Beware the returns

You think your have made a killing at the stock market?
You are gloating over a return of 24%?
The newspapers tell you that if you had invested in shares you would more than double your money in 3 years. Or whatever.
But have you taken inflation into account?
Yes inflation. The factor that eats away your real money.

Here, read all about it in a short blog entry.

Invest wisely and have a happy new year.

Money Management Article on WSJ

The Wall Street Journal has started a couple of columns that deal with investment and insurance. From the few articles I read, they are level headed and seem to make sense.
Here is the links:

WSJ - India, Home Page
An article under the column Maximum Money
Another article on Insurance under the column India Article


Let me know your views on these.

Invest in shares

I am sticking my neck out here.
I do not invest in equity - at least not directly.
So it is kind of stupid to give advice on share markets.
But here goes anyways ...

1) I believe that the world economy will recover, sooner or later. It has to.
2) The share market will also, therefore, climb.
3) If you are young, have some money to spare, and have the risk appetite buy shares in sectors that was doing well before the financial meltdown and is now performing poorly only because of financial meltdown. In other words, if the financial meltdown hadn't happened, would you expect these sectors to continue doing well? If yes, this is the sector you should go for.
4) Most people look to make quick money from share market. For what my understanding is worth, I do not think so. You may hit a jack pot once in a while, but most shares give good returns only in about 3-5 years time.

What do you say? Do you agree with me?

Rich Attitude

Take that Auto-Driver; or that panwala who sits round that corner near your house.

How much do you think he earns?
Never thought of it, eh?
By the most conservative estimates, I would say an auto-rickshaw driver takes home anything between Rs. 1500 to Rs. 3000 a day. And he pays no taxes.

Make no mistake, his income is more than yours.
Yes, he might have a neat little house tucked in some corner of the city.

Why, then, doesn't his life style reflect his income?

A rich life style is an attitude.
And this attitude is a learnt behaviour.
You pick it up from your parents, your surroundings or your idols.
And, perhaps, from blogs like this.

The Secret behind Google's success can be yours

In the 2009 list of Fortune 500, Google is ranked 117. It has a revenue of $21,795.6 million.

Wow!
That is big money!
But what is even more mind-boggling is the fact that much of this fortune comes from the clicks on the internet advertisements that generate a few cents worth of revenue per click.
This truly is a case of drops filling up an ocean.

Think about it the next time you spend money casually.

Lost Opportunities

The thing about opportunity is that you will know about it only when it passes you by. The gate opens now but what will happen if you enter (or if you choose not to enter) can be known only post-facto. That is how the life unfolds and there is nothing you can do about it.

But what you can do is spread your risk.
First, figure out your risk appetite.
Then enter every window of 'opportunity' that opens up within your risk band.
Some will click and some will not.
But you would have tried.

For a person who is as risk averse as I am, the goal to shoot for would be: preserve my initial investment + 14% return.

What is your goal?

That little drop

Yesterday I got a call from a sales girl who pushed to sell me a membership card for a chain of hotel. The chain offered a host of discounts. Of course, you have to spend to get those discounts - that being the whole idea. I hesitated. Did not want to spend Rs. 6000 on something I did not need desperately. The girl persisted. "It is only Rs. 16 per day, sir," she said.

She is right. Less than Rs. 16.50 per day for an entire year would be around Rs. 6000.

The funny thing is that the reverse is also true.
If I save Rs. 16 per day I would save Rs 6000 per year.
That's the crux of saving.
You only need to save a little every day.
Just a little.
Every day.

SAving for your child's future

Are you getting married? Congratulations!

Oh! Not yet married? No problemo! You will soon / someday.
Oh! You are already married and have children too? Wonderful.

Have you thought of your child's need 18 years down the line? No?
Then I recommend you do.

I know a few people who start accumulating shares and gold (especially, if they have daughters).

There are other ways also. A really low risk mechanisms (but with the magic of compound interest thrown in) is opening a recurring deposit. Force yourself to save so that in 18-20 years time, when your kid is ready for higher education you have sufficient amount. Saving Rs. 2000 per month for 20 years at 6% interest will fetch you Rs.7,20,000. (Not sure of the prevailing interest rates; I think the maximum period for which you can open a recurring deposit is 5 years. Feedback the matured amount into some other low-risk investment and open yet another recurring deposit till you reach 20 years).

This does not stop you from going for medium risk investments. We will talk about those some day.

It's all about enjoying life

Are you obsessed with money?

Do you desperately want to become rich?
Then you have come to the wrong blog.
The 70-10-10-10 rule is all about the 70% and not the other 10%'s.

Set goals. (I will talk about this in my next few posts)
Put a plan in place (It doesn't have to be my recommendation - any good plan will do).
Set up mid-course correct points (basically don't look at the results of your investment everyday).
Enjoy life.

Buy that dream house

"Homes are now most affordable since '05" scream today's headlines in Times of India. "Wow!" you say and dive into read more. It turns out that the average housing prices have dropped from 4.6 times the average annual income to 4.5 times the average annual income. Big deal!

The fact remains that houses - good houses, those that you would love to stay in - will remain out of your reach. Always.

So if you are waiting to buy / build that dream house when you have enough money, it will remain just that - a dream house.

Here are some tips:

1) Start Young.

2) Set up a low-risk investment plan that will get you sufficient returns in say 3-4 years. Banks give up to 80% (in some cases 90%, or so I have been told). The rest has to come from you. So, if you are looking to buy or build a RS 800,000 house, at least Rs. 160,000 has to come from you. a well planned SIP will fetch you that amount in 5 years or earlier.


3) Always look for a house that you would like to live in 5-10 years from now. In 5-10 years your income will grow and you will not feel the pinch so much.

4) Another way to obtain the money you need to build a house. Buy two plots of land. Sell one. Use that money to build on another. I haven't done this myself. But I have heard of others who have done so.

5) Some people I know have done this. Four of them pooled money to buy a biggish plot of land and later on constructed a house with four independent flat.

6) Look out for bargains during economic downturns. I purchased my house just after the software bubble burst.

7) Unless you can afford it, do not buy house in a central location. It will cost you more. Cities have a habit of expanding. That house in the outskirts of the city will one day become a hub.

8) Also read Before You Take a Home Loan and After You Take a Home Loan

Plan your death

Just read an interesting piece of news. The Apollo 11 heroes had planned their death. Identifying that their journey to moon was hazardous, aware that the government compensation would be meager and since no insurance company was willing to insure them, they worked out a sort of 'family-pension' plan. Read more here.

My advise: take this lesson to heart. Plan for your death, even if you are not planning to go to moon any time soon. You have a family to look after. Look after them even after your death.

