This post is mainly targeted for young adults who started earning in their mid 20's and 30's.
If you want to reach that state you need only one quality in you i.e Patience.
If you are in your mid 20's or 30's, and if you start investing early the age is in your favor and you can fully utilize the power of compound interest.
This could be the only generation who is earning considerable amount of income thanks to the globalization.
Unfortunately, This is also the only generation where job security is very low, and as experience increases the chances that the company fires them are high (Talking about IT industry).
According to the recent survey of Economic Times illustrated that the people who are in their 40's are facing a lot of financial crisis because of their lack of awareness on money spending .
As we discussed in the post "First step to get Financial Independence", We should start thinking about our retirement on the joining day of our job.
You may wonder why should i care about my retirement such an early stage?
Because, If you follow that strategy you are going to unveiling the biggest secret of Money.
Earning money is not a magic.
But, Its an art, and Its a kind of science. It has its own set of rules. If you follow those rules you will become rich.
Here are the top 2 qualities which warren buffet believes are
Discipline and Patience.
Sounds simple right? But, These 2 qualities are lacking in 90% of the young adults according to times money magazine survey.
Discipline:
Let's assume that you got a bonus of 40k from your employer, what will you do?
we will come to you later
You know 60% of young adults were spending another 50% on buying gadgets, luxury items, vehicles which are not really necessary if they get the bonus or hike from the employer and ending up with paying EMI for the extra amount.
That means if they got the 40k bonus, they are spending 60k on things which are really not necessary.
That's why i always urge you to have some retirement plan. If you have your retirement plan on your mind you could have easily put half of the amount in that and you can spend half of the amount which really matters to you and for your happiness.
When i say retirement don't think that you will wait till 60 Yrs. You can retire at your 40's and start doing what you love to do without much worrying about your financial needs.
Here are the few points that makes you financially discipline
1.You must have life insurance for you, And take health insurance for both you and your family
Your Life insurance cover must be 10 times higher than your package.
Let's say if you are earning 7Lakhs p.a. Your insurance cover must be 70+ lakhs
2. You must maintain emergency fund. This amount should be in liquid, that means you can easily convert to cash when needed.
Your emergency fund must be 3 months of your salary.
You can invest this emergency fund in any debt funds for better return and secure.
3. Start investing in Equities early. If you don't have any knowledge on equities you can consider equity mutual funds.
Equity funds beat inflation and gives you good return if you invest in long periods (atleast 5Yrs).
We usually start our career to work for money. But, If you have a rich mindset you should start thinking that how money works for you.
Check your wealth checkup at free of cost: Wealth Checkup
Patience:We usually start our career to work for money. But, If you have a rich mindset you should start thinking that how money works for you.
If you want to reach that state you need only one quality in you i.e Patience.
If you are in your mid 20's or 30's, and if you start investing early the age is in your favor and you can fully utilize the power of compound interest.
Difference between Saving and Investment:
Some people save the money in bank accounts and thinks that they are investing for future. This is one of the biggest mistake.
Investment means it should beat the inflation in a long period.
Inflation: Lets say your house rent today is 10,000. Do you think it will be the same even after 10years. No, it will increase. The same way all prices will increase because of inflation.
If you are investing in bank fixed deposits and LIC's, If you minus the inflation from your profits. You almost earn nothing. i.e your money sits ideal. It doesn't work for you.
If you want your money work for you, if you want to beat the inflation. Then start investing in equity mutual funds through SIP's.
SIP(Systematic Investment Plan) is a methodology where you can invest in mutual funds with constant amount every month over a period of time.
Most of the young adults knows that investing in mutual funds is a good investment option but, they will postpone or avoid it because they think they lack the knowledge on it.
If you fell ill and you don't know how to cure yourself what will you do?
you will consult a doctor. The same way you can consult a financial adviser, most advisers will serve you with mere fee of below 500Rs.
Ignorance should not be an excuse when it comes to investment.
Equity mutual funds are high in risk, i.e if you are investing in equity mutual funds for 1 or 2 years. then that's a bad investment idea.
If you want to invest for more than 5 years then the equity mutual funds are the best option.
If you start investing in early and you have a patience, here's how compound interest will work for you.
Power of Compound Interest:
Assume that you required money at your 45th year.
In both the case you are investing 12 Lakhs, but see the difference in wealth gain.
Case 1: Start early with less amount (25Yrs-45Yrs)
SIP amount: 5000
Investment Period: 20Yrs
Interest Rate : 15% CAGR (Equity mutual funds average return if we invest for long periods)
Returns:
Invested amount: 12 Lakhs
Wealth Gain: 64 Lakhs
Total Expected amount: 76Lakhs
Case 2: Started a bit late, but invested double the amount than case1 (35Yrs - 45Yrs)
SIP Amount: 10,000
Investment Period: 10Yrs
Interset Rate: 15%
Returns:
Invested amount: 12 Lakhs
Wealth Gain: 16 Lakhs
Total Expected amount: 28Lakhs
Check Yourself how compound interest will work for you: www.sipcalculator.in
No more words, Only numbers can speak more than words.
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Some people save the money in bank accounts and thinks that they are investing for future. This is one of the biggest mistake.
Investment means it should beat the inflation in a long period.
Inflation: Lets say your house rent today is 10,000. Do you think it will be the same even after 10years. No, it will increase. The same way all prices will increase because of inflation.
If you are investing in bank fixed deposits and LIC's, If you minus the inflation from your profits. You almost earn nothing. i.e your money sits ideal. It doesn't work for you.
If you want your money work for you, if you want to beat the inflation. Then start investing in equity mutual funds through SIP's.
SIP(Systematic Investment Plan) is a methodology where you can invest in mutual funds with constant amount every month over a period of time.
Most of the young adults knows that investing in mutual funds is a good investment option but, they will postpone or avoid it because they think they lack the knowledge on it.
If you fell ill and you don't know how to cure yourself what will you do?
you will consult a doctor. The same way you can consult a financial adviser, most advisers will serve you with mere fee of below 500Rs.
Ignorance should not be an excuse when it comes to investment.
Equity mutual funds are high in risk, i.e if you are investing in equity mutual funds for 1 or 2 years. then that's a bad investment idea.
If you want to invest for more than 5 years then the equity mutual funds are the best option.
If you start investing in early and you have a patience, here's how compound interest will work for you.
Power of Compound Interest:
Assume that you required money at your 45th year.
In both the case you are investing 12 Lakhs, but see the difference in wealth gain.
Case 1: Start early with less amount (25Yrs-45Yrs)
SIP amount: 5000
Investment Period: 20Yrs
Interest Rate : 15% CAGR (Equity mutual funds average return if we invest for long periods)
Returns:
Invested amount: 12 Lakhs
Wealth Gain: 64 Lakhs
Total Expected amount: 76Lakhs
Case 2: Started a bit late, but invested double the amount than case1 (35Yrs - 45Yrs)
SIP Amount: 10,000
Investment Period: 10Yrs
Interset Rate: 15%
Returns:
Invested amount: 12 Lakhs
Wealth Gain: 16 Lakhs
Total Expected amount: 28Lakhs
Check Yourself how compound interest will work for you: www.sipcalculator.in
Like us on Facebook: SipWayLtd Facebook Page
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