for non medical expenses and only pay federal income taxes for the withdrawals. Since we file our taxes jointly, we contribute up to 7 300 a year for our family hsa. If we don’t make any withdrawals during our early retirement, we should have about two hundred and fifty thousand dollars by the time we turn 50 years old by age 65. We should have 1 2 million dollars in our hsa, with a 10 average annual rate of return between tsp state pension funds, uh roth iras and hsas. We’re contributing a total of 68 931 dollars just for the year 2022 and we’re expecting the contribution limits to increase, at least for the next few years, due to high inflation hsa’s contribution limits for 2023 is already increased from seventy. Three hundred dollars to seventy seven hundred dollars. I expect the contribution limits for iras to increase from six thousand dollars to possibly seven thousand dollars and 401k or tsp from 20 500 to possibly 21 500. We also contribute to our non retirement. Investment accounts, like the taxable brokerage accounts. We have one brokerage account that only invests in aggressive and high growth stocks. We have another brokerage account that only invests in income based stocks that pay quarterly dividends to their shareholders. We’re hoping to consistently invest 50 000. A year into these taxable brokerage accounts so that by the time we retire early in 2032, we would have at least one million dollars in our dividend: stock portfolio and another million dollars in our growth stock portfolio. If we maintain a four percent annual dividend yield in one of those accounts, we should make forty thousand dollars a year just in dividend income and keep in mind that the tax rate for dividends is also different from the federal income tax. We expect to have minimal earned income, and that puts us in that zero percent capital gains tax category based on my calculation, and if we make less than eighty four thousand dollars a year in earned income, our dividend tax rate should remain zero percent. As long as congress, doesn’t mess up mess up our tax rates, our goal is to minimize our taxes as much as possible during our early retirement. So now let’s go back to my fire checklist for a minute and we’re already saving over 60 of our income towards our retirement and non retirement accounts and whatever we have remaining usually goes to our travel and entertainment fund. And we call that our sinking funds – we’re, currently saving anywhere between 10 and 15 000 a year into our travel fund, and if we decide to travel more or our income continues to increase, then we’ll bump it up to our uh, maybe 20, To 30 000 a year, we’re also contributing to our daughter,’s. 529. It it’s projected to cover a significant amount of expenses for college tuitions. We’re not too worried about her college tuition because i already transferred my post 911 gi bill over to her and several years ago, and even if my daughter ends up not using the 529 college fund, i can change the beneficiary to my future grandkids or Even to myself, if i want to by the way you can get our free fire resources, including these spreadsheets, by visiting fischer com contact, you can also check out the fight such as shop, and i have all of my stuff on my bookshelf. At firesidechat com shopping. Now let’s talk about our income sources during our early retirement, if 2022 taught us anything and that is to diversify our income sources, so we don’t have all of our money in the stock market with 3 7 million dollars our net worth should Be anywhere between six and nine million dollars, one of our main sources of income is our dividend, and i’m gon na be very conservative here and say we’ll make anywhere between 40 and 50 000 a year in dividend income just from our taxable Brokerage account at the same time, we’re going to convert what we have in our traditional retirement accounts to our roth iras and that will trigger a taxable event right. However, since our earned income is zero because we will be retired, every 50 000 we convert from our traditional retirement accounts will be taxed at 12, as opposed to 32 percent based on our current income. So for every conversion we make from a traditional to a roth account there’s a five year waiting period before uh before we can withdraw that conversion, completely tax free from our roth ira. So what we’ll need to do is have extra cash to cover expenses during the first five years of conversion to keep our taxes at the lowest rate possible. So when we convert fifty thousand dollars in the year 2032, we will have to wait until january. First, 1st 2037 to make the 50 000 withdrawal completely tax, free and penalty free. We just need to make sure that we have enough cash or other income sources to cover between 2032 and 2037. This is a common fire strategy that early retirees use. So i strongly encourage you to check out this video about the 5 year conversion ladder. We prioritize our retirement accounts over our