Enhance your skills

When was the last time you enrolled yourself for a class to upgrade your skills. And I don't mean a 2-day course where someone speaks and you listen. I mean a course that is aimed at enhancing your skills. Any skill that you have identified as something that is essential for you to do what you love doing the most.

You see, the formal education you get at college is just adequate to get you a job. That is not sufficient. All those who have some work experience will know that very little that you have studied in your college is of any use at work. Almost certainly, nothing that you studied at college is of any use to you to do what you love most. Yes, the extracurricular activities that you were involved in is of greater use. But is that sufficient?

Do you love to paint?
Do you think you can become a great author some day?
DO you love coding?

Get yourself enrolled into an evening course. Now!

And how is this relevant to becoming rich?

All investment schemes I have suggested in this blog and all advise that I give you in this blog are force-multipliers. These schemes ensure a comfortable life, at worst, and a prosperous life, at best. But these are, as I said, force multipliers; not the force themselves. Your income is still the source of supply to these schemes. You still need to feed these schemes. For that you need to improve your earning capability. If your present job is something you love, good. But if you think you will do better in an entirely different domain, then you need to try that as well.

I do not advise you to drop that day job of yours. You will find many people advising you to break away, take that risk, and try a new possible future. I would advise against it. Do all this if you are extremely confident, are willing to slug it out and do not have any additional responsibility. This can be done, perhaps, when you are still young, unmarried and do not have to look after your parents.

An easier way is to enroll into a evening course and find out if you are really that good. These evening courses will bring in the discipline you need to learn a new skill. (Unless you are really driven I do not advise correspondence course; the discipline is lacking). And when you do find out you are good, go all out for it. Till then keep that day job.

The Indian Woman

Perhaps I have been a little unfair to the women readers of my blog. You see, I have been writing from my perspective. But when I look back at the 40 odd posts in this blog I am not at all surprised to conclude that all of these apply to women. In fact more so. Being financially well-off is a goal that every women should strive for. An old woman is more vulnerable that her male counter part.

The Indian woman who always - almost always - puts family before self. I am pretty confident that the 70-10-10-10 rule will help them as much as it will help the family. The male ego may put up a little resistance, but once the benefits are apparent, you will see the change.

In fact, every post on this blog applies to the family as a whole. The unit for financial prosperity is the family not the individual.

On my part, I will keep the family in mind in all my future posts.

Financial Independence

My father was in AirForce. So after he retired he had a good pension and after his death my mother gets family pension. My mother is 64. The money she gets is sufficient. And she has never had to ask money from me. When she goes to visit her brothers and sisters, she travels by air or comfortably in air conditioned compartment in train. I don't have to buy a ticket for her. In fact, she insists in paying for the tickets herself. In other words, she is financially independent.

Being financially independent in old age is a good goal to shoot for.

When you retire, will you be financially independent?
Will you have a house - your house - to live in?
After you die will your wife be financially independent?

It doesn't matter what your age is today. But are you thinking about your old age?
Some day you will become old, won't you?
Time to prepare for this is now.

Becoming rich - from the first principles

To become rich beyond your wildest dream you need opportunities.
Opportunities come to those who look out for them.
Networking is a good way to look out for opportunities.
Networking is all about trust and belief.
People will believe in you and have trust in you if your are trustworthy and true.
To be trustworthy you have to be a good person.
So the first step to riches is being a good person.
It is that simple.

How Not To Save

By now you must have decided how to implement the 70-10-10-10 formula or a suitable variation. Just as it is necessary to know what to do with your income, it is equally important to have an idea of what not to do. And one thing that is clear in my mind is not to use Savings Account (also known as Checking Account in some countries) for saving. Savings account does not save you anything. It has the lowest interest rate (some 3 - 4%per annum) and until recently had the most cockeyed interest computation scheme.

The interest was computed on a monthly basis on the lowest balance of that month between the days 11th to the end of the month.

Example:

Date----------Balance
1st Jan ----- Rs. 50,000
7th Jan ----- Rs. 1,000
10th Jan --- Rs. 100,000
15th Jan ---- Rs. 2,000
25th Jan ---- Rs. 500,000

In this case, the monthly interest will be computed on Rs. 2000.

This has thankfully now changed. The interest is now computed on a daily basis on the minimum amount per day. See here.

That said, even this does not make a Savings Account very attractive. Savings account should only be used for parking your money temporarily. As a rule of thumb, I would recommend that at any given time no more than 1.5 months salary be parked in such an account. With intelligent use of credit card (yes, credit cards can be used intelligently) the maximum amount to be parked in a Savings Account can be brought down drastically.

Ideas or Action

And those who are inspired by my previous post, click on the link to know a view on the difference between ideas and action.

Just to give my take on the subject: Be prepared to give up your ideas if they do not make sense. But not too soon. Some ideas take time to germinate. It is easy to say that you need to throw away the business plan that does not work - especially with the benefit of hindsight. Wisdom when you stick and when to quit comes only after lots of sticking comes undone. There is no short cut.

It is your ideas AND your action AND wisdom that will lead you to success.

The next big idea

Since you are reading this post, I can safely assume you are net savvy. I can also assume that you are aware that the Net provides you the opportunity to launch yourself into the stratosphere of the rich and famous. It is so easy. Come up with a business model, launch the next big thing and laugh all the way to the bank. The entry and exit levels on Internet are relatively low. And you get to see so many EARN $$$$ blogs and websites on Internet. (Beware of these sites. The only people who become rich are the webmasters themselves).

But what makes you think you are unique? As I type there are 100's of 1000's of net savvy people thinking exactly along the same line. But you have to try, don't you?
Do you have that next big idea and a business model?
Then go for it - before someone else in some corner of the world steals it from right under your nose.
You don't have one yet?
Then stop dreaming and work towards it.

Prescription to riches

Here's a prescription for becoming richer than you are now.
1) Divert 10% of salary to low-risk investments, such as SIP, Unit-Linked Insurance, Bonds, etc.

2) Divert 10% of your salary to high risk investments, such as shares.

3) Keep 10% of your salary liquid. You may have to spend it should there be an emergency. If there is no sudden requirement of this money sweep this into your savings. (Some banks offer such accounts, where after reaching a threshold your money is moved into a long-term deposit)

4) Enjoy rest of the 70%.

Do the above without fail.
Try it and let me know.

What? You mean to say 70% of your salary is too less.
Too less for what?
If you cannot control your expenses, you will not become richer.
That much is assured.

The World's Richest

Here's the richest men of the world - taken from Forbes.

