Quotes : Millionaire Next Door

Whatever your income, always live below your means

-  Thomas J. Stanley, The Millionaire Next Door

How to Retire Early : Equities, Equities and More Equities

If you have been reading early retirement blogs regularly, and researching the web and books for strategies to achieve your early retirement goals, you must be very clear in your mind that saving a large enough corpus for early retirement is a very daunting task.  

In India, and I am sure pretty much everywhere else in the world, saving enough just for a regular retirement wherein you retire by 60 years, is tough enough.  Amassing wealth at a faster pace, so you can accumulate a sufficient corpus at a younger age, and leave the daily grind of the corporate work force, is a mind boggling challenge.  

I have written before on this blog about the need to save as much as possible, as a percentage of your take home income.  However, I am also looking for ways to increase my return on investments, to accelerate the rate at which my total corpus grows.  

Networth Calculator

Earlier I had posted a web article, describing how much net worth you should have accumulated by a certain age, with a table showing how you can calculate your expected networth, based on a few assumptions that you can make.  Here is a online calculator that you can use to estimate your expected networth with any starting assumptions you want to make, suitable to your personal situation.

Here are some recommendations on how to use this online calculator

Am I Saving Enough?

I had published this post a couple of days ago, based on a concept borrowed from the book "The Millionaire Next Door" about your expected networth or corpus at any given age.  The post describes how to calculate your expected networth assuming you save at a certain rate, and your investments and salary grows at a certain rate.  Since that post, I have got several queries from readers for their specific situations that I am doing my best to respond to.  One recurring question is around the annual salary assumption I have made.  Since different people have different salaries when they started, either higher or lower than my assumption in the table calculation, the common question is, how do I calculate my expected corpus for my salary situation.  

How Much Money Should I have Saved by Now ?

Ever wonder how much money you should have saved by now?  Or more specifically, what should your networth or total corpus be at this time?  I am sure as you are saving and investing for retirement or any other goals, you must be thinking, am I saving enough, and is my corpus growing at the right pace?  How am I doing compared to others?  If you have these questions, don't worry, you are not alone!  We all think about this every once in a while, I am sure.  

You must have heard about this book called "The Millionaire Next Door" that talks about, among other things, the concept of networth and provides a simple formula for how to calculate your expected networth over time.  Like most books, this one also is based in the US, for American readers, and hence the thought process caters mostly to their situations.  

However, the concept is definitely interesting, and something that I figured can be explored in the Indian context as well.  So here is my attempt to calculate the expected networth or corpus for the Indian context.  

Locking in Losses

We are in the last week of the Financial Year, here in India, and it is time for me to lock in any short term losses that I have incurred in my direct equity investments this year.  This is something that I routinely do at the end of the tax year, due to the way taxes are structured in India.  My goal is to lock in STCG (Short Term Capital Gain) losses, to either offset any STCG gains from this year, or from future years (since you can carry over STCG losses into the next year) Remember you cannot write-off STCG losses against salary income.  Also note that LTCG (Long Term Capital Gain) losses cannot be written off against STCG gains (They can be written off against LTCG gains, but then LTCG taxation on equity is NIL, so there is no real benefit)

Building Wealth One SIP at a time

The bulk of my financial investments are in equity markets, since I believe that is the best way to create and build wealth.  However, I suck at picking stocks, since I have little formal education in how to analyze companies, balance sheets, and business models.  Instead I rely on Mutual Funds to do all the hard work for me, and pick the right stocks.  

The cornerstone of my MF investment strategy has been HDFC PRUDENCE fund.  This is a hybrid or balanced fund, that invests upto 70% of its assets in equities and the remaining 30% in debt instruments.  You can look up websites like valueresearchonline.com to analyze fund performance, stock holdings, etc.  The bulk of the wealth creation for me over the last 10 years has been through HDFC PRUDENCE.