Rabbit and hare – why I am repeating the story

Financial Independence
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As kids all of us were told the story of the rabbit and the hare. While I don’t intend to tell the story here, the implication of the story are more important to investing than all the “gyaan” and financial numbo jumbo needed for becoming wealthier.

The basic premise of the story is that consistency even if you take very small steps is more critical than large irregular bursts.

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The hare takes short bursts and then stops to rest while the rabbit keeps nudging small steps on a continuous basis.

For compounding to work, it is the consistency which is critical. That is why a systematic investment on a regular – weekly/monthly basis is more critical than investing a large sum at irregular intervals. Over here I am assuming that you are not a person who already has a large amount of money. (If you already had a large amount of money you would not be reading my blog anyway.)

There are 2 psychological issues which you need to keep in mind.

When small amounts of money keep getting deducted from your account on a monthly basis, it does not hurt and your spending patterns adjust with the little less money that you have in your account. But because compounding has less to do with the amount and more to do with the tenure and rate of interest, it works perfectly – like the rabbit – in building your wealth.

However I often hear people tell me that they would invest the money that they get in their annual bonus or sales incentive. While its a very good idea to invest the money that you get as a bonus(and not spend it), generally humans discount the bonus that is expected. So by the time the bonus actually arrives, there is a new microwave to be bought or their is a holiday to be taken or there is a relative’s wedding for which new dresses have to be purchased or there is a medical emergency for which the amount needs to be spent and then you never end up doing the investment.

I was part of this story for most of my life till 2013. I always intended to put the next major increment or bonus for buying my own house or making investments. But it never happened. Life just passes by and some new emergency, urgent expense etc. kept propping up and I did not have any major assets.

By starting very small investments on a regular basis from 2013 I was able to build consistency in my investment plan. The ups and downs of the market don’t bother me because I am getting to do averaging of my costs of the investments. Due to this I am able to build a core to help me work on ticking out items from my bucket list.

Whether you do any other new year resolution in 2020, take one step to carve out 3% of your monthly income and make automatic deductions for some investments. Slowly as you grow used to having 3% less income, raise the amount to 5% of your income and then to 10%. Check out your bank if they have any mechanisms to make this kind of deduction for investments. Today is just the 8th day of 2020….take action for a better, wealthier life.

Carpe Diem!!!

Living carefree forever

Financial Independence, Uncategorized

Last week I saw this movie “102 Not Out”.

It stars 2 of the best actors in Indian cinema Mr Amitabh Bachchan and Mr Rishi Kapoor. It’s a very sweet story about a 102 year old father and his 75 year old son.
The son has lost his interest in doing anything in his life while the father is still active over the age of 100. It is an extremely sweet movie which I would recommend everyone to watch.

The movie got me thinking on how this person would have lived his life from retirement, which in India is typically at age 58, for another 40 + years.

For sure he must have had enough Investments that could last him for 40 years of zero regular income.

The average age that an Indian is approaching 70, what that means is for every 38 years of working life the average Indian will now have to survive without the facility of a regular income help him through those next 10-15 years

Given that medical expenses and medical inflation are at such high levels you really need to think how will you survive without asking for any assistance from your children

There are very few things which are inflation proof and especially for an economy which is growing so rapidly and looks to become the third largest economy in the next 15 to 20 years, inflation pressures will always be very high.

So you need to think in terms of what are your investments and what kind of returns will they give you for you to survive for those years when you don’t have a regular stream of income and still have the will to enjoy like Amitabh Bachchan in 102 not out.  You need to celebrate life not live a life of drudgery.

Tell next time
Carpe diem!!

There is nothing sexy in achieving financial freedom – part 2

Financial Independence, Uncategorized

Yesterday I wrote about how most of these Ultra rich people – Warren Buffet, Tony Robbins, Richard Koch, Robert Kiyosaki – actually followed a system rigorously even when there were roadblocks around the way

The systems required that they had to do some amount of sacrifices. Maybe they did not go out for a date when they were young because they had to ensure that they were closing something as part of their system.

I also realised when I started a bank mandate initially with just a 1000 rupees. Initially it did matter that even before I could utilise the money, the money went out from the bank. But slowly I got used to it and I went on increasing my commitments to the money getting directly debited from the bank into some Investments.

In 3 years I did not realise what a difference that had made to my financial stability. Based on the possibilities that my investments could do, I actually sat down to figure out a date by which if my assets reached a given value I could leave my job and start doing what I want.

While God has been kind in a lot of these endeavours it is also a matter of the systems working and the investments compounding in the background.

For all those young guys if they read this, just a very small portion of their income if they can directly give a bank mandate, for money to be deducted to go into an investment, without they realising, they can all become millionaires.

If you leave it to your discretion that every month you will invest based on what you save…. You will never be able to invest.

The human brain was designed to ensure that it survived and immediate gratification was more important than long term safety. Hence the brain does not allow you to take a chance with your safety of money and wants you to have it till the last moment. But when you have a system to automatically reduce the money from your bank for an investment the brain gets used to the lesser amount of money and you are able to live a similar Lifestyle even with that less money.

Today there are possibilities of various kinds depending on your appetite and the goals that you have to invest in mutual funds in SAP or in a recurring deposit whichever way you want.

Whatever you do and whatever your risk appetite, put a system in place so that it works in the background and gets you to your goal

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There is nothing sexy in the process of achieving financial freedom

Financial Independence, Uncategorized

FB-YOUR-STORYOver the last few years I have been reading a lot of books/biographies/auto biographies to find out some kind of drama around suddenly amassing a fortune.

Somewhere I had this feeling that there must be a magic formula or providence would strike and I would definitely be as rich as the Oracle of Omaha –  Warren Buffet. I read the Snowball by far one of the most authentic accounts of his life and other books on him. Found nothing dramatic or sexy in it.  As a matter of fact you sometimes find them boring because their life seems to have the same twists and turns.

I read Tony Robbins and his “Unshakable” and “Money – Master the Game”. Then among others I also went out and read Ramit Sethi and Richard Koch. Again nothing romantic that could suddenly help me leave my job and do what I want to do.

Now most of these guys are seriously rich so they must be doing something right.  Some definitely had their take on finding different ways, like Richard Koch with his fundamental book on 80:20.

Well if you remove the stories and hype surrounding these guys…they just ensured they were following a system continuously for the long term.

They had the same short term distractions that you and I have.  Some of them may have some luck on their side sometimes.  However they just kept at the system they decided they would follow to achieve their freedom.

Unlike me and a lot of us.  We get distracted with things, which when they appear, seem to be big.  But when you look back at life they were small blips but they broke us away from our long term goal.

Irrespective of the path you want to follow, ensure that short term blips do not deviate you from your long term goal.  There will be zigs and zags but keep at it

Carpe Diem!

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