1) William Gates III
2) Warren Buffett
3) Carlos Slim Helú
4) Lawrence Ellison
5) Ingvar Kamprad
6) Karl Albrecht
7) Mukesh Ambani
8) Lakshmi Mittal
9) Theo Albrecht
10) Amancio Ortega

How many in the above list do you think have inherited wealth?
The answer is only two. They are number 7 and 8. Mukesh Ambani's and Makshmi Mittal's wealth is indicated by Forbes as Inherited and Growing. Rest started from scratch. They are all self-made billionaires.

How many do you think are business people here?
The answer: all of them.
You cannot be become rich working for others.

How many won got a kick start in life by winning a lottery ticket or hitting a jackpot?
The answer: No one. Not even one of these. No one had it easy. It takes hard work to achieve anything.

The Barber and You

I hate visiting my neighbourhood barber shop (they call themselves beauty parlour) on weekends. The men are busy cutting hair the whole day. With every hair cut they add a free 10 minute head massage - aah! heavenly. They are tired by afternoon but they have to carry on till late evening. Their hands ache. One of the barbers advised me once not to come on a weekend. With a string of customers and busy weekends, you might think these men are making lots of money. Wrong! The person who is making money is the owner of the hair cutting salon - alright! beauty parlour. He does not cut hair. He just sits there are collects money and ensures that things are in order. He, of course, keeps the beauty parlour neat and clean - that's one of the reasons people flock to his place. He also ensures that the barbers are well dressed, the air-conditioning is working, the music system is on, etc., etc. That is his investment and running cost. And the barbers who work their heart out are actually making the owner rich. I am sure you know many such examples.

Question: Who are you making rich?

Escape the Curse of Credit Card

In my last post I showed you how deadly the credit card can be. Once you get into the credit cycle, you end up paying much more than you bargained for.

Does that mean you should throw away your credit card?
The answer to that is very simple: No you should not. Rather you need to use it with wisdom.

Here are two ways to escape the curse of the credit card.

1) Keep a track of what your expenditure. I always assume that the money paid by credit card belongs to this month's expenditure. It is easy to keep a track now-a-days. Banks let you see your credit card statements whenever you wish to - not just at the end of a billing cycle. At least, my bank, Standard Chartered, has that facility. Regular checks on your credit card will also help you look out for any credit card frauds.

2) Do not use the credit facility of the Credit Card. Pay your entire amount every month. One way to force this on yourself is to give a standing instruction to your bank to pay off 100% of the amount.

Of course, you could also use the Ice Glass Method

The Curse of The Credit Card

Credit card is a potential drain on your earnings. It doesn't seem so, but it is. You tend to spend more when you shop with a credit card. The removal of actual cash passing your hands to another desensitizes you. And all the small purchases add up when the credit card bill comes knocking you door. But there is something more pernicious in credit cards. And that is the minimum payment clause. Why do you think the bank / credit card company allows you to pay only a part of the total. It is not that they love you. It is because it gives them more revenue.

Let's see how it works.

Assume you have made a purchase of Rs. 100. You are allowed to make a minimum payment of 10%. You have to pay for the outstanding amount at 2.5% per month (yeah, it is per month). But there is another twist here. The interest free period disappears when you make a part payment. So you actually pay interest on the Rs. 90 from the day you make a purchase. Suppose you decide to pay off the whole amount in 10 months, you end up paying Rs 11.25 extra. Not much you say? I would loath to pay Rs. 11.25 on every Rs. 100.

But consider this. You not only pay 2.5% on the amount outstanding for the original purchase, you also pay 2.5% on any purchase you make in the payoff duration - even if you pay off the entire amount for the purchase within the billing cycle.

Let us take a simple example. This is your purchase and payment pattern

Month--Payment-----Outstanding-------Purchases------Interest
------------------------------------------------------------
Jan----Rs.100
Feb----Rs.10---------Rs.90------------Rs.1000--------Rs.2.25
Mar----Rs.1090-------Rs 0-------------Rs 0-----------Rs.27.25

Basically, you end up paying for the Rs 1000 for the month of February even though you paid it off without carrying anything forward.
Deadly, isn't it?

By the way, 2.5% per month does not work out to be 30% per annum. It works out to be approximately 34.5%. You might as well take a consumer loan from the bank at 12.5% and pay off the outstanding amount on credit card.

What others say about getting rich

I searched the web for other blogs that give good advice on becoming rich.

Here's a small list:

How to Get Rich - this one has 153 comments at the time of typing. The comments are valuable too.
Get Rich Slowly
Single Guy Money
I will teach you to be rich
and the inimitable Seth Godin's Get rich quick

It is always good to get different view points on a subject.

This is a dumb blog

Yes this is a dumb blog.
It does not give you a quick fix method of becoming rich.
It is not possible to become rich overnight.
Some people may become rich - temporarily - because of sheer dumb, luck.
Others might inherit wealth beyond imagination.
If you are one such I congratulate you.
You are an exception.
For the rest of us, we have no choice but to build wealth by applying our skill and industry.

After you take a home loan

Caution: Do this if and only if your investments are yielding less than the EMI's you are paying out towards your home loan.

In my previous post, I discussed what you should do before you take a home loan.

Now that you have taken that home loan and you are now the proud owner of your grand new home, start thinking of reducing debt. This is by far the biggest debt you are likely to have.

But first, take an account of the money you will be spending on your house from now on:

a) Maintenance - from now on you will be constantly engaged in some enhancement / repair or the other
b) Fresh coat of paint every 4-5 years - you cannot be seen dead in a shabby looking house, now, will you?
c) Yearly Property tax

What you save immediately are:

i) That rent that you were paying to someone else
ii) Income tax
Therefore, the actual EMI you are paying out is only the money you are paying on top of (i) and (ii).

If you are alright with the outflow, do not bother to reduce the debt. You may feel the pinch for the next few years but soon your income will increase (you are due for a promotion, aren't you?) and then the EMI will seem lot smaller (as a % of you total income, I mean).

But if your EMI is HUGE, then try reducing the debt as soon as possible.

Here are three methods that I know of:

a) Some banks offer an account along with the loan (often called a Home Saver Account or something similar). You could park your excess money in that account. The account will earn the same amount of interest as your home loan. You don't get the interest earned in your hand. It goes to the home loan interest. So, it is like paying off a part of the interest but having liquidity at the same time. The best way is to direct your office to pay your salary to this account. Here's an example.

b) Look out from banks that offer a much less interest if you are willing to move your home loan from other banks to this bank. Read the offer carefully though. There may be certain conditions in those fine prints that may not be to your liking. Also switching costs may be high. In any case, what you could do is go to your existing bank and tell them that the other bank is enticing me with a lower EMI, and whether they could do something about it. You have a great chance to reduce your existing EMI.

c) I have done this and works like magic - suppose, you get some extra money from somewhere (could be a bonus from your company). Pay off a part of your home loan. The trick is that you need to do this early on. You see, the initial EMI's have larger component of your principal and lesser component of your interest. Your EMI's that you pay later have substantial interest component. So, paying off even a small amount early on in the tenure goes a longer way in chopping off months from your tenure.

