Take Ownership Of Your Money – Grow Up or Die Poor

I will be 30 years old in 2020. I have learnt enough over the last 10 years about managing finances. There is a lot to learn yet but here are my tid-bits for anyone who wants to get serious about handling their money. Here it goes –

Be A Literate – Learn to Deal With Money

Do not be a financial illiterate. You must spend a considerable amount of time learning about the nuances of managing your own money. It will give you non-linear results in the future. Understand how compounding works. Understand what is equity and what is debt. Understand how to invest your money and what are the various avenues to invest. Let me list out some resources for you to get started with –

Richest Man In Babylon – A simple story to understand the power of saving regularly and the power of compounding.

Rich Dad Poor Dad – One of the best books to understand how to deal with money. To understand the difference between assets and liabilities and to understand what money can do for you. Highly impacting. I cannot recommend it enough.

Retire Rich – Invest Rs. 40 a day and You can be rich too – with goal based investing – These books are from PV Subramanyam and M. Pattabiraman. Will give you a perspective to invest in the Indian markets. Both of them write amazing blogs helping thousands of people at subramoney.com and freefincal.com. Please check out.

Understand The Power Of Compounding

Albert Einstein said “Compounding is the eighth wonder of the world”.

Even though the concept is easy, it is very difficult to grasp the non-linear effects of compounding. The effects of compounding are realised much later in life. More than 90% of Warren Buffet’s wealth came in after the age of 60. See the illustration for a better understanding.

Learn The Concept Of Financial Freedom

Financial freedom is a brilliant concept. It is freeing yourself from the dependency of a monthly salary. Allowing yourself to do things at your whims and fancies. Using your time to do things you have always wanted to. Do you want to get started on the financial freedom journey?

Do you want to know the secret to achieving financial freedom? Hear from the experts. Naval Ravikant says “there are 3 ways to retire: 1. You keep your burn rate under your passive income (make your money work for you) 2. You keep your burn rate to 0 (you become a monk) 3. You find a way to do what you love to do, that is play for you, and that covers your burn rate”

If you want to learn more about financial freedom, read these books.

Minimalism – Two friends who quit their jobs, sold out everything and started living a minimal life. Financially free. Great life lessons in this small book. I wrote a blog post on a few things i learnt from this book. Sharing the link to the post “Anchors Pulling Us Down And How To Deal With Them?” If you do want to read the book, read my post Minimalism For Financial Freedom.

Your Money Or Your Life – A book explaining the manners to achieve financial freedom.

There are multiple financial freedom blogs on the web. You just need to google.

Focus On Growing Your Sources Of Income

Focus on getting better and growing faster at your primary job. By the time you are 30, you must be earning a 7-digit salary.

Create secondary sources of income.

Build skills. Use those skills to create additional sources of income. It could be anything. You could start a side business or a blog. You could teach. You could write e-books. You could be a freelance writer. There are plenty of options. Go figure.

I failed to do it early in my 20’s and realized the importance only now. One book which has influenced me is from Scott Adams. How to fail at almost everything and still win big.

You need to start investing in yourself to be able to generate income from multiple sources. How do you do that? Read the post from Janav Vembunarayan here.

Rate Of Savings Is More Important Than Rate Of Return

At your age, rate of savings is more important that rate of returns.

What is rate of savings? Amounts saved in a month/Amounts earned in that month

Higher rate of savings will ensure that you reach your goals early. With higher rate of savings, you will ensure that you attain financial freedom early or that your retirement corpus is full. As far as rate of returns are concerned, you are doing well as long as you beat inflation. Rest is bonus anyways.

How do you save more? Few tips –

a. Live with your parents if you work in the same city.

b. Car pool. Saves a lot. I am not asking to use public transport. That is an option if you do not have a car.

c. Make 2 out of 3 meals at home. Or find the cheapest alternative. Fine dining will not keep you fine in the long term.

d. Think for 30 days before making any purchase. Write down why you want it. You will end up not buying most of the occasions.

Understand Risk And Asset Allocation

Each asset comes with a risk of its own. Securities issued by the central government are more or less risk-free. Everything else carries some risk weight.

Figure out your risk appetite. Are you a low, moderate or a high risk taker?

Once you have that figured, you could allocate your resources accordingly.

For example, I am moderate risk investor. So even though I am 29 years old, my asset allocation is around 50-50 between debt and equity.

