Kenya power bills have been coming with shocking charges, particularly on fuel and levies. As we pay higher electricity bills due to delayed fuel cost recovery from last year, Kenyans continue to decry the high cost of living.  You have two choices: reduce your consumption or make your overall use more efficient. Saving on your power bills has big wins, and they are:

• Save money by lowering your energy bill – using various energy saving methods that are known to work.
• Saves the planet by producing less pollution and saving fuel – Kenya uses fuel to produce electricity which is the single biggest source of carbon dioxide emissions that are causing climate change.

KPLC Bill Calculations

The main Kenya Power bill components include the kilowatts consumed, taxes, fuel, and levies. The final bill is calculated by getting the difference between previous meter reading to the current multiplied by the going rate per kilowatt. Then add fuel and levies, and taxes. This can be seen on the Kenya Power website.

How to Save on Your Kenya Power Bill

Here are some of the big ways you can save on your energy bill:

1. Use Energy-Efficient Light Bulbs

Save big by installing energy efficient light bulbs. Compact fluorescent lamp (CFL) and LED Bulbs are the most energy-efficient light bulbs and save 75%(CFL) – 90%(LED) less energy. That’s huge. To save even more, use bulbs with lower kilowatts in areas of the house where you do not necessarily need a lot of power.  Fluorescent light bulbs cost a little more than they more than pay for themselves as they last longer than incandescent light bulbs.

If you already use energy saving bulbs, remember to switch them off when not in use. Also, purchase bulbs with the size of the room in mind and for the job, it will do.

Save More: Save Money in 10 Practical Ways

2. Unplug Electronics

This goes without saying but we all forget to unplug our chargers, computers and other everyday appliances such as the tv decoder. Because of this, they stay plugged in, sucking money from your bank account. Reducing consumption with electronics requires actually turning it off. However, not all devices are made equal, so make a note of those that draw a significant amount of power to impact your power bill.  Sometimes, this can be quite hectic so you can just plug everything into one power strip and shut off when done.

Here are some that you may want to be sure you unplug as they have a standby function that consumes electricity:

• Electric Kettles – you can consider just boiling water using a stove once in a while
• Desktop Computers – letting it sleep can draw a lot of power
• Television Sets – plasma-based display
• Modern video games such as Xbox 360 and PS3

3. Purchase Energy-Efficient Appliances

Should you be in the market for any new appliances, be sure to purchase the most energy-efficient models. This way you can save big on your overall electricity costs on the most basic and essential appliances such as the fridge.

4. Run Fridge Efficiently

Your fridge is always on 24/7, making it the most expensive appliance you probably have. To run your fridge efficiently, you need to shut the door – seal it tight, with no air gaps where cold air can escape. This will help maintain the ideal fridge temperature (usually at 4-5 degrees and -15 to -18 degrees Celcius for the freezer), decreasing the overall energy consumed to maintain this ideal temperature.

Quick Tip

• Clean and maintain refrigerator coils

5.  Save on Water Heating

Water heating in the house can cost a lot, particularly for large households, especially during cold seasons. Some of the ways to save on water heating are:

• Install an efficient water heater and/or showerhead that maintains pressure while using hot water.
• Shorten your shower time
• Wash your hands with cold water

Bottom Line

All these small ways add up to noticeable savings don’t require a big investment of time or money. Over the next couple of weeks, try to implement some these methods and see how much energy you could potentially save.

What are some of the ways you are using to save on your electricity use? Share with us in the comments!

Many of us are trying to achieve financial prosperity. We work hard, try our very best and still prosperity feels far away.

The way to handle money, colors every aspect of your lives. The colors and hues determine the education of your children, the sort of home you provide for your family, the type of contribution you make to our communities and not to mention the mundane things – like the kind of food we eat, the clothing we wear and the vacations we take.

Many of us have goals, dreams even, dreamt in HD full color. We work hard and strive to get the very best. However, when things don’t work out, we begin to feel we don’t deserve happiness, we put in less effort into achieving our goals, we fail and then we feel bad. Wash, rinse and repeat.

What is Financial Prosperity?

Financial prosperity is good fortune and thriving in that condition. Most people define financial prosperity as homeownership, car ownership, taking vacations around the world once a year, being debt-free, and being able to afford a comfortable retirement. Others simply measure their financial success as simply being better than their parents.

What are your indicators of financial success?

