Six Figure Income

Have you ever dreamed of earning a SIX FIGURE INCOME someday? Bet some of you do. But only a handful of us would actually commit ourselves into making our dream comes true. Instead of committing to pursue our dream we often just sit back and do nothing about it.

"The future belongs to those who believe in the beauty of their dreams." Eleanor Roosevelt”

Well, for some people, earning a SIX FIGURE INCOME seems to be an impossible dream to attain. It appears that such belief is absolutely pessimistic. To earn a SIX FIGURE INCOME is possible and within our reach if we possess the fundamental understanding of how wealth is created and accumulated.

By the same token, the depth of our financial knowledge and planning will determine our financial future whether we will retire broke, debt-ridden or leave a huge amount of wealth for our dependence. The choice is ours because we are the navigator of our own destiny.

As Burke Hedges the author of the book The Parable of the Pipeline eloquently writes, “becoming a millionaire is a matter of choice, not chance."

How to Achieve a Six Figure Income and Be Financially Free

Most of you must have heard of people saying; you either be a professional or run your own business to earn a SIX FIGURE INCOME. It is true to a certain extent however, a profession per se does not guarantee one a brighter financial future. Why? Because no matter how much we earn as an engineer, a manager, an accountant, an architect, etc. you will still depend on a paycheck or a fee for a living. So the moment when we stop working, our income will stop flowing in.

Thus, being a professional with a big income is never going to make us financially free. He/she will never make his or her family safe and secure. Burke Hedges calls this group of people a "bucket carrier". He writes," as long as you carry buckets, you have to show up and do the work in order to get paid".

Sound familiar isn't it. This is how the rat-race world works. Instead of working for the money as Robert T. Kiyosaki the author of the best selling book Rich Dad and Poor Dad has pointed out, we should make the money work for us. A brilliant saying!

So how do we get out of this rat-race world? The answer is we need to start thinking on how to make the money work for us. Have you heard of the concept of leverage? It is a concept that is widely applied in all fields of work including the financial world. So what is it all about?

What is leveraging?

Leverage is a phenomenal concept that has been known to people throughout the ages. The root of the word leverage, lever is originated from an old French word that means, "to make lighter." Say, if we want to move an object, which is many times heavier than us, what do we do? That's right. We place a rigid bar on a pivot to lever it and the object becomes so light that even a child can lift it easily.

“Give me a lever long enough and a fulcrum on which to place it, and I shall move the world." - Archimedes

This is the power of leverage. In today's financial world, we apply the same principle of leverage to time and money, and the outcomes are exponential. Leverage allows people to work smarter, not harder, and it is the reason behind the creation of so many millionaires in the last century.

Leverage: The Source of Residual Income

Residual income, which is also known as passive or recurring income, is an income that will continuously generates inflow of money to us after the initial effort that we have put to work or money we have invested in an investment fund. Alternatively, if you are an inventor, your residual incomes will basically be derived from the rights and patents of something you have invented and used by others. The same goes to an artist or a musician.

Two Types of Leveraging

Leveraging Money

Have you heard of Warren Buffet? Yes, the second richest man in the world and a legendary figure in the stock market that earn six figure income by leveraging other people's money and as result he made himself and his investors rich in the course.

Check this out. One share of Buffet's Berkshire Hathaway stock was worth around $19 in the mid 60s and by the end of 1998, the value of that single share has shot up to $70,000. Say, if you have invested $ 10,000 back in 1965, your investment at the end of 1998 would have been worth a whopping $ 51 million. WOW! That's unbelievable. The money was left to compound by itself as time went by. That's how money-leverager makes their millions.

Nevertheless, most of these 'money-leveragers' would only get to see their wealth touches the million-dollar mark after they have reached their 50s or 60s. Though it's a long wait before they could see the result, it is worth the wait anyhow. Wouldn't it be great to be a money-leverager?

