Tag: financial

How women in India can change the destiny of the country

How women in India can change the destiny of the country

Last few days I have had a writer’s block .  Since my last blog, last weekend, I had been thinking on what should be my next topic but it just wasn’t getting structured

And then today I was listening to the podcast at the Tim Ferriss( tim.blog .)  He was interviewing the author Daniel Pink.

There were many Aha moments…but this post is not about that podcast.During the interview Daniel mentioned that one of his professors once told him that sometimes you just need to start writing and things will get figured out.

That suddenly hit a chord with me.  So here we go….

I was reading the Entrepreneur magazine’s India edition and here I saw couple of very interesting facts.  One of them was an article by Nobel prize winner Muhammad Yunus. He is the man behind the concept of micro finance which has empowered so many women .

One of the things he mentioned in the article is that if illiterate and poor women can transform themselves into entrepreneurs imagine what would happen if millions of high school and University graduates are empowered.

This got me thinking. If we discount for about 30% of India’s population to be children and old people, then out of the remaining 1 billion people you have 50% of them as women. What would happen if these 50% women came into the workforce- either as entrepreneurs or as workers, what would happen to the GDP of our country.  About 400-500million more people in the workforce, which is expected to be the youngest workforce by 2030.

Last year I was in Canada during their 150 year celebrations and I realised that its GDP is close to two and a half trillion dollars, while India’s GDP is also close to 2.5 trillion dollars. However Canada’s population is less than the population of one city in India -Delhi NCR, about 3 crores (30million). India’s population is more than 125 crores(more than 1.25 billion).

In the same issue of the Entrepreneur there is another report which says that if women’s participation in the Indian economy goes up the country’s GDP is likely to go up by 60% that is an amazing figure

If only our women believe in themselves and if we can give them a supporting hand there is massive prosperity which can be created in this country.  Right now for a lot of families in India, buying 3 meals is the biggest outgo of money.  Once each family has multiple earners and expenses on food become a minor part of the spend, then families will educate their kids, they will take better care of them.  and people will spend more on non-food items.  These are exciting times if we take our destiny in our own hands.

Capre Diem!!!

 

 

 

Living carefree forever

Living carefree forever

Last week I saw this movie “102 Not Out”.

It stars 2 of the best actors in Indian cinema Mr Amitabh Bachchan and Mr Rishi Kapoor. It’s a very sweet story about a 102 year old father and his 75 year old son.
The son has lost his interest in doing anything in his life while the father is still active over the age of 100. It is an extremely sweet movie which I would recommend everyone to watch.

The movie got me thinking on how this person would have lived his life from retirement, which in India is typically at age 58, for another 40 + years.

For sure he must have had enough Investments that could last him for 40 years of zero regular income.

The average age that an Indian is approaching 70, what that means is for every 38 years of working life the average Indian will now have to survive without the facility of a regular income help him through those next 10-15 years

Given that medical expenses and medical inflation are at such high levels you really need to think how will you survive without asking for any assistance from your children

There are very few things which are inflation proof and especially for an economy which is growing so rapidly and looks to become the third largest economy in the next 15 to 20 years, inflation pressures will always be very high.

So you need to think in terms of what are your investments and what kind of returns will they give you for you to survive for those years when you don’t have a regular stream of income and still have the will to enjoy like Amitabh Bachchan in 102 not out.  You need to celebrate life not live a life of drudgery.

Tell next time
Carpe diem!!

There is nothing sexy in the process of achieving financial freedom

FB-YOUR-STORYOver the last few years I have been reading a lot of books/biographies/auto biographies to find out some kind of drama around suddenly amassing a fortune.

Somewhere I had this feeling that there must be a magic formula or providence would strike and I would definitely be as rich as the Oracle of Omaha –  Warren Buffet. I read the Snowball by far one of the most authentic accounts of his life and other books on him. Found nothing dramatic or sexy in it.  As a matter of fact you sometimes find them boring because their life seems to have the same twists and turns.

I read Tony Robbins and his “Unshakable” and “Money – Master the Game”. Then among others I also went out and read Ramit Sethi and Richard Koch. Again nothing romantic that could suddenly help me leave my job and do what I want to do.