There is one last note I wish to add: If you are on floating interest and the interest drops, the bank will offer you a choice between reduced tenure or reduced EMI. I always chose the reduced tenure. By combining this and paying off parts of the principal early on, I reduced my home loan tenure from 15 years to 6.5 years, at which point I borrowed some money from my parents and paid off the entire home loan. Yes. Today I have a home that is debt free. That leaves me with an asset that can be mortgaged, should I need to.

Before you take a home loan

In my post yesterday, I talked about reducing your debt. This post is focused totally on reducing your debt created by your home loan. Having a roof over your head is a middle-class dream (actually everybody's dream - who wants to shuttle from one house to another every 11 months).

Here are a few aspects that you need to consider before you take a home loan:

1) Do not take loan from the first bank you approaches you. Talk to as many banks as you wish to. And let the banks know that you are talking to many banks.

2) It is not necessary to take loan from the same bank as your friend did.

3) Negotiate, negotiate, negotiate. Every aspect is negotiable.

4) If you tell one bank that the other bank is giving you the loan at a lower Equated Monthly Installments (EMI), the first bank will reduce its EMI to match. (Hint: Ask the first bank to better the offer; not just match.)

5) Floating interest rates are always better than the fixed loans. Remember that the fixed loan is not really fixed for life. If there is a huge upward difference between what was offered and what it is now, banks are within their right to hike your interest rate upwards. They will never reduce it downwards though.

6) Don't bother about interest rate. Instead find out what will be your EMI. There are many EMI calculators available online. Check out your EMI from that calculator and compare with what the banker has to say.

7) Always go for loans where you can make advance payments - in part or in full - without penalty. If all the banks offer pre-closure of loans with penalty, find out the penalty amount. Get this in writing.

8) Your insurance company, such as LIC of India, may also offer loans that also covers your death or disability. This is a good option, if you are already not covered adequately. There is a huge advantage in this. In case of your untimely death - God/Nature forbid - your dependents will no longer have to repay the loan.

9) Most of the time, you will be talking to an agent of the bank. The agent will promise you the earth. The bank may not follow it up. Maintain a note book and note down what each agent has promised you. When the bank gives you the loan letter check if all that was promised is included in the letter.

10) Do not burden yourself with the maximum offered home loan. Take on as less as possible. See Reduce your debt

Do you have some tips that I missed out?
Please leave a comment.

I will cover the "after" part of the home loan in my next post. Till then take care of your investments and your family.

Features to die for

That new cell phone has a fantastic feature that you are ready to die for. This credit card gives you facilities that you wish your existing credit card had. Your car is getting old. The new ones give you a great advantage in mileage AND has a fantastic pick up. Your house could do with a ionizer. What about that latest infrared burglar detector alarm?

The marketing people are geared to entice you. The advertisements are meant to attract. But do you really require that extra feature? Splurge by all means. But does it dig into your principal or are you buying it from the fruits of your investment? And 2 months down the line, will you really use that feature in the latest cell phone?

Reduce that debt

Coming from a middle class background, I was always wary of debt. My parents were never in debt. They postponed acquiring luxury items, but never borrowed money to buy that refrigerator and the colour TV (both purchased from a matured insurance). Besides, those days, India had not yet seen the consumer boom. Credit was not easily available.

Then things changed. Banks now call and ask if you need loan at easy (easy?) installments. You could buy anything on credit card and pay only 10% of the outstanding (never mind the HUGE interest you pay). Instant gratification is the name of the game.

But, hold on. Is debt such a bad thing?> I could not have purchased a house or my dream car (not every one dreams of a Ferrari or a BMW; some of us dream of Scorpio too) with borrowing from banks. Besides, many companies have debt ("a healthy debt to equity ratio").

So why it is that I have against debt. And it is not just my background. I don't think so. To be get onto debt if and only if you have an investment that is paying you more than you are paying for the debt.

Let me take an example. For most Indians, buying a house is beyond our means. We need to borrow money from the bank. The house will be yours for Rs. 32,00,000. Let's assume you have the paying capacity to borrow Rs. 22,00,000 @ 9% interest. You could have paid Rs 12,00,000 from your pocket but since bank is ready to pay that much amount, you put in Rs. 10,00,000. My question to you is: what would you do with the Rs. 2,00,000 left with you. Are you keeping it for some contingency? Or are you going to invest it in an instrument which returns you more than 9%? If you are saving it for some unknown contingency, you have not been reading my blog. Get an insurance, man!
If the Rs. 2,00,000 is not yielding you (after tax) more than 9%, you are just wasting that money. You are better off, taking Rs. 20,00,000 from the bank.

Explore other avenues. Do your parents have some money to spare. Perhaps they can lend you some money. They might have a fixed deposit that is paying them at 6.5%. Take that money and pay them at the rate of 7% (they may refuse to take money from you; but you should insist). Does your company offer loans at low interest. Take that. Reduce that debt.

Put it this way: Given a choice I would like to buy that centrally located house or that spanking car from the fruits of my investment. Ideal. Failing that I would reduce my debt as much as possible

The Risk-Reward Curve

Beware of wisdom that does not have any basis. "More risk carries more reward." Sure? Who told you that?

Just check out the Risk-Reward curve in Seth Godin's blog. I have no doubt that Seth means well. He is inspirational. But the questions you need to ask are:

Where did he get this risk-reward curve from?
Is this curve universal?
I could draw a risk-reward curve that goes exactly opposite.
Does this curve apply to all fields of endeavour?
How do you take care of Black Swan events?

In his brilliant book, The Dip, Seth Godin warns you of the cul-de-sac - dead end that go no where. What if your investments are in a cul-de-sac?

I am absolutely positive and brimming with confidence when I have to try out something that is relevant to my skill. Blogging? I will give it my best and am ready to serve my time out in the dip. Surely I know when to quit and when to stick around. But I am totally risk averse to putting my hard earned money in some investment that shows me a risk-reward curve that has no basis.

Lesson: When you invest in yourself, go all out - achieve that goal. You may get it, you may not. But it is definitely worth trying. But - and this is a big BUT - be extremely risk averse for your investment that depend on others. If a stock broker or an agent comes to you showing how your profit will grow based on some unsubstantiated risk-reward curve, throw him/her out.

Planning for Retirement - Too Early?

Ok! Let's do some computation.
Assume you earn around Rs. 30,000 per month. In about 5-10 years time you should be earning much more, but let us settle at Rs. 70,000. By the time you retire you should be earning many times this, but perhaps, you are ok with the living standard you have with Rs 70,000 and would like to maintain this even after you retire.