“Prosperity is a way of living and thinking, and not just money or things. Poverty is a way of living and thinking, and not just a lack of money or things.”

Eric Butterworth

Strategies for Financial Prosperity

To help you in the process of achieving financial prosperity, consider the following as the bare bones needed to start your journey to a fuller HD full colored dream:

1. Plan For Long-Term Security

Plan to achieve financial security and ensure you are able to sustain it. Take a long-term perspective and set the groundwork to get you there.

The idea here is to have a financial plan and stick to it. Find out what you don’t know but should – about your own personal and family financial situation. Then identify where you want to be and the deep-seated attitudes towards money that are preventing you from attaining financial security. Adopt new attitudes that will ensure that your financial goals are maintained in the long term.

“Positive thinking and positive attitude attracts prosperity, peace, and happiness. It also exposes us towards the path of achievements and success.”

Anurag Prakash Ray

2. Have Financial Protection Against the Unexpected

There are two ways to gain financial protection: insurance and emergency fund.

Insurance is a means to safeguard against financial loss. For individuals, we safeguard our income, access to health and even the lives of our dependants.  That is why insurance is such an important step to financial prosperity. Preparing for the unseen ensures that you are able to make the most out of your money.

On the other hand, we have an emergency fund. An emergency fund is basically a personal fund in which you can stash money away for a rainy day. Financial surprises are bound to happen from time to time and can create serious setbacks to your financial goals. Therefore, an emergency fund ensures that your goals are always on track even with financial setbacks. It also ensures that you are taken care of regardless of any eventuality that may threaten your financial stability.

3. Foster The Ability to Build Wealth

Cultivate the ability to build the kind of life you are always dreamed of. Remember, that your financial stability and well being is a function of your net worth. As a result, having a high net worth translates to a great life. While on the other hand, having a low net worth easily translates being one step away from debt. One small mishap could completely destabilize your financial stability.

Therefore, with an effective plan and financial protection in place, you can now focus on building financial wealth.  Building wealth requires that you earn more than you spend, investing the difference and being patient as time does its work.

“The strongest single factor in prosperity consciousness is self-esteem: believing you deserve it, believing you will get it.”

Jerry Gillies

A great way to do this is to pump money into your retirement accounts. Increasing your assets through this traditional method is a smart and easy way to increase your assets because they money will grow tax-free. Whats even greater is that it is also tax deductible.

If you have debts, try paying off your high-interest debts and work your way down your list. Paying down debts will help you save more (in terms of interest expense), which you can apply towards building a great asset base.

Bottom Line

Regardless of what your goals are, it makes a lot of sense having these three things in place. Don’t let all your hard work and success fall short because you didn’t have these things in place. If you follow these three principles, be sure to be well on your way to financial prosperity.

Oh! Don’t forget to include cultivate good habits that will ensure that you stay successful in this journey. Habits like diligence, persistence, patience and seeking God, are great to bring godly wealth and prosperity. This is particularly important considering the kind of society we live in that glorifies and rewards thieves as heroes by electing them.

Meanwhile, You can click on the following links to read more about financial planning and achieving financial prosperity:

• 10 Laws of Building Wealth
• 7 Reasons Why You Should Have A Financial Plan
• Infographic: How to Build Your Financial House
• 3 Steps to Build Wealth

Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.

How to double your money in the shortest time possible.

Any investment will eventually double in value given the time. So the question remains, how soon do you think it will take to double any given amount of money? It pays to understand this basic math. We all want to invest, double or even quadruple our investments in the shortest time possible. That is why many of us choose to invest in high yield stocks, speculate in real estate, and business. While the future of any investment is never really guaranteed, the prospect of doubling your money is enough to make anyone excited.

How to Double Your Money

The concept of doubling your money isn’t as hard as you may be lead to believe. There are numerous ways to do it – some easy and some not. For the conservative investor, it may seem like a scam but if you are willing to assume the risk, then it is very doable. Keeping in mind that the goal is to double your money in the shortest time possible, here are five ways you can invest and double your money:

1. Blue chip companies

If you are a relatively conservative investor, you can buy blue chip companies. These companies have a high market capitalization, superior profitability, and a good dividend record. Examples of blue chips are contained in the NSE 20 share index. It is, however, important to note that not all shares in the index generate high returns year on year. Therefore, some stocks will be slower to double due to lower returns.