To get more clarity on risk and asset allocation, i would suggest the following resources –

collaborativefund.com and themotleyfool.com – Go through whatever Morgan Housel has ever written. He is one of the best financial thinkers who has had a large influence on my life.

Nassim Taleb – Buy all his books. I have read only one but I am sure the rest are equally good. Taleb has influenced the greatest minds alive. Find them here. I plan to read the rest before the end of the year.

Avoid Lifestyle Upgrades

As you grow, you will see your income rising. You will also reach a level where you will be the highest earner in your family. When you reach those levels, do not forget your roots. If you have always lived a frugal lifestyle, its best to continue to embrace that. Upgrading your lifestyle would mean spending more money than before. You will only be doing it to satisfy your ego.

There will be times when you will certainly fall prey to such upgrades. Honestly, in my opinion, it’s ok. Only sometimes. Indulge, but occasionally only.

Stop tell yourself that you will save tomorrow. You are fooling yourself. Look around and you will see that everyone is spending money on things which have no value tomorrow. Do not be like them.

People focus on role models; it is more effective to find antimodels — people you don’t want to resemble when you grow up.” — Nassim Taleb

Focus On Reducing The Big Expenses

Housing – If possible, live with your parents. It will make a huge impact on your net-worth. In other cases, go for shared accommodations. If you are looking to buy a house, evaluate if it is feasible to rent in the longer term. Each have their benefits depending on where you live. Evaluate carefully before buying.

Car – You, as an individual, do not need a car. Try to use public transport or Uber and Ola. Limit yourself to one car per family. My family of 5 has had only 1 car for 14 years now. Though I made mistake of upgrading our car in 2014. In hindsight, it was a bad decision.

Food – If you are living alone, learn to cook. Limit your food expenses to not more than 5% of your earnings. If you love to eat out, find cheap places. Fine dining will do a fine damage to your savings. Like I said before, make 2 out of 3 meals at home.

Avoid Debt

Debt is a trap. Try to stay debt-free throughout your life. The peace of mind it gives you cannot be described in words. If you are looking to borrow for a house, make sure that your installments are not more than 20% of your earnings. Anything higher will not let you sleep peacefully at night.

You have real wealth when you have zero debt and a surplus at the end of each month. Tara Westover Said ” “I began to experience the most powerful advantage of money; the ability to think of things besides money”. Read what I learnt from her here.

This Is All You Need

Putting it in the words of Rajeev Thakkar, a highly respected fund manager in the industry. One of the highly respected minds in the mutual fund industry. Linking his twitter profile here.

Five broad categories—diversified equity, liquid, debt and for those who want it, a REIT (real estate investment trust) and a gold ETF (exchange-traded fund)—meet most needs.

This is the holy grail of investing and portfolio management.

If you want exposure to bonds, stick to bonds issued by public sector enterprises and cash generating businesses. Learn more about bond investing here.

For diversified equity, you have low cost Index Funds. The idea of index funds is simple. Invest in a basket of stocks at lowest cost and hold for longest periods of time. See the magic of compounding unfold.

“Spend less than you make. Always be saving something. Put it into a tax-deferred account. Over time, it will begin to amount to something. This is such a no-brainer!” — Charlie Munger 

REIT’s are fairly new in India. If you are Indian investor, it is advisable to invest only once the REIT market matures in India. Read the detailed article to understand better.

Never Stop Learning

Do not ever be of the assumption that your learning is over once you get a job or start a business. Read a lot. Read books more than blogs. Read blogs more than twitter and instagram feeds. Learn to develop new skills. Learn to hone your existing skills. Learn to build a multidisciplinary framework.

Few resources to kick start your learning journey.

Poor Charlie’s Almanack – Cannot recommend this enough. Consider this as an investment and buy it.

brainpickings.org – Maria Popova owns the blog and she reads almost all day and shares the wisdom from greatest minds to have lived on the planet.

fs.blog – If you have time to read only one blog, it is this one. Look no where else.

Read 500 pages [of books, magazines, reports, etc.] every day. That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.” – Warren Buffet

2 thoughts on “Take Ownership Of Your Money – Grow Up or Die Poor”

  1. Nice blog.
    Nice job.
    Nice mission.
    I realised we’ve got many things in common as far as this blog is concerned. Can we connect? I mean really and not only likes, comments and share. See, if you think we could find a way to know one another more.
    Keep writing good stuff!!

    Like

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