But now, you are just 30. Why worry about retirement now? Here's why ...

In the next 30 years, when you are 60, to be able to maintain the living standard @70,000, you need to earn upward of 3,00,000 per month. I have considered 5% inflation. The inflation makes your money's purchasing power weaker.

Perhaps, 70,000 is too big a figure. Let us stick to Rs. 30,000. After all by the time you retire, your children would have settled. You would have a nice, comfortable house and your needs would have reduced.

30,000 at 5% for 30 years Rs. 1,29,000+

Reduce it further ... 15,000 at 5% for 30 years is Rs. 64,000+ per month

Will your savings / investments today yield even Rs 64,000 per month (after taxes) when you retire? If not, what are going to do about it?

Budget your way to prosperity

Have you ever, I repeat, ever, sat down at the beginning of the month and budgeted your income? Something like I will save at least X, and I will spend no more than Y on books, and I will spend no more than Z on a date, and I will spend no more than P on movies this month, and I will spend no more than Q eating outside.
Once you do are done with your planning, at the end of the day note down your expenses. At the end of the month tally your planned versus actual.
You will be surprised.

Definite path to riches

There is one definite way of becoming rich. Unfortunately, this aspect is not as highlighted by get-rich-quick authors. Perhaps, it is taken as given.

Let us get some facts in place first.

1) I am assuming you do not have an infinite source of income.
2) I am assuming you have a profession other than being a Stock Broker.

If these two conditions are met, then there is only one guaranteed way to riches.

Excel in your profession. Become real good at what you do. Reach a position where the the income is much more than your and your family's need for a more-than-a-comfortable life. Invest the excess money so that you can maintain your standard of living even after retirement.

This may take about 20 years of hard work. Meanwhile keep saving and investing wisely so that you do not sink your hard earned money.

You find this piece amusing. I assure you that is not the intend.
Check out the richest people in the world. Let me know if you find any one - apart from royalties - who has not excelled in his/her chosen domain.
Check out the people who live in your neighborhood. The families that are well off would have at least one person doing very well in his profession (CEO / General manager / Whatever).

The path to riches can summarized as follows:

Save & Invest Wisely - Excel in your profession - Use excess money to invest aggressively

This goes totally against the conventional advise of investing aggressively when you are young and invest safely when you are old. The old advise is for people who are average. Not for people who are capable.

How can medical insurance make me rich?

Do you have a medical insurance? Oh! you are covered by your company. Is that adequate? And does that cover your parents, for instance? What will happen if they are hospitalized? The money that you wanted to invest will go to the hospital, won't it?

Wouldn't it make sense if you cover such contingencies with a good medical insurance? I learned this very recently and fortunately, not the hard way.

I was hospitalized for an appendectomy that cost me (or could have cost me) Rs. 80,000. (Rs. 80,000 for an appendectomy? Well what can you do?) And, I took out a medical insurance three months before that. Just 3 months ago. At Rs 5000+ premium, this is perhaps the best investment I ever made :-)

The premium for such medical insurance goes up with age. Someone who is 20-25 will have to pay less than half my premium. And in 4 years time, the insurance starts covering pre-existing diseases too.

You work day and night. Then you get to earn money. This you would like to save / invest / spend on yourself and your family. I do not see the logic in spending huge sums on money on health when small amount of premium will do.

You will meet people who will tell you that insurance is a worst kind of investment, poorest ROI. They don't know what they are talking about. Insurance is not an investment. It frees you to invest as you desire.

The truth about share markets

1. The movement in share prices are not random.
2. Herd mentality is as much evident in the share market as in any other human endeavor.
3. Share prices reflect the true value of a company. Wrong. They never reflect the true value of the company. It reflects what the stock brokers think it should reflect.
4. The share prices can go down or go up due to any reason whatsoever.
5. The share values will go down. Only then will the price come up and some one will make money.
6. All market rallies are driven by lay people who think that they can make quick money when the market is bullish.
7. You can never time the market. So, if you think you can sell when the share price will hit the peak, forget it.
8. How many people do you know who play in share market and are rich?
9. You do not make profit or loss in share market unless you sell the shares. Seeing your shares climbing sharply just after you have purchased the shares could give you immense pleasure, but it will not give you money unless you sell the shares.
10. The stock broker will always make money whenever you sell. It doesn't matter if you make or not.
11. Not opting for 'Stop Loss' is foolishness.
12. Tracking share market will always require more effort than you think.
13. You think the stock brokers know more about the share market than you do? Think again.
14. Ask a financial expert to predict if tomorrow the shares will go up or down. If the general trend is going down, she will say it will go down further. If the general trend is going up, she will say it will go up further. No rocket science here.

Investing in shares should be part of your investment plan. Not the complete investment plan.

How do you define rich?

We have been talking about getting rich. This is the 18th post on this subject. I think it is now time to define what 'being rich' actually means. In one of the earlier post I have quoted Buckminster Fuller that links wealth and the duration that the wealth can sustain you if you quit working today. In my mind, that definiteion is a recipe for post-retirement. And makes lot of sense.

However, the definition of 'being rich' has a social angle to it too. You need to appear rich too. How much you wish to appear rich depends on the people you work and socialize with. It is an entirely an external factor and very few can totally resist it. It is all very well to say that you should not succumb to peer pressure. Most do. To a small or large extent.

And then there is this personal desire. My personal desire to is to have two one-week holidays every year and that these holidays should be spent in comfort. That would mean staying in a 5 star hotel / resort. If I manage to pull this off year after year then I am doing fine.

So, what is this becoming rich thing. Let's sum it up ...

a) Enough money to fulfil your (and your family's) desires.
b) Enough money to conform to your peer group
c) Enough money to ensure that when you retire your standard of living does not drop off.

Now, you may say that there is no limit to desires or that conforming to your neighbour's expectation could spiral your expenses.
Exactly!
The word 'enough' is to be determined by you.
The limits too areto be defined by you.
Once you decide your limits you know how rich you need to be.

Everyone does not have to be as rich as Bill Gates. It is sufficient if you become as rich as you want to be.
Work towards your definition of becoming rich.

Public Provident Fund of India

The most interesting instrument of growing money with the least effort - at least in India - is the Public Provident Fund (PPF) route. Other countries will have its equivalent.

This is how it works. You open a PPF in a bank (I have one in State Bank of India). You can also open a PPF account in the Post Office. It is a 15 year scheme. You need to deposit at least Rs. 500 every year. The maximum you can deposit every year is Rs. 70,000. The scheme has other facilities like loan and partial withdrawal. I would advise against it. Keep the money in the PPF scheme for 15 years.