non retirement accounts because our retirement accounts, like the tsp pension fund, iras and hsas, are like a full back plan. If we decide not to retire early and we want to grow our tax advantage, retirement accounts as much as possible, so we can retire comfortably when we turn 60 years old, completely. Tax free and our primary focus is building our stock market and real estate portfolios. To make sure the money can last during our early retirement between the ages of 45 and 60, consistency and patience are the keys to our financial success. We’ll always invest up to the maximum contribution limits to our tsp ira and hsa and will save at least half of our income to both retirement and non retirement accounts. Whenever we experience a bear market like in 2022, we’re excited to invest in these stocks with a discount and it’s like going to a black friday sale at best buy and what’s different about this bear market is that we’re Dealing with high inflation as well, we increased our fire number because the prices we’re seeing now should be the prices we see five years from now, and i think a lot of these expenses are already priced in and we’re not going to see Much of a decline in the future, but instead there will be a slowdown in the inflation rate in 2023 and possibly into 2024. This is why budgeting is so important for everyone who is pursuing financial independence and retiring early from the 9 to 5 workforce, and if you want to know more about how to invest for your future, be sure to check out these two videos so that’s It i appreciate you watching my video don’t forget to subscribe and i hope to see you in the next video have a good one Music. You
How to Retire in 9 Years Starting With ZERO (A 5-Step Guide)
Jason 0 Comments Career after Retirement Retire Wealthy
are you over the age of 50 with no plan in sight for your retirement don't worry there's still hope it's never too late to get started hey guys welcome back to the channel in today's video we're going to teach you some tips on how to plan for your retirement even if you are starting late in life first of all you need to know that retirement is freedom which means that when you retire you should be able to do whatever you want whether to travel to your favorite destinations spend more time with your family or work on your own projects so let me take you through the steps of your journey to financial freedom first step is to cut your expenses write down all your monthly expenses think of your main fundamental expenses as your running cost as if you're running a company things like rent builds groceries internet so you can watch more of our videos and car payment remember that you could always find cheaper alternatives for some of your main expenses for example you could always move to a cheaper house and save on your rent or if you have a rental car you could rent a cheaper car that also matches your needs the key here is not to minimize your quality of life but to minimize the amount you spend on that quality now write down the other expenses that you could survive without this might differ from one person to another it could be your netflix or amazon prime subscription or it could be the designer clothes that you usually buy these are the items that you could totally scratch from your expenses the more you cut the more you save and in the fifth step i'm going to tell you how we are going to use all this extra money to get you even more money always remember that it's not about how much you earn is what you keep you could be earning much more than others but you're also spending much more than they do keep monitoring your expenses you can do this through a simple written list or even through apps such as zoho expense or expense point second step is to set your expectations remember when we said in the beginning of our video that retirement is freedom well you need to think of your freedom figure which is basically the amount of money you expect per year after your retirement now multiply this number by 25 i'm sure you will get a crazy seven figure number this is going to be your goal i bet you're thinking now that it's impossible but please don't close the video yet because in the last two steps i'm going to show you how you can make this possible you need to lower your expectations for the time being in order to get those results in the future it's a match a fight if you will wealth versus cash flow set your own goals for now and for the future not based on what you see around you or on social media it doesn't have to be a 25 million dollar mansion in beverly hills a huge yacht and a supercar but that doesn't mean you shouldn't be enjoying your retirement it's about being realistic and aware of your situation what you can achieve in the future third step is to consider working longer now i know what you must be thinking i'm watching this video to know how to retire early but bear with me you may retire by the age of 60 or even 65.
