Want to Retire Early and Enjoy Life, You can do it this way !!

Enjoying life is everyone’s dream. Given a choice many of us would like to get out of the corporate race, and spend time to pursue hobbies or like spending more time with family, travelling around the world,  philanthropy work or  even starting our own business. However most of us could not do it as we have various personal and family commitments which keep us on our daily routine working life.

So is there any solution to get out of the regular life and enjoy it, Let’s find out the ways and means to achieve this. 

1. First find out the Money Required:

The first step is to find out how much money will be required if we stop working.  It will have two figures: first the annual cash flow required for meeting regular expenses and secondly the size of the corpus needed to generate that much annual cash flows.

As a thumb rule we will need approximate 80% of pre-retirement expense (some working expenses like travelling etc may go away) to live same life style. However it can vary based on our future plans the actual number could vary. So first we need to get that figure which we need to meet our expenses.


2. Calculating the Retirement Corpus

We can expect that if we withdraw 4-5% of our investment portfolio we can comfortably live with that portfolio for our remaining life. This is based on the assumption that the corpus will generate around 6-10% annualised return.

Accordingly, let us assume that we need a monthly income of 50,000 i.e. annual income of Rs.6,00,000 per year, then you need to create a portfolio of Rs.1.20-1.50 crore which is 20-25 times of our annual required income. However we should also remember that prices will rise due to inflation and that is also to be factored in.

3. Increase the Income: 

Once we have arrived at the corpus size required, the next step is to create the corpus of that amount. For that we need to save as much as possible from our monthly income as well as one time cash flows like bonus etc.  Further if we believe that reaching the desired corpus is difficult by the time we wish to retire, then we should find out ways to enhance our income. There are multiple ways to enhance the income i.e. by improving our job skills/ qualifications, taking a part-time job, set up a side business etc or a combination of all. 

4. Borrow only for necessity: 

Borrowing means living on the future incomes, so if we want to build a sufficient retirement corpus we should keep away from unnecessary loans (like buying costly electronic items in EMIs) as it reduces our present cash flow to service the debt. Further if we are in habit of borrowing, we may carry some debt during your retirement period. This will increase the cost of living post retirement. This will result into bigger retirement corpus to service the debt too. 

5. Be Realistic:

Some time to show off the outer world we get into those kind of expenses which drains out our regular cash flows. Suppose if we buy a big house which is not required, we may end up paying bigger EMIs and maintenance cost, expensive furniture and fittings, utilities, etc. this leaves very little money to do anything else. If we get into these kind of expenses, building a retirement corpus will be more difficult So, our housing loan should be well within our comfort zone as it is not only a long-term expense but also have an impact on our future cash flows.

Retirement is nothing but financial independence. To achieve financial independence we need enough money to create income to support our lifestyle for the rest of your life without getting employed. Although it is difficult but still possible if we can apply the above strategies. 

Credit Cards!! Are they Good or Bad & How can we use it smartly!!

One of my friend has taken a credit card long time back. He got a good credit limit and as soon as he got the card he started using it freely: anywhere and everywhere for items which he may not have otherwise bought, without bothering how will he pay the bill which will come next month. When the bill came he realised that he cannot pay the entire amount in one go so he used the rollover (part payment) facility. By the time he actually cleared the full amount he realised that the total amount paid was almost double the amount of actual purchase. Finally he surrendered the credit card by cursing the credit card company.

Are credit card really so bad or dangerous? Well it’s the way we use a product determines the good or bad about it. Any particular thing could be good if used in limited way and can be very dangerous if used without limits/precautions. So how can we use credit cards so that it is good for our financial health and does not create any hazards? We would be discussing about it in this post, let’s understand it in details:

How To Use Your Credit Card Prudently…          

1.                We should know our limit:

All credit cards come with a ceiling limit. If we are a free spender we should choose a card with a low limit and moderately utilise the credit limit, say 30%-40% of our overall limit while keeping our repayment capacity in mind. 

2.               Clear entire dues on or before due date:

Credit card companies provide a free credit period, which means, if we make payments before the payment cycle ends and by the due date, No interest will be charged. However, if we do not make the payments within the due time, we are likely to pay interest which is usually as high as 36%-42% p.a., i.e. 3-3.5% on the outstanding amount due each month. Another important thing is when we don’t clear the dues on time the interest is charged from the date of purchase not from due date so the benefits which we get by the due dates are not available. Further the service tax/GST is also applicable on the interest amount.

3.               Better to avoid using grace period: 

Few credit card companies offer a grace period to settle your dues. Ideally, we shouldn’t wait this long to settle our credit card account. It is better to pay within the free credit period. As availing the grace period may dampen the credit score, and in turn, weaken our eligibility for loan proposals in the future. 

4.               Don’t get carried away by reward points & other benefits :

This is plain business, the credit card company will make money based on how much we use. That’s why they offer credit reward points and various other offers to make us use our credit card as much as possible. That’s a way they earn more revenue. Further in case we don’t make a payment in time, the interest charged turns out to be an additional benefits for them. So, one marketing strategy is to launch attractive reward-point systems that encourage people to spend more on a credit card. We should control impulsive purchases and keep the usage of plastic money under strict control.

5.               Secure the card details:

Now credit card frauds are very common things if we do not take proper precautions while using the cards. We should not store card details, while using the credit card to make online purchases, as they can be misused if the merchant site fails to protect the secrecy of your data. We should always use two-step authentication and don’t allow any ‘fast-forward’ transaction. 

Unless is “https://” on the payment page, don’t enter any payment/personal/card details. By viewing the site information, we can also check if the communication between you and the website is private and protected. Be careful when using at a merchant outlet as well. 

6.               Don’t withdraw cash by the credit card:

If we use credit card, even in an emergency, to withdraw money from an ATM, there is an exorbitant fees charged by credit card companies. We should maintain a contingency reserve, so that we do not require to use credit card to borrow cash. This is very important as it credit card company charges fees in case of cash withdrawal even if we pay by due dates.

Few other points to remember while opting for a credit card

• ·        If we are a spending freak, it is better that we use a debit card instead of a credit card—the first step to rationalise your expenditure pattern.
• ·        Revisit the lifestyle options if our credit card bills are major part of our monthly income. This is a sign that we are overspending.
• ·     We should not use another credit card to settle your old credit card dues called as balanced transfer—this is the beginning of a big debt trap that may haunt over a long time.
• ·    If we are unable to keep our expenses under control, perhaps it is time to take expert’s assistance.

Credit cards can be of great help if we are judicious. If we keep the above things in mind like not making only minimum payments, not paying the bills late and exceeding the credit limit, credit cards can be real handy.