If you deposit Rs. 5000 a month (Rs. 60,000 a year) for 15 years, then at the end of the 15th year you should have - assuming 8% interest - about Rs. 17,59,457 in your account (i.e., 1.95 times the amount you actually save). In addition, you get a tax exemption on the money you save. Assuming you are in the 33% tax bracket, if you take the tax saving into account, the effective increase in your money is 2.91 times)

Some more details are available here.

Doesn't actually make you a multi-millionaire (what do you expect from a no-effort scheme?), now, does it? But every bit helps.

Achievable financial goals

We have so far established that there is a definite effort that we need to put in order to achieve the riches that we desire. But mindless effort will achieve you nothing. Directionless effort, unfocused thrashing of hands and feet seldom gets you what you desire. Now, if only you could focus your energies and push.

You therefore need to set a goal. Quantitative goals are better. But qualitative goals also helps. And the reason you need to do this is so that the universe responds. Oh! Ok, I was just poking a bit of fun at The Secret. (Come on! Be serious). And the reason you need to do this is so that you are motivated. If you have a goal in your mind and you see you initial efforts getting you towards that, you are motivated. That's what helps.

Understanding quantitative goals are easy. You can look to get a return of, say, 15%, over a period of 6 months. Or something similar. You could also set a goal to pay off your home loan in 6 years instead of 15 years (this by the way worked for me, though not by means of huge returns from investment; rather from savings). I would advise setting goals that are achievable but slightly beyond your zone of comfort. You need to strive towards it, right? Once you are on a roll, you can go for stretch targets.

Ok, what about qualitative goals? This could be fuzzy but needs to motivate you. I can share my qualitative goals with you ... and it is as follows:

All the purchases I make on Internet shall be from the money I earn from my Internet activities.

Now, this may seem foolish and easily circumvented. But it works for me. Choose whatever works for you - whatever motivates you to become rich.

Becoming rich overnight

How many years of practice do you think you need to become a real good violin player?

Oh! You don't play violin!

What do you do?

And how long did you take to become a master of what you do?

Then how do you expect to become rich overnight?

You need to work towards it. Like everything else.

Velocity of circulation

It can only be called a pipe dream. It has always been my desire to invest a sum of money and once I get sufficient returns, and take out the initial investment before it is too late. The returns will continue to earn money while I invest that amount in another fund. And then when the second fund starts giving good returns, I again take out my initial investment and allow the returns to continue earning for me, while I invest the original sum in yet another fund ... you get the idea; the faster I circulate my original money from one fund to another, the quicker I become rich.

This would be ideal. But I have never been able to do so. Perhaps I lack the discipline to follow it up.

God does not make you rich

If you want to get rich, you have to reduce your dependence on God. Note that I am not asking you to become an atheist. You may still keep your faith in God, spirituality and miracles. You can still pray thatyour day goes well. But the sooner you understand that god does not drive the complex economic system that is entirely man-made, the better off you will be.

Every action taken by you to become rich is entirely - entirely - your and only your responsibility. Random events or a black swan event may drive markets up and down; you may cash before it crashes; or you may sunk all your money - God has no role to play.

You can become rich. And the first step is to understand that it YOU who is responsible.

Actually that is true in all walks of life, isn't it?

Escape from the clutches of credit card

In my last post I talked about impulsive purchases and breaking barriers of reluctance. Credit cards are instruments that help you spend unnecessarily and spend more. Since you do not see your net worth reducing, you get psychologically inured to overspending.

One way to escape this is to avoid the temptation to increase the credit limit of your credit card. I deliberately ignore mails from my bank to increase the credit limit. In one case, the bank increased the credit limit on their own because I am their valued customer. Yeah sure! I also carry just one credit card. I have surrendered all others I had.

I just read something called the ice glass method for reducing credit card spending. The following extract is from Predictably Irrational by Dan Ariely.

[The Ice Glass Method] is a home remedy for impulsive spending. You put your credit card into a glass of water and put the glass in the freezer. Then, when you impulsively decide to make a purchase, you must first wait for the ice to thaw before extracting the card. By then, your compulsion to purchase has subsided. (You can't just put the card in the microwave, of course, because then you'd destroy the magnetic strip.)

Go figure.

The danger of impulsive buying

I keep telling all my colleagues, friends, and acquaintances: it is not how much your earn that makes you rich. It is how much you save.

Money might come pouring in from all your investments or from the high-paying job that you do, but you will not become wealthy unless you stop spending on that thing of desire that catches your fancy every once in a while. The road to riches has many diversions taking you away from it - and all those diversions are rooted in impulsive buying.

You have been thinking of jogging in the morning. You seem to be possessed by it. You read up all the health magazines. You end up buying running shoes (even though you already have a pair of sports shoes; but they are not running shoes, are they?) a pair of track pants, a head band and wrist bands, some weights (the magazines say that weights are essential to give you maximum benefit of jogging) and ... this list goes on and on. A year down the line you have stopped jogging. And the junk lies in your garage.

That is money down the drain.

There is another aspect of spending that you need to be very careful about. And this is my personal experience. Coming from the background I come from, I was very reluctant to purchase big ticket items. But you know what. You just have to break the first barrier and buy an object of desire that is slightly beyond what you have purchased till now. Suddenly you are free. You start purchasing more items of similar price range. Let's say I was reluctant to buy anything beyond Rs. 10,000. Then one day, I go ahead and buy something - let's say a bicycle - worth Rs. 13000 (I really, really needed that object). It took me a great effort to buy that. But once I have done that, I suddenly find myself window-shopping for objects of that price range. It took me a while to realize that I had crossed the threshold and that the reluctance had disappeared.

This to my mind is more pernicious than impulsive purchases.

I am not advocating a non-materialistic live - where is the fun then? Once in a while it is ok to give in to impulses. Sometimes. Just be careful of breaking the upper limit of spending barriers. If you are feeling uneasy about buying something, perhaps there is something you should feel uneasy about.

Systematic Investment Plan

An important ground rule in your path to becoming rich is to understand that high returns are always associated with high risks. Always. So, if someone is promising you high returns but telling you that there is no risk, then that person is making a quick money - from you. So, please venture into high risk-high return schemes only if you have excess money and/or if you are young.

And then there is always the Black Swan.

A relatively safe instrument of making money from stock markets is what in India is called the Mutual Fund Systematic Investment Plan (SIP). This is particularly affective when the share market is in an upheaval. The most important think to remember in an SIP is that you need patience.

The way it works is similar to a recurring deposit schemes. You put in a fixed amount of money to the scheme every month. When the share market is down your money will buy more units. When the share market is up your fixed money will buy you less units. This averages out the fluctuations.