Now most of these guys are seriously rich so they must be doing something right.  Some definitely had their take on finding different ways, like Richard Koch with his fundamental book on 80:20.

Well if you remove the stories and hype surrounding these guys…they just ensured they were following a system continuously for the long term.

They had the same short term distractions that you and I have.  Some of them may have some luck on their side sometimes.  However they just kept at the system they decided they would follow to achieve their freedom.

Unlike me and a lot of us.  We get distracted with things, which when they appear, seem to be big.  But when you look back at life they were small blips but they broke us away from our long term goal.

Irrespective of the path you want to follow, ensure that short term blips do not deviate you from your long term goal.  There will be zigs and zags but keep at it

Carpe Diem!

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Why you SHOULD buy a house

What a contradiction….

Last time I gave you all the reasons of why buying a house (in India especially) did not make sense.

I have a friend Sanjay, who almost 27 years back had given me a very nice philosophy, which I did not heed. But the older I have grown the more I have realised, his was a better thought process.

He used to say ‘ pehle dukaan phir makaan’.  For those of you who don’t understand Hindi, it means….if you have some money, first buy a shop (invest in a business), because once the business succeeds it will generate so much money that you can buy many more houses or larger houses.  The fundamental issue over here being that if you have money and can invest in a productive asset which can supplement your cashflow then building assets and creating wealth become even more easy.

A real life example of this was the landlord of our office in Gurgaon.  He had 7-8 properties which he had rented out to offices.  Each of those properties was getting him a passive income which he was utilising to buy even more properties and he did not need to work.

I would strongly recommend reading Robert Kiyosaki’s  book “Rich Dad Poor Dad”. It  talks of a similar philosophy where cash flow (passive income) is important if you want to create wealth.

So coming to the topic of this blog….you Should buy a house if you can give it on rent and get passive income. You Should buy a house in a locality where businesses and a young migrant population are growing.  From that income you could buy more houses.

Most young people in the technology and services industry today carry home huge bonuses if their company succeeds.  Utilise a portion of that money to put in an asset which can give you passive income.  Once the passive income starts you get the opportunity to start thinking in ways of growing your wealth.

Till next time then…think your way to financial freedom through Passive Income!!!

Why you should not buy a house to live

Why you should not buy a house to live

For most Indians having a house is the first investment that they ever make.  Even the government gives subsidies for taking your first house.  The first house is an emotional issue for most middle class Indians.

After getting a job an Indian male is expected to work for the next 2 to 3 years and then get married. After marriage husband and wife want that they have a house of their own as their first investment where they can live on their own.

So after the person has started working and for 3 years has saved something he gets married spends his savings immediately for expenditures after marriage. Then he starts saving for a house and takes a loan to buy his first house.

Now the company giving the loan is more than happy to give him a longer duration loan because they also realise that compounding helps them make more money.

While paying for the instalments the husband and wife end up completely blocking their liquidity for the next few years.

As time passes you have the family growing and the investments never happen.
Suddenly at the age of 45-50 the couple realise that they will retire in the next 10-15 years. Life has just passed them by.

I did the same thing incidentally, so I know what this couple goes through.

The house I bought by investing Rs 200000 and taking a loan for the remaining 1900000, costed me over the next 15 years a total of rupees 3700000/- and the hardships that we had to undergo because of not having spare cash.

If I take out the benefit of tax that the government of India gives, I ended up paying a total of rupees 3300000/-. Today the value of the house is about Rs6000000/- so net gain of Rs2700000/-.

If I had invested the same monthly instalments in equity over the next 15 years (less the rent I was paying and less the tax benefit I got) I would still have invested every year about Rs150000/-.

The 200000 plus the 150000/- every year for the next 15 years in the conservative NIFTY index would have resulted in me getting approximately Rs100,00,000/-. At this point I could have bought the same house on cash and still have 4000000/- to spare or I could have bought a much bigger flat.

Now there is always this issue about staying in a rented house versus buying your own house… If you can manage to stay up in a rented house for a longer time and if the rent is controlled then you can hold back the fixed cash flow that you will have to shell out when you take a loan for your house. The rent also gets the income tax benefit.

