March 29, 2018

Ultimate 9 Steps of Investing For Dummies Cheat Sheet


This post explain the ultimate 9 steps of investing for dummies cheat sheet. You can call it it as investing for dummies cheat sheet or a step by step tutorial. We will talk about why should one invest with comparing lives of Joe, Jones and Andrew and how these three drove their life and what happens to their investments, savings and returns. Hope this investing for dummies cheat sheet will help you to stay invested in life and enjoy your life.

Why Should one Invest?

Let us discuss an example of a person named "Joe". Joe earns $600 or approximately 40,000 INR and spend $400 towards cost of living including rent, food, mobile and internet recharges, medical bills, shopping, transport etc. The balance is $200. Joe decided to spend that too in taking membership in dating sites and clubs. At the end of month Joe wait for the next month salary. At the end of 20th year, Joe realized, he has no money as savings.

investing for dummies story of joe

Jones is another fellow who worked with Joe. Jones decided to save some bit of money and not spend the whole amount. At the end of the 20th year, Jones has retained a significant chunk of money.
YearsYearly IncomeYearly ExpenseCash Retained
Total Income17,890,693
Jones have 17,890,693 to support him for his retirement life with increased inflation rate and higher expenditure,

Andrew, a friend of Joe and Jones decided to invest the money where he get an approximate 12% returns.
YearsYearly IncomeYearly ExpenseCash RetainedRetained Cash Invested @12%
1600,000360,000240,000 20,67,063
26,60,0003,88,8002,71,200 20,85,519
37,26,0004,19,9043,06,096 21,01,668
47,98,6004,53,4963,45,104 21,15,621
58,78,4604,89,7763,88,684 21,27,487
69,66,3065,28,9584,37,348 21,37,368
710,62,9375,71,2754,91,662 21,45,363
811,69,2306,16,9775,52,254 21,51,566
912,86,1536,66,3356,19,818 21,56,069
1014,14,7697,19,6426,95,127 21,58,959
1115,56,2457,77,2137,79,032 21,60,318
1217,11,8708,39,3908,72,480 21,60,228
1318,83,0579,06,5419,76,516 21,58,765
1420,71,3639,79,06510,92,298 21,56,003
1522,78,49910,57,39012,21,109 21,52,012
1625,06,34911,41,98113,64,368 21,46,859
1727,56,98412,33,33915,23,644 21,40,611
1830,32,68213,32,00617,00,676 21,33,328
1933,35,95014,38,56718,97,383 21,25,069
2036,69,54515,53,65221,15,893 21,15,893
Total cash after 20 years 4,26,95,771
Andrew made a whooping 4,26,95,771, staggering 2.4x times the regular amount. 

Now you know why we need to invest. Investments creates wealth, help you to fight inflation and support you in retirement life.

9 Steps of investing for dummies cheat sheet

1. Make a list of all your investment and assets and liabilities. Are you having a positive net worth or a negative net worth. If you are having negative net worth, try to think of ways to generate more income from other resources.

2. List down all your bank accounts and decide to cut down your total no. of Bank accounts. With the number of increased bank accounts and credit cards, you are losing a chunk of money as commissions, bank charges etc.

3. Identify your emergency corpus is in place or you are working on it with a plan. Having 6-9-12 months' expenses equal money to be kept as Emergency corpus.

4. Write down all your future goals. Put them in different time frames say, 0-2Y, 3-5Y, 5-10Y, 10Y and beyond. Put value for each goal, assuming if this goal is to be achieved in 2018. Compare the combined number of all goals with your net worth. Inflate your numbers for actual consumption years like 2020, 22, 25, 30 & so on.

5. Identify your term plan need and purchase adequate term plan. Term plan is only one claim during the term of policy or no claim at all. Term Plan must be at least 15-17 times of your yearly income or 500 times of your monthly expense. Review the cover amount at own marriage, and at every child's birth, as well as for home loan.

6. Identify your health insurance need and make sure your personal policy(ies) covering you, your family and parents is(are) in place. Best Family Health Insurance Plans in 2018

7. Identify how much do you need to invest on monthly basis for each individual goal, at different rates. Say 4% rate for a 0-2Y goal. 5-6% rate for 3-5Y goal. 6-8% rate for 5-10Y goals and 8-10% rate for 10+Y goals.

8. Based upon your goals, decide your asset allocation between Debt, Equity, Stocks and cash. Select investment instruments accordingly. 

Asset allocation = Equity : Debt ratio

1. Cash - Hard cash in your purse and amount in your SB/Current account
3. Equity - Direct and through MFs
4. Real Estate - Direct and through REITs and Investment trusts, Land, House, Domestic, Commerical
5. Precious metals and Gems and stones - Gold, Silver, diamonds
6. Art work
7. Any other thing can't categorized above.

If you have not started any MF investments, you can read A Beginners Guide On How To Invest In Mutual Funds Online to get more info on it.

9. Write down your Will.

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