Posts tagged with "savings"
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Should You Prepay Loan Or Invest?
When you have some savings you might wonder whether to invest the savings or prepay your loan. I have always suggested a simple thumb rule, which is that if you anticipate your investments to give you better returns than the loan interest rate then invest, otherwise prepay your loan instead. Generally, for almost all kinds of loans the return on investment is usually lower than the loan interest. One exception is home loan which has a much lower effective interest rate because you get tax benefits. For most other loans it is better to prepay. That is a very simplistic rule, but does it really work? Let’s find out.
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What Is The Right Asset Allocation
In discussions with various people, the question about asset allocation always comes up. Some want to know what asset allocation they should follow. Others question my asset allocation. Unfortunately, there is no one answer for what asset allocation one should go with. Everyone’s situation is different and their risk appetite is different. They should go wih an asset allocation that they are comfortable with. If they can’t figure it out by themselves, then they should hire a financial planner who can tell them what asset allocation to go with given their situation and mindset. If you push me to give one number, I always say 70% in equity and the rest in fixed income if you plan to retire early, but even otherwise too. In this post I want to go into some nuances.
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Solar System Comparison with MKBHD
Some of you may already know MKBHD, a popular youtuber in the tech world. He recently posted a video about the going completely solar and not having to pay an electricity bill for a whole year. It is a very well made video which explains how the solar panel system works with batteries (off grid) and with net metering (on grid). Although I don’t have net metering and I am not completely off grid, so mine is a hybrid approach. Still, if you watch the video it will help you understand how my setup works (sort of). My setup is closer to the hybrid system explained in another video. Anyway, I wanted to compare my puny setup with MKBHD’s setup and see how I compare. So here goes.
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A Reader's Dilemma
From time to time I get emails from readers of my blog asking me for some advice or suggestions regarding their situation. Most of them are not unusual and a general advice does suffice. So usually they are not worthy of a blog post. But every once in a while you get some really interesting questions and that’s exactly what happened a few days ago. A reader wrote to me asking for some advice and I responded. Then I felt like it may be useful advice if there are others in a similar situation. Also I wrote a lot about my own thoughts about why I am unschooling my daughter and what the repercussions could be. So I thought I should copy-paste my response here in my blog. With the reader’s permission I am reproducing our conversation with some information redacted.
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Mistakes To Avoid If You Plan To Retire Early
There is no one straightforward way to reach the goal of early retirement. Although many people have attempted to streamline the process. And that includes me (see my 5 steps to early retirement) :). There are several other small things that you need to take care of before the grand picture emerges. One of them is expenses.
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Change Habits For The New Year
It is almost the end of the year and it's time to reflect back on 2020. What is the progress on your goals if you made any at the start of the year. Did the events during the year upset your plans? What impact did COVID have on you? Did you come out stronger? Learned something new that you never thought about earlier? Usually I reflect back around this time of the year and make note of my achievements and failures. The details of which will come out next year as usual in my year in review series.
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Am I Financially Ready To Retire?
Here is an alternative take on whether you are financially ready to retire. In this post, I want to help you determine if you are ready to quit with nothing but a simple calculator and just one formula. You don't need to predict expenses, inflation, rate of return etc, and as such, this method is not as comprehensive as the How Soon Can I Retire calculator. So take it with a pinch of salt and use it more as an indicator of whether you are ready to retire or not. Also note that this is only to check if you are financially fit to retire and has nothing to do with your emotional state of mind. Some may have a lot of money and yet cannot retire due to various other reasons (including not knowing what to do post retirement, fear of boredom, peer pressure, family disapproval, social status etc).
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Should You Retire Early?
Early retirement is not for every one, and it is not like everyone need to retire early. Don’t blindly follow the bandwagon and join the F.I.R.E (Financial Independence Retire Early) cult. You subconsciously know who you are, and whether early retirement makes sense for you. Here are some reasons why you may not want to retire early.
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How Soon Can You Retire?
Like I mentioned in the previous post, there are really just two variables that you can control, which determine how soon you can retire. They are your expenses and savings. Remember step 4 of How to Retire Early in 5 Steps? Plan a Simple Retired Life. The lesser the expenses today, the less it will be in future after adjusting for inflation. If you like a rich lifestyle today, then as the years go by, not only will inflation cause the expenses to go up, but you will want higher and better lifestyle which adds up. Your savings will not be able to handle the burden of your expenses. The less your expenses, and more your savings, the earlier you can retire. But how soon? That is the question that I want to answer in this post.
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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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