Ok, let's be honest to ourselves. Not everyone of us has the patience to wait, not to mention, some of us even find it hard to come up with the initial capital to invest. So, if we don't have the money, what do we have to leverage then? The answer is TIME!

Leveraging Time

A day has 24 hours and all of us regardless whether we are rich or poor, have that same amount of time in a day. Time helps us to level the playing field. We can no longer give ourselves excuses not to get rich. We have been given an equal opportunity in this age where every one of us can have easy access to information and knowledge on wealth building.

All we need to do is to leverage an iota of our leisure time and spend it wisely to build our pipeline [2] that will continuously pay us day and night. Always remember - pipelines are no longer an affair of the rich. Pipeline belongs to people who believe that they CAN do it.

Why Leveraging Time Not Money?

"Life is a waste of time; time is a waste of life; so why waste your time when you could be having the time of your life?." - Unknown

Why leveraging time not money? Well, if you were a money leverager, you wouldn't be here reading this article in the first place. You would probably surfing the net now scouting for stocks to invest or busy looking for real estate properties to add to your investment portfolio. Right? So I believe you are here because you do not have enough financial means to leverage money to build pipelines of ongoing residual income.

Up to this point, I hope that you understand the difference between leveraging time and money. Let us put aside the latter and pay more attention on the concept of leveraging time as I have mentioned earlier that building pipelines through leveraging time is within everyone reach.

In the next few hundred years from now, believe it or not, many millionaires will be created through either one of these two systems; E-Marketing or Network Marketing. Keep your mind open to ideas and let not prejudge it just because that you think it is not your cup of tea.

Perhaps, some of you will comprehend what is written here and proceed to set your own financial goal. Others may just call it a quit before even trying it. Whichever path you decide, always bear in mind this saying by Napolean Hill, "winners never quit, and quitters never win." End

Best Wishes,

FOOTNOTE:

1. Do you know that ALBERT Einstein once said, "Com­pounding is the eighth wonder of the world." Although he was referring to atomic energy, we know that the law of compounding applies just as astonishingly to the financial world as it does to science.