But if you retire by the age of 70 you are increasing your social security check to nearly double plus there's also more money going into your 401k what's 401k oh you didn't know well i will explain this in the next step if you can't bear the thought of staying at your current job any longer than you need to then you should look into quitting your current job and finding another one something that you will enjoy more you you'll be surprised at the amount of companies that are currently looking for workers with experience be aware of your physical health keep up with your regular medical check-ups eat healthfully do any form of physical exercise could be something as small as taking a relaxing walk every day all this keeps you energetic so that you may continue working at the top of your game fourth step is to open an investment account this account could be funded by the money you save as a result of cutting expenses remember step one or you could open a 401k account if you don't already have one a 401k plan is a company sponsored retirement account where employers can contribute their income and employers usually match contributions up to a certain amount there are two basic types of 401ks traditionally and roth which differ primarily in how they're taxed with a traditional 401k employee contributions are pre-tax meaning they've reduced taxable income ban withdrawals are taxed during retirement employee contributions to rough 401ks are made with after tax income there's no tax deduction in the contribution year but withdrawals are tax-free so if you don't have a 401k yet what are you waiting for start one and make use of all this non-taxable income now it's time to invest your money which takes us to the last step the fifth and last step is to increase your income well you can always ask for a raise in your current job if the thought of asking for more pay sounds daunting then you can try looking for a new job with a better salary which may not be as challenging as you think there are many ways to promote your skills and experience to other companies you can upload your resume to sites such as indeed.com or linkedin.com let the companies come to you but there is an even easier way to increase your income through a side hustle one of the easiest ways to do so is through creating an amazon individual seller account it's free to create but you need to pay a commission of 99 cents for every sale that you make on amazon not intrigued yet hear this according to a recent survey of amazon sellers twenty percent make between one thousand dollars and five thousand dollars per month which i believe is great for a side hustle or even a decent second income you can even sell your own private label products on amazon around 67 percent of all amazon sellers run their business using the private label method private labeling is a process of manufacturing a pre-existing item preferably with product improvements putting your branding and logos on it and selling it to consumers sometimes it is referred to as wide labeling or brand creation the process has been around for years and is common in countless retail stores targets mainstays brand and walmart's great value are two examples of private label brands your site hustle could also be building websites or content writing there are millions of ways to start a site hustle it's all based on the set of tools that you possess be sure to check out my videos covering this topic and i'll post a link in the description below and remember you can always learn a new skill and this skill could be your next source of income so never stop learning another way to increase your income is by creating a passive income stream passive means you don't actually need to actively trade your time for money you are basically making money while you sleep there are three ways to earn passive income stock markets you don't need to call a local broker anymore there are plenty of applications that you can use to trade stocks that's what makes it the easiest way to gain passive income i'll post some links in the description below for some of my favorite exchanges that i use to trade stocks and crypto cryptocurrency is part of the new modern era with many ways for you to earn passively if you are willing to accept its high risk prices of cryptocurrencies including bitcoin have been falling in 2022 amid a worldwide crypto price crash this could also mark a perfect opportunity to buy with prices being so low check out this video i made where i go over the top five cryptos that billionaire kevin o'leary from shark tank is currently investing in but remember be wise when investing in crypto never put in more than you are willing to lose other options include real estate it's harder to get into it as you need to save up enough to pay for a down payment once purchase you can then get a tenant to rent out the house which will cover payments on the mortgage and hopefully a bit more use any cash flow to pay down the principal faster after a few years you will have paid off the house and can now enjoy some free cash flow from your rental property the earlier you start doing this the sooner you can pay off the mortgage debt now that we have been through each of the five steps of your journey to freedom keep this in mind your life is not going to change unless you take the initiative a nine to five job alone is not enough to build wealth have faith in yourself have faith in your abilities you're not alone in this situation and if other people can do it so can you improve your physical and mental health this will keep you more focused and energetic to work on your goals and it saves you from spending a lot of money down the road on treatment and medications this is it for me today i hope this video has given you as much hope as it did to me don't forget to hit the like button and subscribe to our channel watch our previous videos you never know what piece of information could change your life
Read MoreHow To Retire Early Through Property Investing | A Retirement Planning Pension Strategy
Jason 0 Comments Retirement Planning
Most people will likely consider it impossible when they come across this video’s thumbnail. However, I want to demonstrate how it is feasible to retire in two years by investing in a specific type of property, simply by taking action. My name is Tony Law from Your First Four Houses, and I coach individuals on how to construct a small property portfolio that produces a substantial income stream, enabling them to become financially independent and leave their regular jobs if they choose to. For 21 years, I worked in a kitchen business where I traded my time for money, but in under two years, I managed to substitute that kitchen income with a passive or relatively passive rental income. In this video, I’ll demonstrate how you can accomplish the same.
