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.

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

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.

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.

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?

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.

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?

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.