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From the Rat Race to Financial Freedom... A common man's journey
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Sunday, July 22, 2012

We are all so different...Know your Own Corpus amount

We are all so different...Know your Own Corpus Amount

  Every human being is different. Every family is different. Each individual's earning potential and spending habits are different. Success to everyone is likely to look different. We stay in different cities, states, countries, regions and also varying economic conditions. The way each one of us invest is different. The way we utilize the returns on our investment are different. There will always be something "unique" to each individual's economy.

Well, with so many differences, do you think there can be one single magic number for the "minimum Corpus" you need for financial freedom? The answer is very obvious....Absolutely NO. It has to be different and very unique for each and every person who wants to get financially free. It has to be very very specific to the person's earning and spending habits, cost of living, individual and family behavior, economic environment in which the person is staying...even to the extent of attitude and discipline that the specific person possesses.

Let me first try and explain you what this minimum "Corpus" is and why is this important for Financial Freedom. Literally, "Corpus" in English dictionary means a "large collection". In economic or financial terms, the word "Corpus" is generally referred to as that minimum collected amount of money that an individual needs to be financially free. To elaborate this further, what it means is that if i collect that "Corpus" money, then i have crossed a threshold value and from then on, i do not need to "earn" any more money (though i may still willingly continue to do so). The Corpus becomes "self financing and self reliant" to fund itself, fund your and your family's lifestyle, negate inflation and continue to do so till you survive on this planet.

 We are all running after money. I don't say that is bad at all. We all need money. In fact, one of my earlier blogs this month was titled "Yes, Money can buy Happiness". It surely can, because money is not bad at all. So, we all need to earn money. We all need to maximize our earnings without creating an imbalance in our lives. But hold on, take a step back... what is my target? How much money do i want to earn? what is that Corpus amount that will be enough? Is it endless? Does it keep changing with time? If not, then can it be calculated? Yes, of course it can be calculated to a reasonable degree of accuracy, based on certain fundamental inputs.

And here is the biggest irony of all so called "smart money earners" in our generation. Of all the people i have met in 40 years of my life, i have never met a single individual who knows what Corpus he or she is targeting? If we do not have a target and we keep running, what happens? We are very likely to get exhausted soon with no goal to reach. One of my earlier blogs also talked about "The Power of Goals" and another one about "Hope". So, before you run another day, try and see if you can have a Goal in mind. You will feel better and more satisfied with yourself and your life.

Let us now come to the process of Corpus calculation. Is is SIMPLE.
Here are the 4 essential inputs that you need illustrated through an example.
1) Family Monthly Expenses as on date (if you are not tracking it, better start doing !!) (Lets assume it is Rs. 50000)
2) Average Inflation Rate (Lets assume it is 7%)
3) How many more years would you live in best case (Lets assume it is 60 years - I am already 40 and i target to hit 100 !! :)
4) Annual Rate of Return on your investments (again, i am so sorry if you do not know what you are getting back on your investments !! - better start doing) (Lets say it is 11% - wont happen if you are not investing in stocks or real estate)

With all the above assumptions, you would need a corpus amount of Rs. 15,500,000 for the corpus to be self financing. Well, of course if you cant manage the rate of return of 11% or the inflation goes up beyond 7% or if you survive beyond 100 years, this corpus amount goes up. In the same fashion, the corpus amount similarly can come down as well. No one can predict it with 100% accuracy, but this amount reflects reasonable accuracy of the target money you should be going for.

The "Corpus Amount Calculator" would be available for free download to all my book readers (From Rat Race to Financial Freedom) from my website that would be launched with the book.

If you have any queries on your individual Corpus amount, you can let me know your 4 essential inputs and i can try and respond to a few of you with what amount you should be targeting. Once you have a target, you can divide it into shorter goals and milestones to achieve the target. Life becomes all the more meaningful with such goals to look forward to, instead of endlessly running in this Rat Race.

So, go ahead, and have a target money in mind...and go all out to achieve that money target !!

Happy Earning !!

Cheers !!

Manoj Arora

Facebook : http://www.facebook.com/RatRaceToFinancialFreedom
Twitter : @manoj_216
Blog : http://ratrace2freedom.blogspot.in/

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