I actually did an experiment. I invested in a mutual fund where I paid a lump sum outright at the beginning and at the same time started investing in an SIP. After a year, the outright payment has given me a return of -14.3% (a loss) and the SIP actually gave me a return of +13.5%.

You will get more information on SIP here and here.

I see SIP as a long term investment plan. I intend to keep it up for about 5 years to see how well it works.

I also see SIP as having better Return on Investment, if you consider the effort and time required to follow the share market directly. Direct investment will most definitely fetch you much better returns, but you need to invest lot more time to understand the share market.

As long as you do not put all your money in SIP, you should be fine.

Wisdom from Babylon

Of all the books that I have read on becoming rich, only one - just one - makes any sense. All others books in the market draw heavily from this one book and add their own ridiculous modus operandi (not all, but many).

Ridiculous because, these books assume that the personal examples they quote works out of context too. Since most of these books are written by America-based authors, most do not even apply to other countries, in any case.

But this book is different. It is like one of the classics that transcends time and space.

It goes by the name The Richest Man in Babylon by Richard S. Clason.

Buy this book. It is a thin book and contains all the wisdom you will even need to become rich.

How well you apply the wisdom is up to the readers, of course.

The least the wisdom will do is ensure that you will never become poor.

The magic of interest compounded

There is just one golden rule when it comes to becoming rich. And that is ...

You should earn money even when you are not present.

So that rules out jobs.
Or even business where you need to be present all times.

Building a business where you employ clever employees is definitely a very big yes.
Investments in property, shares, mutual funds are a yes.
And surprise, surprise, monetized blogs (such as this one) are also a yes. At least for some (No! Not me! Not yet!)

The trick is to start early.
Reason: You have sufficient time to recover from setbacks - there will be setbacks, guaranteed. Youth is not risk averse. So that helps.

More importantly, the real benefit of compound interest kicks in.

How much do you think you get if you invest merely Rs. 2000 per year for 25 years that returns you 10% compounded annually. It is Rs. 2,16,363 ( more than 4 times)

You are risk averse?
You would like to put the money in a recurring deposit bank scheme that gives you just 5% returns compounded. In 25 years your money will become Rs. 1,00,227 (a shade over double)

But you should have 25 years with you. So don't start at 40. Start when you are 25 years old.

Definition of wealth

You say you are rich. You are wealthy.
You may be well off, but are you really wealthy?
There is a distinction, you know?

Wealth is a person's ability to survive so many number of days forward ... or if I stopped working today, how long could I survive?

The above extract is from Rich Dad, Poor Dad and attributed to Buckminster Fuller.

When I read this line for the first time, it scared me. I can just imagine how long I will be able to survive without a job. And more importantly, how well will I be able to survive? So today I may be better off that I was 10 years ago. But I am definitely not wealthy.

Are you?

Insure you way to wealth

To become rich, get insured. 'You must be joking," you say.
Insurance has the lowest Return On Investment.
So I must be out of my mind when I propose that one of the ways to become rich, you need to get insured.
Hear me out please.

Contrary to popular belief, insurance is not just for your future. Yes, you pay a premium to offset any future eventuality.

So, for instance, if you are hospitalized and you have a medical insurance, the insurance will cover your expenses.
If you are disabled and you are covered by insurance, you get an amount that will take care of your loss of capability to earn.

If you die, your family will get a sum of money that will hopefully take the place of the earning member - you - who is no longer there.

But this is only part of the story.
Insurance allows you to take risks in the present.
This is not recognised easily.
If you are insured for the future for a small premium, you do not have to bother to save a huge amount of money for any eventuality.

You can take a part of your present income and start investing without fear of a failure.
And investing, though fraught with risks, is the only game in town that can make you rich.

Lesson: Cover yourself adequately for the future. Get insured. And then invest boldly in the present.

The rich are not bad

Flip through up any language text book.
You will notice that the rich are
(i) cunning
(ii) cruel
(iii) exploitative

Most of my childhood, teens and early adult life, we can visualize only one path to become rich. You need to exploit the poor farmer or the trader mercilessly and grab opportunities with scant regards to humanity to become rich. The rich has his vault full of pawned goods that the poor farmer deposits in lieu of money to buy seeds. The rains fail. The rich insists on his money., Where would the farmer get the money from. His land is usurped by the rich. You get the idea!

So who are the heroes of Indian tales - the educated man who impresses the king with his wisdom, the poor brahmin who earns name and fame because he is learned, and the cunning housewife who saves the day by fooling the cruel carnivore. Yes there are benevolent kings and kind moneylenders. Yes, the good always triumph in the end, but you come away with a bitter taste in your mind for the rich.

It did not help that early independent India plunged headlong into socialism. Since the rich exploit, the state would step in to save the day. Thank goodness for the givernment otherwise the profiteers would have sucked India dry.

The divide between the haves and the have-nots in India is accentuated by another factor: the varna (incorrectly translated as caste) system. You could either be a learned brahmin or others. The educated could not be rich; the rich could not be a learned brahmin. Indian mythology supports this to the core. The two sisters, Saraswati - the godess of learning - and Lakshmi - the godess of wealth - cannot see eye to eye. Any one of them will stay in your house. You got to choose between Saraswati or Lakshmi. 'Running after money' is as great an insult as any. The only honorable means of earning money is to get educated and go about earning money honestly.

It was not until early adulthood that I realized that the businessman is the driver of any economy and the resultant prosperity. They create jobs. They create opportunities. They create wealth. But this knowledge came in a bit too late for me. Even today, and I am 44, my initial reaction is that of shock when I read that high court and the supreme court judges - nor all of them fortunately - are involved in scams. It takes me a while to recover from news of corruption in India's defence forces. I have to hello-anybody-home? myself before I can proceed.

So what is the lesson?
The rich are not bad people. Seeking and exploiting opportunities is not the same as exploiting people. Stories are just that, stories.

Beaten by the newspaper

This was the mid nineties (I think, or early nineties).
India was truly on the way to reforms.
The share market had recovered from the Harshad Mehta scandal.
Things were looking up.
It was possible to trade online on National Stock Exchange (NSE).

I was lucky to be working at a place where colleagues were friends too.
We decided to become rich by investing in share market.
Though I had burnt myself badly in my tryst with the share market, I was drawn into this venture.
Basically, I derived strength from numbers.

We started reading economic times.
We decided that Initial Public Offerings are too risky.
It is better to trade direct.

One day, this friend of mine brought in an analysis on Kishko Cutlery.
The recommendation was buy.
We rushed to the nearest online trading centre - this was a good 20km away.
I purchased 100 shares.
The shares plunged soon after.
All my fears about the share markets came back to haunt me.

Later, much later I learnt the dynamics of market movement and newspaper reports.