Now, let’s assume that you do not require 10,000 pounds per month to retire and live comfortably. The average household income in the UK appears to be between 28,000 to 35,000 pounds per year, depending on where you live, although living comfortably on that amount might be challenging for some. To keep things simple, let’s round it up to 42,000 pounds per year, which equates to 3,500 pounds per month in passive rental income. While some may think that figure is low, I believe most people could retire and live comfortably on that amount if they had no other expenses. So, we now have a clear objective to work towards.
When looking to earn a passive income of 3,500 pounds per month, the first step is to determine how many rental units are needed to achieve this goal. The number of properties required will depend on the deals and strategies employed, but for the purposes of this exercise, let’s assume an average cash flow of 500 pounds per month after all expenses. With this in mind, seven properties would be needed to generate 3,500 pounds per month. While this may seem daunting, it is achievable within a two-year timeframe with the right approach and effort.
Achieving a passive income of 3,500 pounds per month may seem like an impossible feat, but let me show you how it can be done. As a property investment coach, my goal is to help people build a small property portfolio that generates a great income, allowing them to achieve financial freedom.
To start, we need to break down the numbers. 3,500 pounds per month can be achieved with a portfolio of seven properties, each generating an average cashflow of 500 pounds per month. While this may seem daunting, I believe it can be accomplished in just two years with a ton of effort and action.
In the first year, you may acquire two to three properties, with the remaining four to five acquired in the second year as your experience and confidence grow. Although it won’t be easy, with hard work and dedication, you can achieve this target.
If you’re interested in learning about the 15 tasks you can do in the next seven days to help achieve your goals, check out my video. Property investing may require hard work, but the rewards are worth it. In just a couple of years, you can replace your income entirely.
To assist you on your journey, I have updated my 50 point checklist for buying investment properties. If you’re interested in receiving a copy, click the link provided or see the description box below. My goal is to help you achieve financial freedom through property investment.
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Read MoreThe 4% Rule for Retirement (FIRE)
Jason 0 Comments Retirement Planning
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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Read MoreHow we Retired at 40..💰7 tips to succeed for Early Retirement💰
Jason 0 Comments Retire Wealthy
Hey guys retired at 40 I’m going on a little road trip today just me and Murph and last week I reached a milestone on my channel and I hit a million views total and 10,000 subscribers in the same week since I’ve been getting requests for quite a long time about how I retired at 40 and I’m on a long road trip right now I figured what better time to share the story so without further ado here’s the retired at 40 story so before I get started I want to say that this is not in any way a brag story in fact I’m definitely not a showy type guy I enjoy very simple things in life and money to me is more of just a vehicle to be able to retire young and have my family live a comfortable and an easy life and to be able to enjoy lots of life experiences and be comfortable in life before I’m old and gray so really the journey began in about 2002 graduated from Iowa State University with a degree in marketing and business and by that point I have met my wife Kelly she had already graduated from school and she was kind of waiting for me and we wanted to move west out of the Midwest to move west see some new territory and get closer to the outdoors so I grabbed my degree ran out the door packed up my 1987 Ranger fully equipped with eight foot hay racks full of all of my personal belongings and we drove to Littleton Colorado and at this point in my life I had $200 in my pocket and Kelly had about the same so being completely naive and basically completely broke but with a degree I was on the search for the best suit and tie job that I could possibly find so I bounced around for a couple months just working some kind of halfway jobs and I quickly realized that I did not want to wear a suit and tie and I wanted nothing to do with the man and working a nine-to-five job well Kelly had found a job in a real estate office working the front desk and she had become friends with a couple of the big-time Realtors there one of which you caught wind that I had some handyman type