2. "Pipelines are designed to take the worry out of people's lives by putting profits into their pockets. But most of all, pipelines are designed to give people personal and financial freedom and lifelong security." - Burke Hedges, The Parable of the Pipeline

~~~~~~~~~~6 steps to an early retirement~~~~~~~~~~~

For many of us, retiring early is a cherished dream. Only thing: we are unable to take the plunge.

We worry that we could miss the job we seem to now despise, and fear we could run out of our money, sooner than later.

For some of us, it is not even the dissatisfaction with work, the crazy hours and late night meetings.

It is about the inability to pursue what we want to do most -- to sing, to paint, to travel, to work with the underprivileged, to make a difference without measuring success by the salary and the designation.

An online search will throw up about a hundred useful web sites. And there is no dearth of books available. But the gist, listed by those who have been there, done it, are presented here.

Step 1. Be passionate about your pursuit

Those who quit their jobs without a goal in mind were the ones that got bored.

Those who stayed put turned out to be excellent landscape artists, accomplished musicians, authors, teachers, cooks, trekkers, social workers, childcare and old age care specialists, and the like.

So it is important to have the burning desire to do something that brings you joy.

It helps if you already have a hobby and are passionate about it.

Clarity on your post-retirement pursuit is the key to enjoying your new status of being on your own.

Step 2. Being frugal right now helps

You need to be hard-nosed about making choices that help your money run longer.

The savings on your wardrobe and food can be considerable!

No, you do not have to make lifestyle changes that make you cringe in your social circles. You just need to make intelligent choices about how you keep and spend your money.

And, yes, try your level best to go slow on loans.

Try to keep debts of all kind away -- car loans, credit cards, consumer durable loans and the like. Perhaps a home loan could still run with you because of the tax benefits.

Step 3. Invest smartly

If you are not an equity investor, there is a good chance that you have not accumulated enough wealth, or could find yourself struggling to meet inflation-adjusted expenses after you retire.

It is essential to accumulate wealth even as you earn.

Deploy your earnings in equity with the eye of a wealth-builder, so you have a large enough amount to run for you.

The advantage of retiring early is that you still have age on your side and can risk going in for an equity portfolio.

Use the 15 to 20 years of work to build a portfolio assiduously, so you have dividends and income flowing off it for the next 30 to 40 years. Without that nest egg, retiring early can be disastrous.

Equity should continue to be your preferred investment choice, if you expect your savings to last your lifetime.

Step 4. Provide for the essentials

It helps having life, health and disability insurance. Medical bills can be an important drain on your resources, if you have not bought adequate cover.

If you still have commitments that require large sums of money -- children's education, marriage, large home loan -- make sure you have provided for them all. Your ability to take on a huge expense could be lower after you retire.

If you cannot complete them all before you retire, plan for the large withdrawals from your nest egg, well in advance.

To a young person, a crore seems more than adequate to splurge about. But all withdrawals impact the returns on your savings.

Be sure you are in control. It could be wise to look at an annuity to fund part of your requirement, while keeping close tabs on how your equity investments are doing.

Step 5. Plan your withdrawals

Once you have accumulated your wealth, it is important to estimate how and how much you will draw down every year.

If you augment the income with some earnings from your post-retirement interests, it helps.

It pays to draw a plan of your needs for income and estimate how long your money will last.

If you have saved Rs 1 crore (Rs 10 million), and assuming a withdrawal of Rs 6 lakh (Rs 600,000) per annum; an inflation of 4%; and an investment return of 8% per annum, your money will last 25 years.

Use a worksheet to juggle these numbers around.

You must achieve a large enough nest egg to ensure two tings: your investments grow at a higher than the rate of inflation. And the rate of withdrawal ensures your money lasts.

Step 6. Have the right attitude

If you love your business suits and expensive perfume, your swank home in the heart of the city, your chauffeur-driven car and clubhouse, and you just can't fly Economy class, you may not be ready to quit. Yet!

What looks like a given on job is a drain on your saved resources once you leave.

A villa with a lawn overlooking the hills could come for a fraction of price of your city home, only if you are sure that is the right choice for you and are happy about it.

The crux is to know what you enjoy doing and to be sure you don't barter the joy for anything else.

If you are bogged down by your social circles' view of your decision, or have only the half-hearted support of your family, and cringe at being miserly (even if in private), you probably lack the emotional strength to follow your dreams.