Some of you may come back to me saying – the house also appreciates…. That’s true but the appreciation of any property even in a place like Bombay has not been more than 10 to 12% compounded over the last 35-40 years…. An investment at 15% will beat the appreciation of the property anyway… The second and more important point is, if the house is where you are going to stay then its appreciation has no significance because you will not sell the house in which you are staying and live somewhere else.

Now my intention of the headline is not to stop people from buying a house in which they should live… but the appreciation of the house and the interest rate that the loan company charges actually kill the capability of the couple to ever create wealth.
You should buy the house where you take a loan such that the interest payments get both the husband and wife a tax benefit and therefore the cash outflow is low. You should first invest and create a corpus which appreciates more than the value of property and from that corpus take out enough money and do a down payment so that the interest outflow is just enough for qualifying for a tax rebate.

Till next time….

Retire at 36 ….part 2

When we are young and you ask me to save 60% then what are we earning for….if we cant enjoy when we are young, when do we enjoy.

Instant gratification is a the bane of becoming wealthy.  If you read The SNOWBALL-the biography of Warren Buffet, among the richest men in the world, you will realise the benefits of delaying gratification.

There are 3 other ways of looking at the same discussion which I put out in part 1.

Suppose you were to target a corpus of Rs3crore (30 million) at the age of 36 and today you are at 21.

An alternate to the 60% of Rs500000/- could be that you take your initial job at Rs10,00,000 and invest Rs400000/- in the first year and increase the investments every year by 5%  for the next 15 years.

Or you could take a job at Rs500000/-, in the first year save only 40% but in the subsequent years increase the investments every year by 20% instead of 10%.

The last option is to not take up a job at all. Become an entrepreneur. An entrepreneur has the potential to grow earnings geometrically.  The reinvestment in your own business can grow more powerfully than investing anywhere else.

At the end of the day the idea is to do what you love and love what you do….for that invest early so your nest egg can grow faster and then you can enjoy life forever.

Till next time…Placeholder Image

Retire by age 36…

Retire by age 36…

After my last post some people mentioned why I don’t lay emphasis on asset allocation.  I am not a financial planner so I wont be able to comment on that.

This blog was started so that people, who are my son’s age, learn the basics of money and how to make money work for them.  Unfortunately our education system doesn’t teach this.

The idea of financial freedom is the ability to choose what you want to do in life, rather than money dictating what you “have” to do.

With that in mind there is no doubt that equity has been the biggest compounder over the last 30 years in India.  Even if you just invested in the BSE Sensex alone you would have compounded about 15% over the last 30 years.  If you remember the maths from my earlier blog…that would mean that 6 periods of 5 years.  By the rule of 72, every 5 years the money doubles.  So in 30 years 10000 invested becomes 640000/-

My advice to my son and others his age (in the early 20s) is very simple.  If you can invest about 60% of your income, only in equity over the next 10 years…you can be financially free to do what you want after the age of 36..  The type of equity that you choose can vary.

Assume you are 21 years of age and earn Rs 500000/- per annum and every year get an increment of 10%….you invest 60% of your income – i.e Rs300000/- per annum.  If you invest and get 15% return then every 5 years this amount doubles…by the age of 36 this amount will become 24,00,000/-.

For the next year you could save 330000/- by the age of 36 this amount will be close to Rs23,30,0000/- . The next year’s number will be Rs22,00,000/-.  At the end of the 15 years, you will have more than Rs 30000000/-.  (Rs30 million!!) as your asset base.

This does not mean you won’t work after the age of 36….but when you have this kind of an asset base, you will do the work that you love.

Asset allocation for these young people can be thought of later.  The India growth story has along runway in my opinion.  At this young age I would not like them to play defensive because even small interest rate differences, can make a huge difference in their wealth.

If you are interested there are blogs by J L Collins and Money Moustache which I have found very interesting.  While they talk with respect to the US market the underlying concepts remain the same.

You can retire by age 36 and do what you love.

Carpe Diem!!!