Posts in category "financial-planning" - page 2
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Watch The Lifestyle Creep
Have you ever though about why your expenses keep going up year after year? Perhaps you say your expenses haven’t increased that much since last year. But if you compare your expenses today with expenses some 10 years ago, you will see a huge difference. Why is that? Well you can attribute it to inflation. However, that is not the only culprit. The other culprit is lifestyle creep. And because it creeps in so slowly you can be forgiven for not recognizing it. If you don’t watch the lifestyle creep, you are in for a surprise when you do your retirement planning.
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Is Investing Early Really That Important
Many financial planners and advisors including yours truly will have you believe that it is important to start investing early if you want to have a comfortable retirement corpus. In fact this is the first step I propose in my five step plan to early retirement. After all it makes sense right? You have a long runway if you start early and it will allow compounding to show its effects. Compounding needs time. But is it really all there is to it? The genesis of this thought was an article that I recently read on the internet. While there is a kernel of truth, it is not all its made out to be. Let me try and explain using the information from the article.
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Review Of A Reader's Retirement Portfolio
Every once in a while I receive emails from some of my readers asking for advice on financial planning or unschooling or other things. I have posted a couple (A Reader’s Dilemma, Should I Retire Early?) of emails along with my replies in this blog. Today I wanted to post one more such conversation I had with another reader. As usual, I took permission from the person. Most of the conversation is published as is and I tried to make minimal edits. Hope you might learn something from it or perhaps have better advice. Feel free to comment at the end of this post if you want to post your advice. Lets get started.
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Cost Of Owning Something
Whenever I plan to buy something expensive, I go through this exercise of figuring out the cost of owning something. Remember that for most material things in life, the cost of owning it is not just the sticker price. There is more to owning it. After running through the exercise objectively if I still feel the need to buy something, I sleep over it. Gives a bit more clarity on the subjective aspects. Some things are an absolute necessity and I am not talking about those ones. Moreover, what is a necessity for me may be a discretionary spend for someone else. Finally, there is no point doing this exercise if the cost of the thing you want is cheap and doesn’t affect sustainability too much. Again, for some sustainability may be important, for others it is not.
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Can Bard Answer Early Retirement Questions?
Ever since Chat-GPT was announced, I wanted to use it to ask personal finance questions just for kicks. But I was too lazy to sign up. Unfortunately by the time I decided to sign up, the page said it was full and asked me to wait. After a few weeks I heard about Chat-GPT integration with Bing and wanted to try it out. Unfortunately though it required me to sign up to a Microsoft account and wanted me to use Edge browser or something like that. I don’t remember all the reasons, but I am certainly not going to do any of that. I mean asking for email is one thing, but phone number even if it is for OTP is a no go for this kind of service. It is a lot more personal. Not that I don’t trust them with my data, it is mainly because I don’t want to increase the attack surface.
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Should You Sell Debt Or Equity For Retirement Expenses
After reading my post on “withdrawal plan in retirement”, one reader asked why I suggested that one should sell debt mutual funds to handle the retirement expenses. In that post I gave an example where an investor has only debt and equity mutual funds and in that scenario, it is preferable to sell debt mutual funds to handle everyday expenses and then do a rebalance once in a while to get the asset allocation to the ratio that you prefer. The reason for this recommendation is quite simple. It is to avoid selling mutual fund units of an asset class at their low point. Since equity mutual funds go up and down quite a bit in value, it is possible that in some years you might sell at a low point and dent your compounding effect. I will explain how with an example.
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Withdrawal Plan In Retirement
After my post on lumpsum vs SIP investment, a reader asked – “Wanted to understand the other side - how to redeem from our funds after we retire? Say we have calculated the number and we have enough. But, the challenge is how to get to a withdrawal mode from accumulation mode. You have showcased how you do it in some articles but can you do it with some numbers for a fictitious person? Ex: Age 40. Amount 6Cr spread across multiple equity and debt funds and US Stocks. Now, how to withdraw to last till their age of 85 for an expense of 1L per month (corpus is 50 times)?”. I thought it is an interesting question that needs answering. I will go with the numbers given by the reader and work out an example in this post.
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Inflation Affects Poor More Than Rich
RBI has decided to pause the interest rate hike, which indicates that the central bank thinks the inflation might have peaked. While inflation is currently high at slightly over 6%, we Indians are quite used to that kind of inflation anyway. For most of the western world, it is causing a lot of pain. Not just the inflation but the rate hikes by their respective central banks. The rate hikes even affected some banks (think SVB for example). High inflation is a problem for everyone, but it hurts the poor a lot more than the rich. Yet the media makes it sounds like everyone is affected the same way.
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Capital Gains Harvesting
A couple of weeks ago, I mentioned about tax loss harvesting being a legitimate way to reduce your taxes. In this post, I will explain another way to reduce taxes while taking capital gains using capital gains harvesting. A capital gain harvesting is basically a method of tactically selling some of your investments for capital gains without actually paying any taxes on them. How does that work? Let’s find more about it in this post.
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Tax Loss Harvesting
There are lots of legitimate ways to reduce taxes and tax loss harvesting is one of them. However, in practice, it is much harder to execute. But before we get ahead of ourselves, let me explain what tax loss harvesting is in case you don’t know. Tax loss harvesting is nothing but selling your investments for a loss when the value is below your invested amount. Then use the losses to offset any other capital gains or income that you might have. Generally tax loss harvesting works well with equity markets because there is a possibility that the markets fall and your investments could be worth less than what you invested.
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