Case Study
- Objective: Achieve Financial Freedom in 6 years.
- Age: 40 years
- Suppose you are earning Rs.5 Lacs per year. It means you are living as a capital which is earning Rs. 5 Lacs per year.
- To obtain Financial Freedom you must replace this earning power of yours by creating passive income from your investments. To do this you have various choices of investment pockets from safe to risky giving you 6% to 36% or more.
- But most of us believe in safe investment pockets.
Are safe investments really safe?
- Let us check this by an example
- To create Rs 500000 from the 6th year one needs to invest the amount corresponding to the rate of return he choses.
| YR | AGE | PERIOD | WITH- DRAWAL | O/B | INVEST | INTEREST @ 6% | C/B |
|---|---|---|---|---|---|---|---|
| 2011 | 40 | 0 | 0 | 2500000 | 0 | 2500000 | |
| 2012 | 41 | 1 | 2500000 | 2500000 | 150000 | 5150000 | |
| 2013 | 42 | 2 | 5150000 | 2500000 | 309000 | 7959000 | |
| 2014 | 43 | 3 | 7959000 | 2500000 | 477540 | 10936540 | |
| 2015 | 44 | 4 | 10936540 | 2500000 | 656192 | 14092732 | |
| 2016 | 45 | 5 | 14092732 | 2500000 | 845564 | 17438296 | |
| 2017 | 46 | 6 | 0 | 17438296 | 2500000 | 1046298 | 20984594 |
| 2018 | 47 | 7 | 500000 | 20484594 | 1229076 | 21713670 | |
| 2019 | 48 | 8 | 550000 | 21163670 | 1269820 | 22433490 | |
| 2020 | 49 | 9 | 605000 | 21828490 | 1309709 | 23138199 | |
| 2021 | 50 | 10 | 665500 | 22472699 | 1348362 | 23821061 | |
| 2022 | 51 | 11 | 732050 | 23089011 | 1385341 | 24474352 | |
| 2023 | 52 | 12 | 805255 | 23669097 | 1420146 | 25089243 | |
| 2024 | 53 | 13 | 885781 | 24203462 | 1452208 | 25655670 | |
| 2025 | 54 | 14 | 974359 | 24681312 | 1480879 | 26162190 | |
| 2026 | 55 | 15 | 1071794 | 25090396 | 1505424 | 26595820 | |
| 2027 | 56 | 16 | 1178974 | 25416846 | 1525011 | 26941856 | |
| 2028 | 57 | 17 | 1296871 | 25644985 | 1538699 | 27183684 | |
| 2029 | 58 | 18 | 1426558 | 25757126 | 1545428 | 27302554 | |
| 2030 | 59 | 19 | 1569214 | 25733339 | 1544000 | 27277340 | |
| 2031 | 60 | 20 | 1726136 | 25551204 | 1533072 | 27084276 | |
| 2032 | 61 | 21 | 1898749 | 25185527 | 1511132 | 26696659 | |
| 2033 | 62 | 22 | 2088624 | 24608035 | 1476482 | 26084517 | |
| 2034 | 63 | 23 | 2297486 | 23787030 | 1427222 | 25214252 | |
| 2035 | 64 | 24 | 2527235 | 22687017 | 1361221 | 24048238 | |
| 2036 | 65 | 25 | 2779959 | 21268279 | 1276097 | 22544376 | |
| 2037 | 66 | 26 | 3057955 | 19486422 | 1169185 | 20655607 | |
| 2038 | 67 | 27 | 3363750 | 17291857 | 1037511 | 18329368 | |
| 2039 | 68 | 28 | 3700125 | 14629243 | 877755 | 15506998 | |
| 2040 | 69 | 29 | 4070137 | 11436860 | 686212 | 12123072 | |
| 2041 | 70 | 30 | 4477151 | 7645921 | 458755 | 8104676 |
- If one’s income is Rs. 5 Lakh it is almost certain that he is not going to invest Rs. 19 Lakhs per annum.
- Thus making it impossible to achieve Financial Freedom with invest
| Rate of Return | Yearly Investment for 6 years |
|---|---|
| 6% | 25 Lakhs |
| 8% | 14 Lakhs |
| 12% | 8.45 Lakhs |
| 18% | 4.66 Lakhs |
| 24% | 2.95 Lakhs |
| 30% | 2.04 Lakhs |
| 36% | 1.49 Lakhs |
- From the above example we can see that if we are managing our investment in 6% to 18% it will not allow us to create Financial Freedom for us.
- So it is advisable to Learn Investment and Learn Managing Risk than Think about Safety only.
- Ask Yourself. How safe are safe investments and how Risky are Risky Investments?