Take your first step…you can fulfil your dreams

Affirmative action, compounding, Financial Independence, travel

I was just reading a post by Ramit Sethi from I Will Teach you to be Rich. One phrase struck me , almost at the end of the post and I quote ‘when I tell them what to do, no one does it’. ……you can read the whole post by Ramit Sethi here.

I have spoken to you about my ever expanding bucket list in my earlier blog post. One of the items on the list was to go to NYC with my family

I was watching the news on television today and they were showing how the streets of NewYork City were completely deserted due to the Covid-19. This was in complete contrast to seeing the same streets in December after Christmas, when my family and I visited NYC.

We were staying at the Newark airport Hotel complex and took a cab to come to NYC. I had brought my family for the first time to NYC and wanted to show them Times Square, the Licnoln Tunnel, Central Park, Statue of Liberty etc. There was so much traffic that it took us more than an hour and half to reach Port Authority from where we decided to walk down to Times Square because the traffic was just not moving. There was absolutely no place to even walk at Times Square. We still made our way, inspite of all the rush, to the Christmas tree at the Rockefeller Center. Inspite of all the rush we still went to Macys and ate the hot-dogs from the street food vendors. You don’t get better hotdogs than the ones on the streets in NYC.

This week I was supposed to be in the US again for an IBM event which got canceled because of the Covid-19 pandemic.

I firmly believe, there is a time for everything. I could have delayed my family trip to NYC to coincide with this trip but then we would not have been able to see NYC. It would have just remained a dream and part of my bucket list. But when the opportunity came late last year we were ready to grasp it with both hands.

God has been kind on us that he gave me the inspiration to start my investment building in 2013. Eventhough I started much later than a lot of people, I still took my first steps and started. Which brings me to why the blog post from Ramit Sethi resonated with me. People know a lot of things, they wish someday it will happen but they don’t take their first step to start making things happen. I have been urging you in various posts been to take your first steps…..I am nothing special, you can also aim to achieve your dreams and achieve them one by one. But take your first step.

Once you take the first step, then the second and so on, momentum starts building. If you recollect your grade 7 science lecture, a water melon can have the same impact as a canon ball if its given the right momentum.

Let the magic of compounding help you get to your dreams.

Go on seize the day!!!

Investment strategies for young working women – Part 1

Financial Independence

Last week we had Women’s day. There were a lot of articles on women empowerment, how women have broken glass ceilings etc. While a lot of women today have become very capable leaders with very high education, we still don’t teach our daughters, sisters, lady colleagues on the simple concepts of creating wealth for themselves.

While general principal’s of compounding remain constant for everyone, for women there are certain nuances which women face depending on the stage of life they are in.

However the biggest mind-block I have seen with women is that they think investments, finance are related to maths and a lot of them think they are not capable of doing financial planning. It could be because they were not good in maths and therefore cannot understand the nuances of investments. They would rather leave it to their father or husband.

In this post I will talk about a girl who’s just finished her education and has decided to go for a job and she thinks marriage is 5-7 years away. She may have taken a loan for her education or has done her basic education and wants to fund her higher education on her own so that she does not need to take a large loan.

Now inspite of whatever I write, the first thing to keep in mind is don’t do anything which causes you to lose your sleep. Having said that however be a little open to trying new things. Maybe just that one new thing that you try may change your life dramatically.

So I will talk of just 3 simple concepts to keep in mind

1. Rule of 72 – everyone of you has a calculator. All you have to do is remember that this magic number can tell you everything about doubling your money.

If you know the amount of interest that an investment is giving then you know the approximate time it will take to double your money.

a. Your savings bank deposit gets about 3% annual interest. So if you have 100 in your account and you don’t touch it for one year then at the beginning of the next year you will have 103. At this rate of interest if you want to find how long it will take to double and make the amount 200 you just take your calculator and divide 72 by 3 to get 24. So if you don’t withdraw the money from your bank for 24 years you will have 200 in your bank.

b. Banks also have fixed term deposits where they give 6-7% annual rate of interest…suppose you were to put the same 100 in such a deposit you would need to divide 72 again by 6 and in 12 years you get 200

2. Rate of interest – which brings us to the second important item which is rate of interest. The bigger is the number by which you divide 72, the lesser is the amount of time to get to double your money. Which means higher the interest rate you will take less time to double your money. Generally speaking you need to keep one thing in mind….as the interest rate starts climbing higher the amount of risk that you take with your money is also higher.

3. Identify your goal – if you don’t have your goals defined you are not be able to define what is the right amount of distribution of investments that you need to make. Then use the following graph to map to your goal.

So if you are this young girl who wants to say go for her MBA after getting a work experience of 4-5 years and you need USD 50000/- as an example. The brown line on the map is the number of years you have for your goal and the blue line shows the kind of interest you need. So on the yellow line plot the 5 years and on the blue line straight above the 5 corresponds to about 15% interest. So if you need to get USD 50000/- in 5 years from now and you get an investment which is giving you 15% interest then USD 25000/- invested today will give you USD 50000/-, 5 years from now.