Acknowledge the limitation, rather than live cribbing and carping about your call.

Retirement Plans

Most of us like to live in the present, so much so that often, we end up ignoring the future. We splurge on present needs and retirement planning to most of us is something esoteric that is best relegated to financial planning magazines.

To be sure, saving and planning for retirement is a real and urgent need; it's a lot more urgent than the latest mobile or car or the grand vacation to Europe .

And retirement planning is too pressing and long-drawn to be taken up when you are a just few years away from retirement; by then its probably a little too late in the day to wake up to the rigours of retirement planning.

Our recommendation to clients is to save for retirement at an earlier stage of their lives. This helps in two ways, a) it reduces pressure on finances at a later stage and b) it enables one to aim for an ideal retirement scenario and not a compromise.

In this article we outline a 5-step strategy for retirement planning.

1. Start early

One reason why retirement planning is looked upon with much apprehension and even distaste is because most investors are late off the starting blocks. When they finally get down to saving for retirement, there is the initial resistance and protest.

If the same investor had commenced his retirement planning exercise a little earlier, a lot of those complaints against retirement planning probably would have evaporated. So the secret lies in making an early start. We have an illustration on how 'expensive' retirement can become for the 'late riser'.

It pays to start early

Particulars	Ravi	Vijay	Rajesh
Present age (years)	25	30	35
Retirement age (years)	60	60	60
Investment tenure (years)	35	30	25
Monthly investment (Rs)	5,000	5,000	5,000
Returns per annum	10%	10%	10%
Sum accumulated (Rs)	16,993,955	10,314,217	6,166,624
Percentage of Ravi 's corpus	NA	60.7%	36.3%

Ravi starts saving for retirement at the age of 25 years. Assuming he plans to retire at 60 years i.e. he has given himself an investment time frame of 35 years. This is a good period over which to save for retirement.

The longer the investment horizon, the more you can benefit from the power of compounding. Ravi starts investing Rs 5,000 per month at the rate of 10% per annum to accumulate Rs 16,993,955 at the time of retirement (60 years).

Ravi's colleague, Vijay, who is 30 years old, commences his retirement planning at the same time. Given that he also aims to retire at the age of 60 years, he has an investment horizon of 30 years. Assuming, like Ravi , he invests Rs 5,000 every month @ 10% per annum, he will accumulate Rs 10,314,217 at retirement.

On the same lines, Rajesh, Ravi 's other colleague, commences investing at the age of 35 with an investment horizon of 25 years to accumulate Rs 6,166,624 at the age of 60 years (at Rs 5,000 per month @ 10% per annum).

It is apparent from the table, the magnitude of the lead Ravi has over his colleagues in terms of a retirement corpus. Given that all three of them have the same monthly investment (Rs 5,000), which is invested at the same rate (10% per annum), the difference can be attributed completely to Ravi 's early start vis-�-vis his colleagues.

Vijay who has an investment tenure that is lower than Ravi's by only 5 years accumulates a corpus that is nearly 40% lower than Ravi 's. Rajesh, whose investment tenure is lower than Ravi 's by 10 years, accumulates 64% lower than him on retirement. A 5-Yr delay in retirement planning sounds like a small difference, but the power of compounding magnifies it to gigantic proportions.

2. Make a plan

Before you embark on saving for retirement, you must have a plan in place. While a plan may sound fancy and even intimidating, rest assured it is not all that complicated. Your retirement plan is simply your wish list of how you wish to spend your twilight years.

For instance, if you wish to retire in the suburbs in a 2-bedroom flat with a porch outside the house with a monthly income of Rs 30,000, then you must make a financial plan based on these inputs. Put simply, this plan must incorporate all your inputs to tell you how much you need to save today to live your dream retirement.

Among other expenses, when you plan for retirement, you must make it a point to set aside money for medical expenses and contingencies, as any retirement plan without them is incomplete.

3. Consult a financial advisor

While retirement planning is a process that requires a high level of involvement from your side, you must look for someone to partner you. The partner over here is your financial advisor. While you have to decide how you wish to lead your life in retirement, your financial advisor will help you translate that dream in numbers.

He will put a number to everything i.e. your dream house, vehicle, post-retirement income, medical expenses and contingencies among other inputs. He will tell you how much you need to save and where to invest your savings so as to achieve your retirement corpus. In other words, he will outline a roadmap and more importantly, will implement the same for you.

4. Track and review your plan

Once the plan is outlined and implemented you have to still ensure that you are on track at all times to meet your targeted return at the desired level of risk. This calls for a periodic review of your investment plan. This is a task that is best left to an expert, which is where your financial advisor will once again have a role to play.

