Posts in category "financial-planning" - page 14
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My Asset Allocation
I have discussed the 70:30 asset allocation in my previous 2 posts. However, I did not really follow the rule, not because it did not work for me, but for the simple reason that I wanted to learn market cycles and take risk while doing my investments. I would not suggest anyone play with investments like I did (unless you know what your are doing) and risk losing money. Instead follow the boring simple rule of 70:30 and it works. This is more of a case study of my investing style.
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Asset Allocation Explained
In my earlier post on How to Retire Early in Five Steps, I briefly touched upon asset allocation in step #3. In this post, I go into a bit more detail into how one should go about asset allocation for early retirement. Before understanding asset allocation, you need to understand asset classes. If you have not read my post on asset classes, head on over to that post.
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Let's Understand Asset Classes
Did you know that if you only invested all your money in stocks you would get incredible returns over the long term? But what if you cannot stomach the risk where your investment could erode by 70% within a few months? Would you be able to sleep soundly if you found that your Rs. 50 lakhs investment became Rs. 15 lakhs? If you don’t like the wild roller coaster ride then you might want to diversify your investments into different investment baskets of varying risks. Generally risk is correlated with returns, so lower risk usually means lower returns too. To alleviate risk and to diversify, we need to understand asset classes. But what is an asset class anyway?
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Would You Rather Have Freedom or Stuff?
One of the most important trait that people who want to retire early need to practise is minimalism. If you keep buying more stuff, you will take longer to retire. I made this mistake early in my life, but I was not too late to correct course. Especially because some of the things come with a burden of lifetime maintenance; for example owning a car. The constant repairs, upkeep and insurance keep adding to your expenses. Not just vehicles but every single thing that you own, ends up owning you. So if you would rather have freedom, you have to give up stuff. This is in continuation of step 2 of How to Retire Early in 5 Steps — Rid Yourself of Debt and Save Aggressively.
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Borrow From Future or Gift Yourself in Future?
Would you borrow a gift from the future or would you rather save up for a surprise gift in the future? That is how taking a loan vs saving works. If you take a loan, then you are borrowing money from your future. If you are saving, you will gift yourself a surprise in the future. Make your choice. In this post, I want to elaborate a bit more on step 2 of How to Retire Early in 5 Steps – Rid Yourself of Debt and Save Aggressively.
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Funding Children's Education
After reading my earlier post on How to Retire Early in 5 Steps, some of my friends asked me if it is realistic to be able to achieve early retirement given the soaring cost of children’s education. So I thought I should elaborate a little bit, which is what this post is all about.
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Math Behind Financial Planning (FV, PV and Annuity)
Saving early is one of the first steps you need to take when you are planning early retirement. I talked about it briefly in my earlier post, but wanted to elaborate a little bit and may be show a few formulas along the way to help you better understand how starting early and compounding make such a huge difference. This post will help you do your own financial planning if you are so inclined. I did not use a financial planner and always preferred to do it myself. So if you are like me, you might enjoy it.
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How to Retire Early in 5 Steps
Achieving early retirement is not really as difficult as most people think. But it certainly is not for everyone. Some may not like not being able to work and stay at home, some may not be ready for the simple retired life, some may feel anxious about finances (even if their corpus is as big as they wanted it to be). Going into early retirement requires the stomach to handle all those and much more. For most, it may be fulfilling to work and keep themselves busy that way. For the rest, these 5 steps will help you get started on your journey to early retirement.
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