skills but he made me a deal that if he paid cash for a house and I fixed it up that he would split the profit with us 50/50 and at this point in my life all I saw was dollar signs if I was completely blown away that there was someone that could pay cash for a house this is coming from a guy who had less than $200 in his pocket at this point it was pretty much scraping by I tried to hold back my excitement to him but naturally I said yes please let’s do that I was working the graveyard shift at Target stocking shelves I’d worked for 10 hours I would go home grab a little bit of breakfast and I’d head over to the property and work on it for another five or six hours I try and catch a few hours of sleep and then I would rinse and repeat it was at this point in my life that I learned a few different things one you really have to dig deep to reach your goals in life because I was not getting paid by the hour and at this point I didn’t know how much money I was gonna make I didn’t know if I would make $500 when this was all done or if I was going to make $5,000 when this is all done so I learned that a lot of things that can benefit you financially you have to put in the work upfront without knowing what your final outcome is going to be after about three months which seemed like an eternity of working seven days a week for sometimes 15 sometimes 20 hours a day on this house the house was ready to go on the market and it was all finished it looked great and then before you knew it it’s sold and then the house closed and at this point I still didn’t know what we were gonna make off it but for me it didn’t matter the hard part was done I didn’t have any of my own money into it I just had my time basically so the guy we were doing the investment with hands me an envelope and I opened it up and at $8,000 being twenty-two years old and having $8,000 I might as well have hit the lottery and that brings me to my second valuable lesson that I learned and that is being responsible with money so when you have $8,000 and you’re 22 years old a lot of people would go buy a new car they’d go buy some flashy things some pretty things but to me I had realized that if I can make $8,000 once I can make $8,000 again and again and again and again so I can either go p*&% the $8,000 away that I had worked my a#* off for or I can take that $8,000 and do exactly what he did but do it myself and potentially make twice or three times as much money so my wife being in a real estate office we became acquainted with quite a few smart people financially smart people we learned a lot about real estate very quickly because we were willing to learn which is my next valuable life lesson is that you never stop learning so we took our $8,000 we put a small down payment on a condo in Littleton because we realized that giving someone else our money was you might as well be throwing it away we wanted to be working towards something and it own something on our own so we took our other four or five thousand dollars and we started our search for a real estate investment that we could do all of our all on her own and get a hundred percent of the profits so after some searching we did find a place we found a small town home it was not in as nice of area as we were living it was smaller it needed lots of work but that takes us to our next light life lesson that we learned and that is to sacrifice for a greater payoff in the future so we had only lived in our condo for a very short time but we realized that if we moved into the real estate investment that we could rent out the place that we are living at and move into the place that we were fixing up that we’d have to be paying a mortgage on anyway we had our first real estate investment and we had our first rental so being 22 years old and owning two properties and carrying two mortgages and at this point I’m still working at Target was a pretty scary proposition in life but all I could see was that $8,000 check they had started to change our lives I also want to point out and kind of give a shout-out to my parents and to my wife’s parents because neither one of our parents ever handed us anything in life they always made us work for what we achieved in fact when we move we tried to convince my parents to co-sign on our mortgage for the condo that we bought and they said no way at the time I was very very mad at them and I thought I would never forgive them in hindsight it was one of the best things they’ve ever done for me because it just made me have that fire in my belly and really just want to work to get what I wanted so back to having two mortgages that was a completely scary thing in my life I was making something like 10 dollars an hour at Target I think Kelly was making $13 an hour at the real estate office she was working at we could barely afford the condo we had but now he had two.
