Category:  Personal Finance

4 min read

To have enough to buy a home is everyone’s dream. This is a tricky time for millennials who want to buy a home. Some research, for example in Canada, shows that young people need between 13 to 29 years to purchase their first home. That’s too much. 

While millennials over the world are striving to get on the property, about 70% of Chinese millennials reached the milestone. 

Mexico is the next with 46% of millennials homeowners, the following is France with 41%.

For the majority of millennials, owning house persist too expensive and they can’t save enough for a deposit. Property prices have increased in the last several years and the rise in salary did not follow this

Almost 2/3 of millennials declared they would need higher incomes to buy a home. 

According to Forbes, China has seven of the world’s 10 most expensive cities for buying such a property.

So how have so many millennials in China have enough to buy a home?

There are no secrets. For most of them, a parent’s help was crucial. Also, they have some benefits for married couples. For sons in China, parents will do almost everything to help them get married.

Thanks to the One-Child Policy, next year will be 30 million men more than women who are looking for marriage partners. Parents in China want to improve the chances for their sons and support them financially to have enough to buy a home. Speaking about, gender equality. But it isn’t the subject of this article.

We want to show you how to ensure your deposit in order to buy a house, to have enough to buy a home.

There are some other ways to get on the property on your own.

Let us ask you something.

1) Are you able to save each year?

2) When you save, where you put your money?

The message of the following story is: start saving early and try to save often. We want to show you the influence of compounding.

Let’s estimate how long it will take you to become a millionaire. Yes, why not?

We will start with the Rule of 1.5, likewise recognized as Felix’s Corollary. 

This rule says that for a flow of investments where the number of years times the interest equals 72, the final value will equal approximately 1.5 times the amount invested. 

Say, investing $10,000 per year for 8 years at 9% interest.

8 x 9 = 72 

The value of the investments at the end of year 8 will be about $120,000.

Or make it simpler

$10,000 x 8 x 1.5 = $120,000

It’s so far from being a millionaire but…

We will use Felix’s Corollary again. All we need to do is decide how long it will take you to save $720,000 at a contracted interest rate. 

To explain why $720,000. Because $720,000 times 1.5 equals $1,080,000. This describes why we didn’t use $1,000,000. 

This is easier than it looks, you will see.

Say, with a saving of $90,000 per year you will need 8 years to acquire $720,000. 

And at 9% annual interest, you would save $1,080,000 over 8 years. Of course, most of you don’t have $90,000 per year to put on savings. 

That’s why most of us are not able to collect a million dollars in 8 years. 

So let’s expand it to 16 years. 

Now, what do we lack to be a millionaire? Again implementing a 9% rate of return? Yes! Here is where the rule 72 again in the scene. Using the Rule of 72, we know that whatever we have saved over the first 8 years will double over the next 8 years because 72 divided by our interest rate of 9% equals 8.

So we can break the 16 year savings period into 3 equal portions: 

1) the amount we save over the first 8 years; 

2) the doubling of this amount over the next 8 years; 

3) the amount we save the second 8 years. 

And here it is: $720,000 divided by 3 equals $240,000. That is the amount we need to save each of the two 8 year periods. That is $30,000 per year if my math is good. And it is, so you just follow the rest of this. That means $2,500 per month, which is a reasonable saving for some people.

But you want to determine what it will take to be a millionaire in 24 years. All you have to do is just divide $720,000 by 7 and then again by 8. 

So, $720,000 divided by 8 equals 90,000 divided by 7 equals about $12,800. Right? Hence, investing just a bit over $1,000 per month at 9% interest during 24 years period will make you a millionaire.

Invest in stocks with little money to have enough to buy a home

But, how to know when to get in a position in investing?

Investing takes time to grow. It requires a relatively moderate risk and moderate returns in the short run. But investing may produce bigger returns by placing both, interests and dividends to hold for a longer period of time. So, you are taking a long position while investing. 

You would like to hold your stock for several years and have a decent return. In most circumstances, you should take the profit when a stock grows 20% to 25% of the buy price.

When to get out in the investment

The general rule of investing is never getting out of your investment just because the stock price is dropping. The rule “buy high/sell low” isn’t valuable while investing. Otherwise, you will never earn money in the stock market.

A selling an investment too quickly can hurt your portfolio.

Can you “ensure” some positions?

All beginners, no matter how smart they are, have illusions, so they have losses. You have to keep your losses small, don’t let them scare you and survive.

The rules for managing the risk that we’ll show you may feel disturbing for beginners because they have small accounts. Well, the proper risk control may limits trade size. I know that. But it is important for you to know that it is a protection in the first place.

The crucial rule of risk control is the 2% rule: never risk more than 2% of your account investment on any opened trade.

Start by writing down three numbers for every trade: your entry, target and stop. Without them, a trade may become a gamble.

I want to share with you one of the best advice I got when I become an investor.

If you see your stock rises by 40% you should sell 20% of your position. When the stock later increases 49% more, sell the other 20%. That will provide you to have 125% of your primary position.

You have 100% of the initial position. And it grows 40%:

100%*1.4=140%

You sell 20% of it, which means that now in your hands you have 80% left:

140%*0.8=112%

Stocks rise for another 40% progressively:

112%*1.4=156.8%

Now you sell 20% of the stock you have in your hands:

156.8%*0.8=125.44%

You end up with 125.44% value of the initial position.

The bottom line

To know how to structure your portfolio just implement this rule:100 minus your age.

This rule is used for asset allocation. Subtract your age from 100 to find how much of your portfolio should be allocated to equities

If you are at your 30s you should have 70% in equities and 30% in debt. 

Investing doesn’t have to be difficult if you start early, understand investment opportunities, and invest in different assets to minimize risk. And provides you to have enough to buy a home.