2. Stocks and bonds

This is a conservative investment strategy that will earn you dividends and fixed income which can be reinvested over time to double your money. Combined stocks and bonds portfolio may attract an average return of 25% (an estimate based on some of the local market funds). As a result, it will take about 3 years to double your investment.

3. High growth stocks

Growth stocks are expected to grow faster than the market and are usually higher risk investments. Some of the most popular high growth funds in Kenya have attracted an average return of approximately  30% over the last decade. Which means that you can double your money in about 2 years. However, keep in mind market volatility and shocks. This is an ideal case scenario.

4. Real estate

Two ways to earn from real estate: rent or capital appreciation. Both ways could double your money. Kenya’s annual rental yield is 6.66% (Global Property Guide) and about a 10%-20% price increment depending on the area. Which means that it will take you about 3-12 years to double your investment.

5. Start-up business

It is the fastest and riskiest way to double your money. It is hard to start a business and time consuming but the rewards are well worth it. For businesses, it a little harder to estimate the rate of growth due to the numerous variables to take into consideration. Keep in mind that all revenue isn’t created equal.  However, on average, business grow by 5% -7% per week which translates to about 140% growth rate per year. Over time, the company stabilizes and generates a modest 20% -40% year on year growth rate. Hence, for a start-up, your investment can double in just half a year.

The Power of Compound Interest

The easiest way to double your money is to invest in long-term, interest compounding investments. For instance, you can invest in government bonds. They are generally considered to have the lowest risk and are great for conservative investors. Government bonds 10-year average return are about 12% (inflation unadjusted return). Therefore, you will double your investment in about 6 years if you manage to reinvest your coupons at the same rate.

We use the rule of 72 to estimate how long it will take to double your money. However, as you apply this rule, keep in mind that the market fluctuates. The market can go up one year and down the next – even stay down for a couple of years. That is why you will the find the NSE 20 share index average return since inception is approximate -28%. It is therefore advisable to invest the money you don’t need for several years.

Rule of 72

The rule of 72 is pure math which is extremely useful to put your investment into perspective. It helps maximize the full potential of your investments.

Additionally, the ‘rule of 72‘ is a simplified method used by millions to compute how long an investment takes to double. The time it takes for your investment to double is calculated by dividing the annual rate of return by 72. This formula will give you a rough estimate of the years it takes to double your investment.

For example, if you invest KES. 1M  at 7%, it will take 10 years to turn it into 2M. Therefore, the higher the interested, the shorter the time it takes to for you to double your money.

Rule of 115

Another rule, not so common though is the rule of 115. It measures how long it will take to triple your investment. It works, in the same way, the rule of 72 works i.e. by dividing the annual return of an investment by 115. By doing so, you will get the amount of time it will take to triple the money you have invested.

Suppose you stash away KES. 1M in savings account earning you 7% per annum (inflation unadjusted). It will take 16 years (115 divided by 7 equals 16.428) to triple that investment.

If you are very ambitious and would like to make sure your money is stretched to its reaches its fullest potential, this rule is just for you. As it will only take an additional 6 years to triple your money as opposed to 10 years to double it.

Bottom Line

The rule of 72 is simple quick math to put the marathon of investing into perspective. Always clearly plan and think through your investments objectives to ensure that your money extends to its full potential.

Happy Investing!

Meanwhile, You can click on the following links to read more about financial planning and making more money: 

• Top 5 Ways To Begin Investing In Real Estate
• Should You Invest in a Property with a Friend?
• Ways to Turn Single-Family Homes Into a Cash Cow
• How to Make Millions in Stocks
• 7 Common Mistakes to Real Estate Investing to Avoid
• How to Buy Stocks Online on the Nairobi Stock Exchange
• What is the Minimum Amount to Invest in Nairobi Stock Exchange?

Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.

Make more money in 2018 – achieve high income and high-return on accumulated wealth. 

Is making more money one of your new years’ resolution? Have you identified the ways in which you will achieve this goal? A new year brings forth more hope and fresh beginnings – new goals too. Many of us abandon our resolutions during the course of the year because we realize we set up some unrealistic goals for ourselves. Whether it is paying off debt, saving a lot more or making more money- we would like to give you some ways you can achieve your goals this year.