He will actively monitor your investments, exit the investments that are not performing up to the mark and invest in alternative investments. Over time as you approach retirement; he will reduce allocation to risky assets like stocks and/or equity funds in favour of more conservative avenues like fixed deposits.

He will also alter your investment plan based on any additional inputs you give him (maybe with a change in lifestyle you may choose to have a 3-bedroom flat instead a 2-bedroom one).

5. Don't dip into your retirement savings

To successfully implement your retirement planning calls for loads of investment discipline. One aspect of discipline involves religiously setting aside the money that is committed towards retirement. Another aspect of discipline relates to treating your retirement corpus as sacred.

This means that every time you are confronted by a financial emergency you should not rush to withdraw from investments that are earmarked for retirement. Of course, if there is no way out, then you can withdraw from your retirement kitty, but make sure you make good that withdrawal by putting an equal amount at the next opportunity.

Fianancial Planning

Why financial planning is a must for you

Most people, when they think of financial planning, think investments. Some also feel it has to do with mutual funds and insurance. Honestly neither of it is true.

Financial planning is all about channelising "your" financial resources (income and wealth) towards "your" financial goals.

Two sources of income

As individual/family you have two sources of income.

Income generated because of you being 'human capital'. All of us who work for money are human capital. A worker works so s/he earns salary. Similarly an entrepreneur earns profit because s/he uses her/his enterprising skills.

Second source of income is from your financial and real capital.

If you have invested in a fixed deposit, you earn interest. If you have shares and stocks than you get dividend and if you have additional real estate (other than for your self-consumption, like your home) and if you have leased it out than you get rentals.

These financial resources need to be channelised towards your financial goals. You all have financial goals. If individuals/families have no goals in life than there is no need to save.

Financial goals are those responsibilities and dreams in life for which you want to save. All of us have responsibilities in life.

Typical Indian families share the responsibility of saving for the house, children's education and marriage, parental and siblings' responsibilities and retirement. Of course these are a few common ones and may vary from family to family.

Dreams of all families are varied. Some want a home theatre, a luxury car or a foreign vacation. There could be some who dream of latest interiors and there are others who want to save for gizmos.

Financial planning is to divert your financial resources towards your financial goals.

Create a contingency reserve

While structuring any kind of financial plan, ensure you first create wealth protection strategies � to protect your wealth from perils. You must set aside funds towards creating contingency reserve and purchase of health, disability and life insurances.

Also, you have to protect your assets like house, car, jewellery and other household things. Wealth protection has to be the base of any financial planning activity. If your base is weak the entire building of wealth can collapse anytime.

Focus on wealth accumulation

After protecting your wealth, you must focus on wealth accumulation. This means saving and investing for your responsibilities and dreams in life.

Depending on your financial goals � like buying a house, children's education and marriage, retirement � choose various asset classes like debt, equity and property. You may also choose an investment vehicle that suits your requirement, like a mutual fund, portfolio management services etc.

If you start accumulating wealth without protecting it, than your wealth will be susceptible to a variety of risks and you may have to erode your capital/wealth if any untoward incidence takes place.

Wealth distribution is important too

Lastly, develop wealth distribution strategies. During your retirement, you will be surviving on the corpus created by you. You will partly live on returns from the corpus and partly on capital. This is the distribution phase of retirement.

Also, upon your death your wealth needs to be distributed to your near and dear ones. Always remember the flow of financial planning � first wealth protection, next wealth accumulation and, lastly, wealth distribution.

Financial planning is just not about savings and investment

Many of us misunderstand financial planning as investment planning and directly jump to savings and investment. Suppose if you do not have a good health protection strategy and if there is major illness or job loss than you will have to bank on all the wealth that you have accumulated till then.

Similarly, imagine you have good wealth protection strategy. You have contingency reserves. However, you did not concentrate on savings/investing. This means you straightaway moved from wealth protection to wealth distribution.