God bless the banks lending money to anyone at that point on the very plus side of that we learned that someone else can pay our mortgage and we’re basically getting that money for free and then later we figured out that there are many many many tax benefits and huge benefits of owning a rental property so we quickly learned that trying to pay for materials and the things needed to fix up an investment property on just barely over minimum wage is not easy to do the thing that happened next couldn’t have come at a more perfect time so all of a sudden I had money to spend to fix up this house and it would just get me to that next big paycheck that much quicker so that’s what we did we fixed up the house we doubled our money we rolled it into the next one so we kept bouncing from house to house quite a few times and that sacrifice of from going from a nice house to live in to going to a crappy house to live in to fix up to making it nice again to going to another crappy house to fix up it became pretty stressful but we always had our eyes on the prize “are you still with me Murph?” after doing this two or three times I remember getting a check for the last one and the check was forty one thousand dollars so at that point it didn’t make sense to work at Target anymore so I just started doing it full-time but we never took the big proceeds from the real estate and put it into our actual living we always rolled it into the next property and that kind of gave us the baseline of even how we live today we always live well below our means we take the money that we make and we put it into things that will make us an income not into something that will lose us money but you do have to treat yourself every once in a while otherwise there’s no reason to make the money in the first place Kelly saw many of the high producing Realtors making large amounts of money so she decided to get a real estate license and she created her own real estate business so now we really felt like we had the world by the balls because we were getting paid a commission to buy the property and then we were saving half of the Commission when we sold the property and I was fixing him up so we just get rolling our profits in rolling our profits in rolling our profits in until family we were able to buy a house and now that we could get a house we were playing with the big boys the profits were much larger but so was the risk and we really didn’t want to lose all the way it worked for for the last couple of years so we did a few houses and we made some great money but instead of selling them and pulling out our profits we kept them as rentals and it was at this point that we really started building up our rental inventory at this point it was about 2006 or 2007 and real estate was starting to slow down a little bit but we have purchased a large house I’m a courage that was really a big risk for us it was a large house to fix up it was our biggest project for sure it took us the most money to fix it up and we had the most money into it so we lived in this house for about 8 months while we were fixing it up and we kind of decided after doing about 12 properties that the moving all the time was starting to get kind of old and we were kind of getting older ourselves and we decided that we wanted to have kids and kind of settle down a little bit Murph are you with me? sometimes I feel like I’m just talking to myself so after the eight months was up we finished the house we sold it and shortly after the real estate market completely crashed the bubble had burst and Colorado was one of the hardest hit States we got out of the house just in the nick of time and not only did the real-estate market bubble burst we found out that we couldn’t have kids and it seemed like a real low point in our lives but around 2007 when all this happened we realized our next lesson with every negative there is a big positive that can be gained from it and you can just use it as fuel for your fire so the recession was tough we thought our great life had come to an end we thought we were gonna have to get regular jobs you know people were losing their jobs left and right people were losing their houses Colorado was hit very very hard one of the worst states during the recession and we learned that what goes up must come down and in this case it came down hard in many cases not just real estate when things are bad that’s the time to invest and if you’re smart with your money and you’ve been saving while everyone else spending that’s the time to benefit though from about 2008 to 2012 we were buying rentals so we were able to adapt I started doing contracting because that’s pretty much what I was doing before but now I had to be doing work for someone else and Kelly’s always been a mover and a shaker and even a bad real estate market she was able to keep her business moving we were buying things for pennies on a dollar and even though we were not making great money and in some cases losing a little bit of money on rentals we were able to stick it out and after lots of lots of years of lots of lots of heartache and lots of lots of doctors we were able to have two boys so about 2014/2015 real estate started creeping back up again prices kept going through the roof and just when he thought it was the peak they just kept going up stuff was flying off the shelves you could list a house and it would have multiple offers within 24 hours so we had about age 35 we were completely debt-free we had several rentals that we were cash flowing we didn’t owe any money on the rentals so all that money was just rolling into a bank account when you have no bills and you have an income coming in your net worth starts to grow very quickly so we rode out the storm Kelly’s business was doing great my contracting business was doing great we have liquidated a lot of our real estate in Colorado we had capital to play with we had two beautiful young boys and then I fell to my knees crying like a little baby I had herniated a disc in my back and I was on a walker for about a month contracting for me was out of the question I didn’t even want to think about picking something up so I took some time off and I raised our kids which at first I thought would just be for a few months and then a year passed and then another year passed and I decided that I kind of liked it we had rental income coming in Kelley’s business was doing better than it had ever been in fact she had started her own she had several people working for her and just as a little side income I got to do what I love to do which is antiques I was just buying and selling antiques so we were trying to be very strategic at this point because we owned a fair amount of property in Colorado but we knew that our ultimate goal was to retire at 40 and at the rate things were going up we didn’t want to sell too early because we didn’t want to miss out on that upside but we didn’t want to sell too late because we didn’t want to risk the chance of taking a step back so as some regret we sold the majority of our properties in around 2017 but this was a game-changer because we were able to make cash for every rental that we purchased so we loaded up on rentals in Iowa we actually purchased our property that we’re going to move into which is actually where I’m headed now and that kind of brings us up to speed to current date I take care of our 10 rentals which keep which keeps me pretty busy just in itself i buy and sell antiques i get to see my kids all the time we have a good rental income coming in now we do youtube oh yeah we also do a couple fix and flips every year Kelly has her real estate team with about 10 employees and in June of 2020 we’re going to retire at 40 so all in all life is great I have a wonderful family I have enough assets and passive income to live a comfortable life
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Read MoreCan YOU Afford to Retire? | 4% Rule Explained | Safe Withdrawal Rate
Jason 0 Comments Retire Wealthy
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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Read MoreHow To Retire Early? (Young And Rich: Is It Possible?)