Check out this list of ways to make more money this year:

Option 1: Start A New Business [ Full-Time/Part-Time]

Entrepreneurship satisfies the two aspects of wealth building (i.e. achieving high income and high return on accumulated wealth) which makes it the best way to make more money. Whenever I want to start a new business, I always do my research and figure out what areas are hot or not. I start my research by watching the big businesses. What are they doing? What business areas are they investing in and I try to find the research behind their investment decisions. I believe that if a big business is investing in it, there must be something there. Big stable businesses invest in scalable investment opportunities thereby validating a trend. It is the easiest way to find viable investment opportunities.

1. Start an Online Business

Online businesses range from mobile applications, online directories, blogs to e-commerce platforms. The list is endless in terms of nature of the business you can start online. There is a lot of material online on how to go about this. So don’t let ‘too difficult’ be the excuse as to why you don’t make more money this year. As long as you can teach yourself how and create a great business model, you can do it!

Here are some business models that a making it big:

• E-commerce Platforms – online stores selling everything from makeup, clothing, phones, books etc.
• Get Paid to Create Content or Host Content. We have all become content junkies and require creative content to keep us engaged. There is a high demand for content out there in terms of videos, e-books series and courses.
• Mobile Applications. Get paid for a subscription or advertising.
• Online Directories…etc.

Big Businesses that are scaling online: Safaricom with masoko.com

2. Venture into the Agricultural Sector

Demand for food will never dwindle unless one day we all become vampires, as captured in Hollywood movies. Food supply continues to be a problem around the world and fewer farmers are being born every day. The agricultural sector is large and you can do more than traditional farming in livestock, horticulture, dairy, poultry, coffee or tea. The sector also needs seed producers, manufacturers of sprays and pesticides, veterinary services, construction of dams and boreholes, installation of irrigation systems and services, cold storage facilities, refrigerated transport for horticulture or perishable goods and much more.

Big Businesses that are scaling: Centum with their expansion of their Nyandarua Farm,

4. Become an Importer/Exporter

A lot of us are doing away with traditional business models and looking to be super duper innovative about what we do. We all want to shoot for the starts and forget that there are other great ways to make money and still reach the stars. Importing and exporting business is the oldest type of trade in the books dating back to ancient times. It works and people will always appreciate bringing the products and goods they need closer to them. In Kenya, small business owners prefer to import and export clothes, furnisher and other small items such as our artefacts. You can get creative here too buy importing and exporting other things like oils, herbs, culture and much more etc.

Businesses that are scaling online: Jumia and more.

6. Provide a Service

Services are the easiest to render and make more money. If you are an expert in any particular areas, develop a business model that will enable you to earn money. Have your business registered and put in the work to build a viable brand.

Option 2: Achieve High Growth on Savings

7. High-Yield Cash Investments

If all you have is cash and don’t have a lot of time to manage a new business, lending maybe a great way to go. Nowadays, it is easy to make more money through lending. You can lend to the government/corporates by purchasing high-yield bonds, peers by joining lending clubs (chamas), through investment banks or you can do it directly. How much you earn is completely dependent on where you put your money i.e. some peer lending groups make handsome returns.

Related: How to Produce Income From Investing Forever

8. Add Equities

Add some solid, high dividend paying equities and make more money. Look for companies that are paying well over the inflation rate  (which is running a little over  8% per year) along with other added benefits which will enable you to participate in corporate growth.

Here is a simple stock screener to help you find high-dividend-paying companies while ensuring certain value and stability requirements are met:

• Size: At least KES. 10 billion in market capitalization
• High Dividend: All pay a yield  of at least 10%
• Low Volatility: All stocks with a beta of less than 1 (which means that they have traded with less volatility than the overall market)
• Reasonable Valuations: Find all stocks that have  P/E ratio to growth ratio (PEG ratio) of 1.75 or less. This will provide stocks that are reasonably priced and growth expectations are moderate. This filter seeks to remove all companies whose dividends are artificially high due to deteriorating earnings fundamentals.
• Sector Diversification: Have a basket of stocks from different sectors to minimize certain market risks inherent in individual sectors within the economy.

The Nairobi Stock Exchange is a small market, which may make it difficult to find a stock that meets all the above requirements. Do not be afraid to venture out and invest in other big markets with higher market capitalization.

Related:3 Paths Of Wealth Accumulation

9. Invest in Real Estate

My best friend always tells me that land is the only thing we cannot make more of. Because of this, land prices will always be rising in the face of rising population levels. Investing in real estate will always be worth your while. It is one of the best sources of high-yielding investments for a conservative investor. If you can’t afford to invest directly in the real estate sector, consider getting investing in real estate investment trusts (REITS). Locally, STANLIB Fahari I-REIT, which serves as a great alternative to direct investment in real estate with less hustle.