Since you did not follow the flow and did not accumulate wealth, when you reach retirement, there may not be anything to distribute. You may have to depend on your near and dear ones.

Now imagine a situation where you distributed all your wealth to your children during your lifetime and suddenly, after your retirement, and then you suffer from a major illness.

You have not made provisions for a contingency reserve; neither does your health insurance cover the disease. You will have to go to your children and solicit help. This is what happens when you distribute wealth without proper wealth protection.

Any which way you consider it, if you want to create and preserve wealth, then the only way to follow is wealth protection-accumulation-distribution.

How to become a crorepati in your lifetime

Dream Big. That's what the great Dhirubhai Ambani used to say. I admire and believe in that great personality completely. That's why I have a big dream to become a crorepati. And I am sure; you too must be nursing the same anbition.

Ok. Now that you and I have a dream we better get up and start working towards it. We have to figure out the shortest and the surest way to become a crorepati.

A few ways, of course, are:

• Winning a lottery
• Winning the KBC show
• Getting it in inheritance
• Saving and investing with a plan that can get you there

Unless I am really lucky or extra-ordinarily talented my chances of becoming rich are slim by the first three ways. The fourth way seems to me like something that we can do to achieve our goal.

But before you try to understand how you can practically go about becoming a crorepati lets look at a formula that is the base of all wealth creation in the world.

FV = PV (1 + R)ⁿ

FV = Future value of your investment/s

PV = Present value of your investment/s

R = Rate of return on your investment/s

N = Number of years for which you would want to invest

Sounds like Greek?

Well, becoming a crorepti is never very easy.

But what this formula says is that whatever amount you desire in the future (Future Value, FV; in my case its Rs one crore) is equal to the amount you can save today (present value, PV) multiplied by 1 plus the rate of return (R) and multiply this 1 plus R for number of years you want to keep investing.

Puzzled by this formula?

What it signifies is that your future value depends on three factors:

• Present value or the amount you can invest regularly
• Rate of return: The amount of interest you would earn on your investment/s
• Number of years you can invest

Let's take an example of two of my friends, Prakash and Anu, who also share my dream and are already on their way to become crorepatis. But there is a difference.

Both of them are of the same age and started investing from the age of 25. Anu invested Rs 5,000 a month for 10 years. That means a total amount of Rs 600,000.

At the same time Prakash started investing from the age of 35; he also invested Rs 5,000 per month for the next 25 years till he reached 60. This translates into a total amount of Rs 15,00,000. Now take a guess as to who would earn more money.

Yes, you are right. It is Anu who would make more money. And if you hear the figures that they both will earn would leave you astonished.

Anu would earn a cool Rs 4.6 crore by the time she turns 60 if her investment grows at a steady rate of 15 per cent every year and Prakash would have earned Rs 1.5 crore at the age of 60 if he earned at the same rate of return. It has cost Prakash Rs 3.1 crore as he invested ten years later than Anu.

This example, in a way, also signifies the importance of time in investment planning.

Some numbers to ponder upon:

• Rs 1,000 invested per month at the rate of 15 per cent per annum would translate into approximately Rs one crore after 33 years
• Rs 5,000 invested per month at the rate of 15 per cent per annum would translate into approximately Rs one crore after 22 years
• Rs 10,000 invested per month at the rate of 15 per cent per annum would translate into approximately Rs one crore after 18 years
• Rs 15,000 invested per month at the rate of 15 per cent per annum would translate into approximately Rs one crore after 15 years

Don't this numbers look incredible! But mind you they are true. Now you would say you know that but you can't really save that much every month? There is still hope.

I believe most of us reading this article can save at least Rs 833 per month or Rs 10,000 per year. This would take time but with the amount you can save you will have to be more patient. And you will have to save up to the age of 60.

Look at the table given below and you can see the potential you have:

Age (years)	Amount invested (Rs)	Amount (in Rs) at 60
25	350,000	1.01 crore
27	330,000	76.43 lakh
30	300,000	49.99 lakh

At 15 per cent per annum all these things can work for you provided you are disciplined and patient with your investment approach. We all can become crorepati's.

PS: If you are wondering what investments on earth gave you returns more than 15 per cent a year for the past 10 years then here's the answer: The Sensex in the last 20 years has given an annual return of 18 per cent consistently; some top-performing mutual funds have also given returns of 31 per cent per annum in the last 10 years.

If you believe in this historical data then you know where to put your money if you want to become a crorepati.