Jason 0 Comments Retire Wealthy
Hey, what’s up? John Sonmez here from simpleprogrammer.com. Tired of pushy recruiters sending you LinkedIn requests for jobs you have no interest in? Tired of blasting out resumes into the dark? If so, you should check out Hired.com. Hired.com flips job searching on its head by having top employers like Facebook come to you after you fill out one simple application. You also get your own job coach to help you on your next job search. If you haven’t checked it out, I highly recommend you at least fill out the application. Just go to Hired.com/simpleprogrammer. When you get hired with Hired, you’ll get double the normal sign-on bonus for using that link. Today we’re going to be talking about real estate.
Yes. I have done some videos on real estate. Some of you are like, “What the heck? Why is this guy talking about real estate?” Well, I’ve done fairly well in the real estate realm. If you’re interested, you can always check out my playlist on real estate investment and investment in general. I’m not going to go into all the details here, but occasionally I like to answer a few real estate questions on this channel. I got one here from Jonathan and he says, “I’m 21 and set a goal that I want to retire by 40 to 45.” Cool. “With 20K of passive rental property income.” Man, that’s awesome. I like that. I love that goal. That’s a good goal. “Currently saving money to buy my first property and hopefully, when I get a web development job I can speed up the process. My question is how do I plan for this goal?” This is good.
So, 21, Jonathan is 21 and he’s thinking this way and he’s got this plan by 40 to 45 to make 20K of passive income from rental properties. I love this. This is great. “Thanks for everything you do and have a beautiful day.” I am having a beautiful day. Thank you, Jonathan. “P.S. I was thinking of buying a duplex and live in one and I rent out the other one so basically the tenant pays my mortgage.” So, okay, there’s a lot of ways to approach this. I think Jonathan has got his head screwed on right. Well, I’ll start with the last, the P.S. of renting out a duplex and living in one side. I think that’s a great idea. This is a fantastic thing. More people should do this. A lot of you young people out there that are thinking about renting or buying a house, consider buying a duplex and renting out one side and if you find the right deal which—it’s out there, you could actually have the renters pay your rent.
You see what I’m saying? You could actually live for totally free by having a duplex and renting out one side. I’m not going to say it’s going to be super easy. I’m not going to say that those deals are everywhere. It depends on where you’re at. You’re not going to find that deal in California or New York, San Francisco, not going to happen, but if you’re in the Midwest you might be able to find that deal. I’ve seen it before. I think that’s a great idea, but let’s talk about the plan. 21, you want to retire by 40 to 45. You want to get 20K of passive real estate income. It’s not going to be easy, but it’s certainly doable. What you need to do is you need to calculate backwards where you need to be and have a real solid plan for this.
I can give you a general outline, but I haven’t run the numbers so I can’t tell you exactly. There are going to be some factors in here, but you actually need to take a spreadsheet and actually need to calculate this and figure this out. It’s going to be fairly complex, but you don’t have to be super detailed. You can kind of ballpark this, but you do need a spreadsheet. You can get some rough answers here, but calculate this out, 20K of passive income from real estate. Let’s say 45. What does your gross need to be? You’re going to have expenses, you’re going to have rents, I mean you’re going to have property management, you’re going to have a bunch of things here. That can give you an idea of what kind of wrench you need to be pulling in. It’s not going to be a 20K wrench, you’re not just getting 20K. It might be like 30 or 40K a month of rents. In order to get 40K a month of rent how many properties do you need and how much will those properties cost? How can you divide that over time and put inflation into the equation a little bit here over that period of time? Work backwards and make a spreadsheet and run some scenarios.