Related: Top 5 Ways To Begin Investing In Real Estate

Option3: Increase Income & Save More

If you have a hobby, skill or a talent, then you might be able to make more money with some side gigs.

10.Take on High Paying Job

If you aren’t already in a high paying profession, then seek out higher paying job opportunities elsewhere. Always be on the lookout and while doing so, work hard at being the best you can be – then ask for more.

11. Ask for a Raise or Pay Yourself More

Ask for a raise if you haven’t gotten one in awhile. If your boss isn’t willing to reconsider how much you earn, then pay yourself more. Pay yourself more by saving more for your future self, thereby increasing the payout from your retirement account.

12. Make More Money With Side Hustles

Internet Jobs

Internet jobs can offer you some extra cash to supplement your current income. You can enlist to provide services for a fee online. We have websites such as Upwork, Freelancer or Fiverr which provide a platform to get work from all over the world. You can work on writing, editing,  web design, coding, translation, virtual assistant gigs, marketing, copywriting and even high earning work like consulting.

Offline Side Hustles

It is just so much you can do to earn some extra cash. Here are a few of my ideas:

• Become a part-time instructor in yoga, fitness or even tutoring.
• Offer your hobbies, skills or talents part-time for a fee i.e. handyman fix-ups, writing, private chef, book-keeping for small businesses, babysitting, tax preparation etc.

Some of these things you can embark on them immediately, while others you may need some help or guidance. Making more money just requires a little bit more commitment and time.

Final Thoughts

Necessity is the mother of all invention, do not let your perceived lack limit you from achieving your goals this year. You can always start small and work your way up to whatever your goal or vision is. All these opportunities are within your reach, you just need to learn and get creative on how you can make it happen. Money making opportunities are everywhere, you just need to keep yourself attuned to what is happening around you and the opportunities will appear before your eyes.

Meanwhile, You can click on the following links to read more about financial planning and making more money: 

• Top 5 Ways To Begin Investing In Real Estate
• Should You Invest in a Property with a Friend?
• Ways to Turn Single-Family Homes Into a Cash Cow
• How to Make Millions in Stocks
• 7 Common Mistakes to Real Estate Investing to Avoid
• How to Buy Stocks Online on the Nairobi Stock Exchange
• What is the Minimum Amount to Invest in Nairobi Stock Exchange?

Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.

Christmas is finally here and if you are making last minute plans to make it memorable for you and your loved ones, ensure you don’t break the bank while you are at it. This season can be quite stressful as you know you don’t have it, but you want to go all out and have fun. Here are a few sure-fire ways that you can go broke this holiday season:

Trying to Keep Up With The Holiday Trends

If you haven’t planned for it and you know you don’t have it, don’t try to keep up with appearances. You don’t need to stress out in the next year paying debts for the previous year. Doing so will get you into a vicious cycle of borrowing at the end of every year to keep up with appearances. This way, you may never have a chance to set aside some holiday funds. A new year ought to be a new chance to do things better, not an endless rat race.

Buying Gifts For EVERYONE

Many of us cannot afford to buy gifts or give gift cards to everyone – particularly if we include our uncles, aunties, and cousins. But we find ourselves doing it anyway because we want to keep the family spirit alive. I would suggest to spice things up a little but keep it fun and reduce costs significantly by playing Secret Santa. Secret Santa is basically the act of randomly assigning a person to whom they will give a gift. The identity of the gift giver is secret hence the name ‘Secret Santa’.

Treating Yourself JUST BECAUSE

It isn’t uncommon for us to want to treat ourselves to nice things once in a while. After all, you have worked hard all year round and deserve something nice too. Just don’t break the bank while you are at it. During holiday seasons many of us go out of the budget because we couldn’t help but treat ourselves to not one, but several nice things. While gift shopping for others, ensure that your name is also on the list with a set budget just like everyone else to avoid going off budget.