Lesson: If it is in the newspaper, you are already very late.

First steps

Late eighties.
My cousin is a year elder to me and he had then just moved to Bangalore.
I went to see him.
I saw some share applications in his room.
I knew people become rich by investing in shares.
I picked up one - Usha Rectifier.
My cousin said he was not going to apply for this company and that I could apply if I wanted to.
I should have asked him why he doesn't want to apply.
The share whose face value was Rs. 10 was in the market for Rs. 50.
Another colleague of mine who understood this a little better that I asked me to find out more about this company.
I looked it up in a finance newspaper.
It was being traded at Rs 170.
That was the only information I needed.
Wow! At Rs 50 this was a bargain!
I started dreaming how much I will earn in a few days.
The day I applied, the share value fell to Rs 110.
With a few months it fell below Rs 50.
And then it disappeared.
This share - renamed Usha India - is no longer traded.

My first attempt to become rich was a miserable failure. I went back to my shell. This way is not for me.
That was a serious mistake.
Instead of learning from my mistake and instead of learning the way share market works, I stopped at the first sign of failure.

And what was my chance of succeeding?
Nil.
I had no knowledge of the share market.
It was entirely an instinctive decision driven by dreams of becoming rich the easy way.
Doesn't work.

In all other endeavours I have always pushed hard against failure., If I slip, I push back harder.
My humble growth in my job could be attributed to my determination to do better.
But I did not transfer my resilience from one domain to another.

Making wealth was a new domain for me. I started by diving into the deep end. That was fine.
But I failed to learn from my failure.
That was a huge mistake.

Lessons:
1. It is natural to get excited when you take your first steps. Do not have high expectation. The first steps are likely to fail.

2. Be mentally prepared for the first failures. You are likely to succeed subsequently.

Years later I dabbled in shares again. But that is another story.

Your environment and your mindset

At school all my friends came from the same background - middle class. My neighbourhood group was from the same ecosystem. We discussed all things under the sky but never about wealth. As I churn my mind, I do not recollect a single instance where we discussed wealth and the wealthy. I remember discussing sports, sportsmen, Sunil Gavasakar and Kapil Dev, movies, actors and actresses (obviously), government, polictical parties, Indira Gandhi, USA and USSR, Pakistan and the 1971 war, books - lots of books, nieghbours, girls, teachers, some more girls, in other words everything except wealth. Who does? Who is bothered about the rich when you are in school?

As we moved into college, future became a subject of discussion -sometimes. For some like me who managed to get into professional colleges (Engineering and Medicine) the path was clear; so no second thoughts there. Some did not make it to these colleges and though they were excellent at studies they had to settle for fundamental sciences. Those days, for a typical middle class family, Engineering and Medicine were the only two known good options for a bright future. (The outlook has changed a little since, I hope)

Then a handsome boy moved into the neighbourhood. Soon we became friends. I remember 4 of us (3 old friends and this new one) were sitting in my friend's house. It was summer holidays. His mother had served us something to drink and something to munch. For some reason, we started talking about ambitions. This new chap said, "I want to be a model." Model? Who wants to be a model? We looked at each other. A middle class child is brought up to be polite. So we didn't say anything but once he left how we laughed and laughed. Slowly this new friend drifted away from our gang. Many years after I heard that he was featured in some magazine cover and that he was actually pursuing his ambitions.

And the rest of us? We settled into various ambitionless, riskless jobs. Even in my job, I was surrounded by people of similar background: Middle-class families who had pushed their children through engineering college.

Looking back I now wish I had some friends who were from an entirely different background. What if we had friends whose fathers were businessmen? What if my friends talked about wealth? What if we visited their houses and were dazzled by their wealth? What if their fathers took time to talk to us about what we did? What if we had asked our friends from business families what they would like to become when they grew up? What if they had painted a future driven by ambition and passion and totally different from ours? What if we were exposed to an entirely different mind set? What if...?

Lesson:
A different future requires different mindset. Having friends from different background is a great way to get started.

There is saying, "birds of same feather flock together." Notice carefully. They do not have the same feather because they flock together. A big part of our future is limited by what we see around. Unless we are Jonathan Livingston Seagull. Need to break free.

Impact of upbrining

I am an anti-thesis of Robert Kiyosaki, the author of Rich Dad, Poor Dad.

Reading Rich Dad, Poor Dad is thrilling. It is so well written that you start believing that you also can become rich. So what of me?

I have serialized the mistakes I made that perhaps has prevented me from becoming rich.

Some of you will identify with me: to them I would advise not to follow me.
Others will take a lesson from my shortcomings.
And by bringing myfear out in the open, I will change, ahem!

Basically, what I trying to do is introspecting into why I could not break out.

My father came from a huge family. He had 11 brothers and 3 sisters (Big family! What fun! In contrast I am single child.)

I grandfather was a lawyer in the town of Dhanbad.
I am told that he detested telling lies. So, one fine day, he decided he will stop practising law.
By then his eldest son started working (as a lawyer!!) but the overall income fell.
So the living standard suffered. This was pre-independent India.

My father left home at 16 to join the Indian Air Force (IAF). He was 6 ft and had - others have told me - a V-shaped body.

Someone once challenged him to a boxing bout and beat the hell out of him.
He resolved to take up boxing.
He went on to become the Air Force Boxing champions in various weight category.
He became known as 'Boxer Mukherjee'.

His boxing career ended after he married. My mother says that my father had near zero bank balance when she got married to my father.

In other words, he enjoyed his life as a bachelor. Boxing and enjoying life!
Mother then took charge of the household. She started saving pennies. This was early sixties. There was not much scope of investments in India.

Savings was all that was possible. She saved enough. Insured father's life. The insurance matured before father's death and with that money we purchased 'colour' TV and refrigerator.

This was when I reached college.
My parents managed to build a house from the savings and loan.
They managed to get me through school and college education.
And when father died in 1986 she did not have to ask money from anybody.
I am very proud of my parents.

My childhood has been a happy childhood. I was never denied any request.
But at the same time we never splurged. And we never went beyond budget.
People in Airforce cannot be called poor. But they are not rich either.
And we always saved. Banking was something that I learned fairly early.

So saving money is embedded somewhere in my brain.
Investment is risky, losing money is no fun.
Future is uncertain, so save money.

Over the years I have found it very difficult to tear myself away from the fear that arises from losing money.
Today, perhaps, I can afford risky investments.
However, most of my investments go into relatively safe instruments.

So what is Lesson #1.

To become rich you need to reformat your memory.
My parents did what they could do best according to their circumstances.
I should have done / should do what I can do best according to my circumstances.

Therefore, DO NOT LET YOUR PAST DICTATE YOUR FUTURE.

Wait for my next post for Lesson #2.