Now lets use the same picture and see what happens if you are only getting interest rate of 10%, then on the blue line check for 10 and then put a pencil on the brown line right below 10 and it will show you it could take you seven and half years. So now you may need to save more than 38000/- dollars so that 5 years from now you will have close to USD50000/-.

You will see that in the picture while the blue line goes as a straight line, the brown line is non-linear. This is something we will explore in a later post.

Till next time …. Carpe Diem!!!!

Rabbit and hare – why I am repeating the story

Financial Independence

As kids all of us were told the story of the rabbit and the hare. While I don’t intend to tell the story here, the implication of the story are more important to investing than all the “gyaan” and financial numbo jumbo needed for becoming wealthier.

The basic premise of the story is that consistency even if you take very small steps is more critical than large irregular bursts.

The hare takes short bursts and then stops to rest while the rabbit keeps nudging small steps on a continuous basis.

For compounding to work, it is the consistency which is critical. That is why a systematic investment on a regular – weekly/monthly basis is more critical than investing a large sum at irregular intervals. Over here I am assuming that you are not a person who already has a large amount of money. (If you already had a large amount of money you would not be reading my blog anyway.)

There are 2 psychological issues which you need to keep in mind.

When small amounts of money keep getting deducted from your account on a monthly basis, it does not hurt and your spending patterns adjust with the little less money that you have in your account. But because compounding has less to do with the amount and more to do with the tenure and rate of interest, it works perfectly – like the rabbit – in building your wealth.

However I often hear people tell me that they would invest the money that they get in their annual bonus or sales incentive. While its a very good idea to invest the money that you get as a bonus(and not spend it), generally humans discount the bonus that is expected. So by the time the bonus actually arrives, there is a new microwave to be bought or their is a holiday to be taken or there is a relative’s wedding for which new dresses have to be purchased or there is a medical emergency for which the amount needs to be spent and then you never end up doing the investment.

I was part of this story for most of my life till 2013. I always intended to put the next major increment or bonus for buying my own house or making investments. But it never happened. Life just passes by and some new emergency, urgent expense etc. kept propping up and I did not have any major assets.

By starting very small investments on a regular basis from 2013 I was able to build consistency in my investment plan. The ups and downs of the market don’t bother me because I am getting to do averaging of my costs of the investments. Due to this I am able to build a core to help me work on ticking out items from my bucket list.

Whether you do any other new year resolution in 2020, take one step to carve out 3% of your monthly income and make automatic deductions for some investments. Slowly as you grow used to having 3% less income, raise the amount to 5% of your income and then to 10%. Check out your bank if they have any mechanisms to make this kind of deduction for investments. Today is just the 8th day of 2020….take action for a better, wealthier life.

Carpe Diem!!!

Investments as confidence builder

Financial Independence, Uncategorized

I have been writing about how investments can help in getting financial freedom. Have written extensively on how even a few percentage points of differences can make substantial differences in your earnings in the long term. Have also shared about how having different buckets of investments can also help you plan your vacations or other activities, which can make you happy.

Yesterday I was reading a book by Dean Graziosi – Millionaire success habits. While this book is not about investing styles and strategies, I would highly recommend you reading this book for the overall enhancement in the quality of your life. It helped me identify a few blindspots which I didn’t know I had.

In one of the chapter’s. he talks about stacking some money from whatever you earn to increase confidence. This was a new take on a topic dear to me.

I have also written earlier about how even very small amounts invested over long periods of time can make you wealthy, because the amount is never the issue…. it is the duration and the interest rates which determines how wealthy you can become.

Dean’s logic is that when you stack even small amounts, it gives your brain the satisfaction that there’s money for a rainy day and therefore you feel better, more confident and your decision making improves.

I would think confidence is a precursor to multiple things other than just pacifying your hyper active brain and taking decisions. When you are confident, you are buy definition not fearful. As per a study human beings have 70-80 thousand thoughts in a day out of which more than 70% are negative thoughts. Since our brain still has “fight” or “flight” response to most things these negative thoughts spiral into some of the other kind of fear.

Fear can be from you losing your job to your health to speaking to an unknown person or speaking in public. Most of the fears however boil down to either not having money (food) or health which are the most primal fears going back to the time when we lived in forests and hunted for food.

By stacking money and investing it you can give your brain positive inputs so it does not go into the fight or flight mode.

In addition the compounding equation starts playing. An ideal way to do this would be putting regular amounts into SIPs from mutual funds or into SIPs of ETFs. You can start SIPs in India from as low as Rs500/- (USD 7/-) per month.

Most people, like Tony Robbins says so often, over estimate what they can do in one year but under estimate what they can do in a lifetime. This Rs6000 (Rs500*12months) will become close to Rs100,000/- (USD 1500/- ) if invested for 20 years at an interest rate of 15%. If every year they were to invest a similar amount, then after the 20th year, EVERY YEAR, even if they don’t invest anymore they will definately have Rs100000/- coming without effort and securing their future.

Now if you know that even the small amounts of money that you are stacking will ensure your future, you would be able to take on your “present” with more confidence. And if you make your “present” better, your future will automatically turn out to be better because your future is based on the foundation of your “present”

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