You cannot have financial freedom – without financial discipline

Affirmative action, compounding, Financial Independence, Human Brain

A few days back I had written a post on why you need discipline and not money to get financial freedom.

I have been sharing with you that I am reading the book The Road Less Stupid by Keith Cunningham. I was introduced to this book by Joe Polish. I had heard him speak a lot about this author in multiple podcasts. So I searched and found an interview where Joe is interviewing Keith.

I liked the ideas that he spoke about in the book and therefore ended up buying it. The ideas and especially the thinking questions are worth pondering on. Today I spent close to about 4 hours on the 3 questions I had listed yesterday in my blog post and did get somewhere with the answers that I got.

Coming back to the headline, while reading the book I had happened to chance on this sentence. It struck me immediately because I continuously keep harping about the need for discipline to reach financial freedom.

This discipline is not possible if you base it on will power. Will power is something which get exhausted very fast on a daily basis. Your brain gets exhausted so fast that the more decisions it has to make the faster the energy depletes. With energy gone you cannot exercise will power.

So you need to put in systems which take the decision making away from you. That’s possible only when you automate the investment process with things like Systematic Investment Plans (SIPs) or the equivalents in your country. You could go with ETFs or Mutual Funds or direct stocks. The item is not important. What is important is to get into automating the process so that there is no concept of using will power. Then let the power of compounding work for you.

Till next time then.

Carpe Diem!!!

Discipline – not money – for financial independence

Affirmative action, compounding, Financial Independence, Human Brain

Yesterday I was listening to a talk by Keith Cunnigham. He is an author of multiple books including the book “The Road Less Stupid”

During this talk with Joe Polish, Keith asked a very pertinent question and I paraphrase it here- “If you were to look back at your 3 financial decisions seriously would you have been better off by not having taken those decisions”

I started thinking about my major decisions and one of them was buying a house. I have written a full post earlier also on this – that it was not a decision I would like anyone to take because it chokes the financial bandwidth – if you are buying it with a loan. If you are buying it all cash then its a good asset or taking a loan of the amount which gives you some kind of tax advantage then its worthwhile.

But then I started thinking again whether I would have been better off financially by not buying the house. On a theoretical calculation, the amount of installments I am paying on my mortgage, if I had been investing the same amount in equities or mutual funds, because of the compounding over 20 years, I would have been much better off to buy this house today and still have lots money left over.

However when I think on the flip side, by buying the house and having monthly mortgage payment, I had to exercise a tremendous amount of discipline to ensure that the payment was done on a given date. I am not sure I had the maturity at the time of putting up SIPs and I was financially illiterate to ensure that I block of the amount into an investment on a monthly basis.

Which brings me to the bigger point – for financial independence – which I have devoted a lot of my posts on – has very little to do with what you earn. It has more to do with what you invest automatically. The key word over here being automatic.

If you think you can have the discipline to ensure consistency every month , to invest on your own, chances are your brain will play games and you will find multiple excuses for not investing. On the other hand if the money will go out of your account automatically even before you get to use it, then you will find a way to manage your finances with the remaining money.

To come back on Keith’s point, yes I would have had a better financial position, provided I had the discipline to ensure my monthly investments.

How are you doing on the financial discipline side, look forward to hearing your comments.

Till next time.

Carpe Diem!!!

The negative effects of compounding – Covid second wave


I talk a lot of the magic of compounding and how it helps in various areas of life.

Last year in the middle of the pandemic I had written about how compounding was giving power to the virus and if we don’t bring down the rate then the virus will only keep growing forever. It will follow a pattern similar to the Fibonacci pattern in the picture.

Last year in most countries people exercised restrain on their own or the governments did lock downs to ensure that people maintain distance since that was the only way to protect yourself.

Suddenly in India in the last week or 10 days the virus has again started compounding at about 40% per day. Even though in most parts of the country over the last year we have built the necessary infrastructure, nothing can match the problems that can arise if the compounding takes place at this pace.

Eventhough we are doing massive vaccination at close to about 2 million people in a day, it takes time for the antibodies to build . But people have taken this issue so lightly that the virus has used this opportunity to make such a massivee comeback.

The only way to control this virus is to keep distance from each other because you never know who is a asymptomatic carrier of the virus.

To all the readers of my blog, pls stay safe in your homes as far as possible,

Till next time

Carpe Diem!!!

How to be a billionaire

Affirmative action, compounding, Financial Independence


Now with that out of the way, let me tell you what I do know.

I do know that compounding does work and INR 2000 put into an investment in 1995 today gave me a dividend of INR8500 this year and the value of my investment today is more than INR150000/-.

You will get a lot of sites both serious ones and satirical ones who talk about showing you a path to becoming a billionaire. But when you look at where you are starting from and what you need to invest to achieve that kind of number, the amount is so huge that you never get started.

This was a case with me also for a long time. I always got around to starting my investment journey, but never did till 2013. Each time I had to let my brain take a decision on making an investment, I always procrastinated, so I put in automatic systematic investment plans, which deducted money from my bank account.

The issue is never about whether you will become a billionaire, the question is always about whether you will take action to get there. If you will take action consistently and let the magic of compounding work then you will at least reach the skies, if not the stars.

My suggestion and advice to all the young folks is always start with just a small amount which is not more than 10% of your income, but let it get deducted out of your bank account directly before you can touch it. Once you do that and not think about it, you will be surprised at what you will see after 25 – 50 years. As an example the average return on the S&P 500 has been more than 10%. Suppose you have $500 invested for 50 years in an ETF which only works on the S&P500 the number you could potential be looking at is close to $58K. So if you can avoid about 100 coffees & a doughtnut at your local coffee shop, you could be at more than 50K in 50 years. If you were to avoid it for only one year( $5*365) and invest that for 50 years you would be at about $214K. Can you save $25 in a day. Most people can. You could potentially be a millionaire, and that too just investing for 1 year.

The key point here is that you are investing – not saving. For the difference between the 2 please see my earlier blog posts.

The earlier you start out on your investment journey, the higher will your corpus become. If you notice even Warren Buffet’s meteoric rise in becoming the richest man has been in the making for more than 60 years. Its the last 15 odd years where the compounding has created such an explosive growth in his wealth.

Start somewhere, start at the earliest, start with the smallest and let it compound.

Till next time.

Carpe Diem!!!