Planning savings for a home and retirement fund early in life destroys your risk appetite for greater wealth

Plan to retire by 50 even if you do not do so -2nd golden rule of investment

Let us say that you start doing the planning at the beginning of your career at the age of 20.

What would be your goal considering that you have around 40 years of career life ahead of you. I would recommend that you should plan for a comfortable retirement after 30 years of working so that you can live and enjoy a stress-free life from the age of around fifty. Even if you are working till sixty or seventy you should be working for pleasure and not for the money once you reach the age of fifty. This is the second golden rule of investment.

Your planned savings should provide you with enough security after thirty years of work that you do not need to work for money. Why do we focus on this fifty-age group when talking about retirement? Fifty is roughly the age when your children are grown up enough and stepping out into the world on their own. Either they have finished their studies or close to that stage. So, your family responsibilities have either vastly diminished or are reducing. It is also that time when you must gear up for your last big financial contribution to your family, which is your daughter or son’s wedding.

Recurring income is as important as your home

So, let us understand the average persons needs after the age of fifty. One home and one recurring monthly income that is higher than your salary at the age of fifty. Only if you have the comfort of the two you can rest easy for the golden years of your life. At times, it is even better not to have your own home but focus on a higher recurring income that provides you with the means to rent a comfortable home as per your needs and location of stay.

The key question is how to ensure a high recurring income, that is significantly higher than your take home pay or business income at the age of 50. You must realize that at the age of fifty you are usually at the zenith of your professional career. It is then that your income peaks and so does your expenses. If you can get a recurring return from your planned savings that exceeds your expenses at the age of fifty then you are well invested.

Planning your home and retirement savings starts at 30 – 3rd golden rule of investment

A lot of people would advise you to start investing in a home and a retirement fund just as you get a job. That is patently wrong because if you start doing that you get bogged down early and cannot take a flying start to greater wealth. So instead of taking advantage of your youth and your risk appetite to grow rich you get yoked in slow paced asset building that possibly helps the wealth building of your banker more than the home buyer.

Use the first ten years of your life to invest in high-risk, high-gain investments. As discussed before, these investments should be at least 60% in stocks and the rest divided in mutual funds or bonds and fixed deposits. We have also discussed that out of the 60% stock investment it is prudent to make sure that half of them are blue chip stocks and 50% are low priced high-risk and high-gain stocks. As you reach the age of 30 you need to liquidate the high-risk and high-gain stocks over a period even if you have not profited from all of them. Use that liquidity to create the first capital block for your home investment. In the next article, we will talk about how one should start asset building after the age of thirty.