This is going to take time and some planning. Like I said, you can rough ballpark it. If I were just going to give you what I think would probably work for you, it also depends on how big your budget is. How much money are you investing every year? How much money do you have to invest every year. If you can put 10K down onto a rental property every year that’s different than, “Hey, I’ve got 50K to invest in real estate every year.” That’s different. Or 100K. Those are all different scenarios. What you’re planning based on your current scenario might—there may not be—there might be this gap and you might be like, “Well, how do I get there?” It might not be apparent.
You might have to do some other things. You might need to make more money in your job or start a side business in order to fuel that. I had to do that to reach some of my real estate goals. Think about that and calculate that out. I’ll give you kind of a rough timeline, a rough plan that I would have if I were you which would be something like—and this was the plan I initially developed when I was doing this which would be to buy one property every year, regardless. The nice thing I like about this plan is that it’s scalable.
The size of the property depends—is dependent upon how much money that you have in that year. When I first started in real estate investment when I was close to your age, I think I bought my first house at 19, but I really started doing investments around 21 and started this plan of buying one house per year. I think the first house that I bought I was able to put $10,000 down. It was like a $100,000 house or $120,000 house. The next year it was probably about the same and then probably like the third or fourth year I had more money. I was able to put $20,000 or $30,000 down. I got to the point where I was buying properties and I was putting about $20, $30, $40,000 down every year on a property when I buy it. Some of that was because of the real estate that I was already making me money. Some of it was because I was making more money in my job and I had businesses and side things going on which helped me to do that. That’s the kind of plan that I would—it’s not going to happen magically. I think that’s the key thing. You actually have to have a solid plan for this and you can run these numbers and calculate this out.
There’s actually a really good book that I recommend called The Millionaire Real Estate Investor. I think that’s by Garry Keller, the founder of Keller Williams if I recall correctly. I don’t recommend very many real estate books, simply because a lot of them are crap. The reason why I’m really going to recommend that book to you is because it has these charts that show you—it gives you a realistic expectation over 20 years what the value of a property is likely to be, how much money you’re likely to make from it, cashflow and all that. Again, it’s as complex equation. You’re not going to be able to nail this down perfectly, but at least if you run the numbers and you do the best job that you can, you can have a ballpark idea and you can always adjust the plan. You’ve got to have—you’ve got to know where you are and where you need to go in order to reach these goals. I’ll also recommend for you—I have a course that I created called Simple Real Estate Investing for Software Developers.
You can check that out here. If you buy that course, obviously it has a money back guarantee on it, but that’s going to help you to give you the basics of everything I know about investing. Just to give you a background, I have about 26 rental properties. They are all paid off. I started investing when I was 19. I kind of know what I’m talking about here. I don’t give a lot of bull shit advice about this. I give you exactly—practical advice on how to get started and how to do this.
The reason why I created the course, even though it might not seem like it goes along with a lot of my other content, it was just simply because I was tired of so many people giving BS real estate advice and doing all these kind of scamming, no money down, speculative moves that just doesn’t make sense. You need some kind of practical advice so that’s what I put together there. Go check that out. This is good. I think you’ve got a good plan here. You just need to develop the plan further and it’s going to be very dependent on your individual factors and—I think you have information though to say, “Okay, can you do this in 45—by the time you’re 45?” absolutely! I believe that you can. It’s not going to be easy, it’s going to be hard to do. 20K is a pretty big number but it’s certainly possible, but you’re going to have to start moving now, which it seems like you’re going to do, and you have to have a plan and it’s going to take a lot of work and a lot of effort and you got to find good deals in order to be able to do this in that time frame.
All right, I hope that is helpful to you. If you have a question for me, you can email me at [email protected]. Don’t forget to click the subscribe button if you haven’t already. Click that Subscribe. Click the bell to make sure you don’t miss any videos especially if you like the real estate stuff because, hey, those videos might not show up and then you’d miss it and then you wouldn’t find out the secret to life and how to make millions of dollars. All right, I’ll talk to you next time. Take care .
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