Life Insurance is a 4 Letter word…continued

Yesterday I wrote about whole life and term life and why I think whole life is good and how I have started appreciating the benefits of whole life as I have aged.

One of the argument which I used to hear against endowment plans and whole life plans was that you could take the same life cover at a much lower value by taking a term plan and the difference can be invested in a mutual fund which will give a much higher return.

There are a few challenges that I have been able to figure out in this logic. If you know of others please let me know in the comments below.

1. With term insurance you don’t get any money if you survive the term, that’s a complete loss.

2. Mutual fund or stock market returns are not guaranteed. In the endowment policy you are guaranteed a minimum value at the end of the term. You may get a higher sum because of bonuses, but a certain minimum is assured.

3. When you sell your stock the amount attracts long term capital gains tax. The money you get from the insurance policy is generally tax free in quite a few countries both for you and after your death for your survivors

4. In most countries investing in mutual funds or stocks does not get you a tax rebate while investing in insurance does.

If you don’t have the financial capability to take an endowment or whole life plan, take a term plan. Take it as early as possible and take it for the highest value feasible. Getting the highest coverage on your life is absolutely necessary. Don’t ever think that Mutual Funds can cover that risk.

However once you have some lee way in your finances, start whole life and endowment plans to create predetermined cashflows.

Use mutual funds or stocks to give you growth in the very long term where the compounding kicks in.

This has been a learning for me and I would not like you to make the same mistakes that I did.

Till next time then.

Carpe Diem!!!

You cannot have financial freedom without financial discipline- Part 3

compounding, Financial Independence, Habits, Human Brain, mindset

In yesterday’s post I wrote about how the urgent tasks took over my schedule and missed out on buying the asset whose deadline was yesterday.

Actually the middle class / service class people mistake busyness for success. For us the incoming email or phone is more important than taking financial education.

We keep watching the mail as if the next PO or promotion or next big challenge, is just about to come and it does not come that day, then it does not come the next day and we end up wasting one more day and another and suddenly we realize life has just passed us by.

The rich on the other hand first and foremost understand the discipline they have to follow. And it has nothing to do with education. Even if you discount the likes of Bill Gates, there are lots of others who don’t have college education but have become millionaires.

One of the reasons I think is that a University Degree makes us specialized in some specific area and we like to solve challenges in those areas. The human brain is wired to get attracted to familiar faces, familiar environments. So when we see an email with a familiar topic, we get immediately attracted to it.

Compounding only works in the long term, so you have to ensure that you start very early in life. If like most of us you start late then you have to ensure you are systematically investing over long durations without a break. Financial freedom takes discipline.

To bring in that discipline you need to ensure you eliminate the usage of your brain. Things should happen without your brain taking a decision. That’s where an automatic system helps. Today technology allows it so you should take advantage of it.

Till next time then.

Carpe Diem!!!

Financial freedom – Happiness

Affirmative action, compounding, Financial Independence, Happiness, travel

You would have seen so many posts from me on compounding and rates of return and long term planning to build a large asset base even with small monthly automatic deductions from your account.

The objective of doing all this is not to stop living today for a better tomorrow.

The idea of financial freedom that I talk about is to ensure that you are no longer forced to do things for earning money. I have always wanted to have financial freedom so that I could go out and achieve all the items on my bucket list.

These items on my bucket list are what will give me experiences with my family which will in turn make me happy. I have already shared how I used these principles to travel to different countries.

The end objective of getting Financial Freedom and Financial Independence is Happiness today and in the future.

If you have to work in a job ,which does not make you happy, just because you don’t have the money then you find another job or use the magic of compounding so that over a period of time at least you are in a position to leave the job and do things which make you happy.

Through intermediate milestones, in accumulating wealth, you use the wealth to get experiences . Wealth is not to be accumulated for the sake of getting to a number. You have to enjoy the journey and be happy through all of it.

Till next time then find reasons to be happy.

Carpe Diem!!!

Prioritizing the top 3 or 4 for your financial freedom

compounding, Financial Independence, Karma, prioritizing

I have spent so many posts on talking about how you can hit financial freedom. Today I will give you the 80/20 of what I think are the key things I have learnt over the last few years.

The compounding equation – Sum = Principal*(1+(Rate of Interest)/100)^Number of years. Since the 80/20 is fractal prioritizing on the Rate of Interest and Number of Years is critical. Compounding works both ways. If you have taken a loan it works against you and if you have invested, it works for you. The earlier you start your journey to utilize this equation the richer you will become, faster
Taxes – Be an honest tax payer, pay what is due and in full. However utilize all the avenues the government gives to save on taxes.
Always look at increasing your earning capability – so that you can hit your goals for financial freedom faster. Scrimping your way to financial freedom is a long arduous journey.
Always give charity. Its good Karma. In some countries the government also encourages you to give charity by giving tax benefits – refer to point 2 above.

There’s so much depth in understanding just these 4 statements that complete books have been written just to cover these topics.

Since the topic is about prioritizing I will keep the post short. Just focus on these 4 statements and keep finding within them the areas where small effort can give huge returns . Again small hinges move large doors.

Till next time then.

Carpe Diem