Go Crazy on Holiday Deals

Do not let stores determine what and how you buy with their numerous deals. Shopping malls have a tendency of mock you if venture into them without a determined gaze. A wandering eye can be dangerous. Just like the end of year holiday season, deals too happen annually and can be planned for. If you want a new set of cutlery or a home makeover, the holidays are a great time to do it. Almost every store has a sale and things can get ridiculously cheap at this time of the year. It would be prudent to save up and take advantage of these annual offers. Go to the mall with some kind of plan to attack your holiday shopping list. If you go in without a goal, all the red sale stickers will draw you in like a moth to a flame. Therefore, make a plan and stick to it. It may require the willpower of a vegetarian in a steakhouse, but I know you can do it.

Traveling Long Distances

Please don’t get me wrong here, it isn’t a bad idea to travel just don’t break the bank while you are at. Plan beforehand. Buying plane tickets for a family of maybe five to visit family grandparents shouldn’t be a decision to be taken lightly. If you must, plan ahead and but the tickets as far out as possible to save big on fares. This way, you will not have to prioritize going to see your grandparents over providing for your family.

Final Thought

Don’t fall for the holiday hype that you must go shopping and come home with more than dozen shopping bags of goodies and get into debt while you are at it. That’s simply not smart. It’s simply an all-around bad idea.

Meanwhile, You can click on the following links to read more about financial planning: 

• How To Make A Budget
• What Can Giving Do For Your Wealth Plan?
• How to Get Out Of Debt Successfully
• 5 Tips & Tricks To Control Your Spending
• How to Build Wealth Rapidly

Do you want to play and live truly free? Here is how to produce income from investing to live off of forever. 

In order to produce the investment income that you can live on for an indefinite period, you need to establish the amount you will need each year. Essentially, determine the how much investment income you want your investments to provide. After which, accumulate and save the present value of this amount to reach your financial goal.

Investment income can be produced from various investments such as stocks, high-yield accounts, businesses, property and many others. However, we will focus on high-yield portfolio accounts to determine how much you can safely withdraw. Specifically, we need to determine just how much is enough to withdraw from your portfolio to ensure that it lasts forever.

Annual Income Withdrawal Rate

What is the best withdrawal rate per year? A common rule of thumb is to withdraw no more than 4% per year.

Here is a table that  shows how much withdrawn income that different portfolio sizes can generate at different annual withdrawal rates:

Note: Annual Income Withdrawal

• 3% – 4% rate is considered okay or fairly safe for the perpetuity of the portfolio.
• 5% and above increases the risk of eroding the investment capital tremendously.

In reality, your withdrawal rate depends on the rate of return your portfolio provides. For instance, if you have put your funds in bonds and treasuries that provide a return of about 8-12% per year, and inflation is about 6% per year, then, of course, you cannot withdraw more than 4% per year without reducing your initial investment.

Let’s take a look at the Kenyan stock market. With a rough estimate of an average performance of the NSE at 10% for the last decade, then the common rule of thumb of withdrawing 4% per year would be too aggressive since inflation will be eating away on your initial capital faster than your investment replenishes itself.

Calculating the Maximum Withdrawal Rate

To ensure the perpetuity of the portfolio, we must consider the current inflation rate and the annual return of the portfolio. We subtract the two and then withdraw the remainder. This constitutes the maximum withdrawal rate.

Maximum Withdrawal Rate = Annual Return Of Return – Annual Inflation Rate

For instance, if your portfolio is growing at 10% per annum and the current inflation rate is at 6% per year, then do not withdraw more than 4% every year. This way, your portfolio will keep growing as fast as inflation to maintain its inflation-adjusted size, while you continue to withdraw 4% of it per year. Ensure that you compute this every year you consider withdrawing as economic changes with affect these factors.

However, there is a safer rate of withdrawal which you can use and is computed as follows:

Safe Withdrawal Rate = Annual Return Of Return – Annual Inflation Rate – 1%

Final Thoughts

There are various high-yield accounts that you can put your money in to generate good passive investment income. Ensure that you do not invest too conservatively as this will create additional risk for you. In other words, if your rate of return is too low and you are withdrawing 4% or more of it every year, you may run out of money faster than you think. Consequently, you need to adjust your withdrawal amount with your relative expected rate of return and try to plan your withdrawal levels for it to last forever since you do not know how many decades you may live after you stop working.

Meanwhile, You can click on the following links to read more about financial planning: 

• 5 Habitudes of Successful Wealth Builders
• Leverage: The Key to Amassing Wealth
• How To Make A Budget
• How to Get Out Of Debt Successfully
• How to Build Wealth Rapidly

Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.