User's blog

Month: September 2023

  • The power of investing – time and regular contributions

    In my previous post, I mentioned how the time duration of your investment and regular contributions are the two main reasons for your investment growth. In this post, I will explain this point with the help of a simple example.

    Scenario 1

    Let’s assume person A invests $1000 at age 20 and contributes $100 a month until she is 60. When we do the math, she will have over $763,000 at age 60, assuming the annual return is 11% and annual compounding. On average, the stock market gives you a 10-11% return over a long period.

    I calculated the numbers using this excellent investment growth calculator here. You can see how your investment will change by playing with different number combinations. It is fun, try it.

    In the chart below, you can see her total contributions (in green) are less than $60K, while her future value of the investment has grown to over $760K. Her investment grew by a whopping 12.7 times!!! Isn’t this just awesome?

    See how the red line goes way above the green line, esp. towards the end. This shows the power of compounding or exponential growth as the time duration increases.

    Scenario 2: Changing the time duration of Scenario 1

    Now, let’s assume she starts investing at age 40, and not at 20 but still contributes $100 monthly with the same 11% return. At 60, she will only have around $85,000 and her total contributions would be around $24000. So her total investment grew by 3.5 times compared to 12.7 times in the first scenario. You see the difference!

    Scenario 3: Changing the monthly contribution amount of Scenario 1

    If I change her monthly contribution to $200 (leaving everything else the same as in scenario 1), the total investment will grow to $1.4 million after 40 years. Isn’t this even more awesome?

    Scenario 4: Changing the initial investment amount and reducing the time of Scenario 1

    But what if she starts with a bigger initial investment of $50,000? In 20 years, with monthly contributions of $100, the money will grow to $480 K, which is still less than $760 K above.

    This simple example teaches a fundamental concept in investing. Time and regular contribution are the two most important factors in making your investment grow!

    In all the charts above, you will notice a steep increase towards the latter years.

    Just keep in mind that these numbers are in nominal dollars, not adjusted for inflation. Since money loses its value over time due to inflation. Your real return is always less than the nominal return, by the inflation rate. On average after adjusting for inflation, the return in the stock market has been close to 7-8%.

    So guys, hopefully, this post convinced you enough, so you can start investing for your future without further delay. Small contributions done regularly and starting early can make your investment grow to an astounding number.

    Disclaimer: The information presented here is for educational purposes only. I am not a financial advisor and do not provide investment advice individually. 

  • Top 5 Budgeting Apps to manage your finances

    Are you struggling to manage your finances?
    Then don’t worry, because in today’s post, I’m going to share with you the top 5 budgeting apps that will revolutionize how you handle your money.

    Mint

    First up, we have Mint, the holy grail of budgeting apps, the first app and the most popular one on tracking money and personal finance. Mint has a user-friendly interface and features.


    Mint allows you to effortlessly track your expenses and set financial goals. It syncs with your accounts, categorizes your spending, and sends you real-time alerts when you’re going overboard. Plus, it’s completely free!

    YNAB

    Next, we have YNAB, which stands for You Need a Budget.
    This app is perfect for those who want to take control of their spending habits. It helps you allocate funds to different categories, ensuring you stay on track.


    You Need A Budget, lives up to its name. It’s all about giving every dollar a job. By setting specific goals, you’ll quickly see where your money’s going and where it should be going. It’s like having a personal finance coach in your pocket.

    POCKETGUARD

    Now, let’s talk about PocketGuard.
    If you’re someone who hates the idea of budgeting, this app is for you. It syncs with your bank accounts and automatically categorizes your transactions. You’ll be able to see exactly how much you have available to spend at any given moment.

    It tracks your bills, and subscriptions, and even finds hidden fees. Imagine how much you’ll save when you finally cancel that forgotten gym membership or streaming service you don’t use anymore!

    WALLY

    Moving on to Wally, a sleek and user-friendly budgeting app. What sets Wally apart is its ability to scan receipts and track your expenses effortlessly. So there is no need for manual entry!

    PERSONAL CAPITAL

    Finally, we have Personal Capital, a comprehensive finance tracking app.
    With Personal Capital, you can manage your budget, and investments, and even plan for retirement. It’s like having a personal finance advisor right in your pocket.

    Personal Capital is perfect for those of you thinking about the long game. It not only tracks your spending but also monitors your investments and retirement accounts. Seeing your net worth grow? That’s the kind of motivation we all need! right?

    Conclusion

    So, there you have it – the top 5 budgeting apps to supercharge your financial journey. Remember, it’s never too late to take control of your money. Start today and watch your financial goals become a reality.

    If you found this post helpful, don’t forget to give it a thumbs up and subscribe to my Youtube channel to watch the video on the same.

    Which one are you excited to try? Let me know in the comments below! And if you have any other budgeting app recommendations, please also share that in the comments.

  • How government intervention is needed for social benefit?

    Today, we’re diving into the fascinating world of economics to discuss a crucial concept that often goes unnoticed but has a profound impact on our daily lives – externalities.

    What are externalities?

    Before we delve into examples, let’s define what externalities are. In economics, externalities refer to the unintended consequences of economic activities that affect individuals or entities not directly involved in the transaction. These external effects can be positive or negative, and they often lead to a divergence between private and social costs or benefits.

    Some Examples of Positive Externalities

    1. Education

    To better understand positive externalities, let’s take the example of education. When an individual pursues education, they gain knowledge and skills that benefit them personally. However, education also has positive externalities that extend beyond the individual. When educated people enter the workforce, they contribute to the economy’s productivity, innovation, and overall growth.

    2. Vaccination

    Another example is when the Government provides Vaccination. In the most recent case of the COVID-19 pandemic, people who got vaccines were less likely to get extremely sick or spread the virus to others.

    Similarly, any vaccination for other infectious illnesses provides health benefits not just to the person receiving the vaccine but also to the entire community of people he or she comes in contact with.

    Negative Externality

    Now, let’s shift our focus to negative externalities, using the example of pollution.

    When a factory produces goods, it incurs private costs like labor and raw materials. However, it may also release harmful pollutants into the air or water, causing damage to the environment and people nearby.

    Impact of Externalities

    Externalities can significantly impact market efficiency. When externalities are present, markets may fail to achieve an optimal allocation of resources, leading to overproduction or underproduction of goods and services.

    How can government intervention solve the problem?

    Governments can step in to correct the market failure caused by positive externalities. For example, they may provide subsidies to educational institutions or offer tax breaks to individuals pursuing education. This encourages more people to invest in education, leading to a better-educated workforce and more prosperous society.

    Similarly, to address negative externalities like pollution, governments may impose regulations, taxes, or fines on polluting industries. By internalizing the external costs into the production process, these measures encourage businesses to adopt cleaner and more environmentally friendly practices.

    Conclusion

    Externalities are all around us, influencing our decisions and shaping our economy in both positive and negative ways.