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!!!

Advantage small investors – SIPs

Affirmative action, asset allocation, compounding, Financial Independence, Habits, Uncategorized

This is a continuation on my rant for doing Systematic Investment Plans (SIPs)

A lot of times I hear my friends , especially female friends say this….. my father / brother / husband invested in a specific stock Rs100,000/- and the stock has never recovered back and he lost so much money, so I will never invest.

I have literally had to coax people to understand the fallacy of the argument. Losing massive money is an outcome of getting in the market without doing your home work. If you listen someone else and do your investment or you see the stock market going up and you throw a dart at any name and buy the shares then you are inviting trouble.

First and foremost if you don’t understand about the ways companies work, operate, don’t get into the market on your own. There are so many ETFs which you can buy or MFs you can get. This helps spread the risk over multiple stocks.

Second even within these always ensure you are buying regularly in small tranches. By using the SIP facility you get to average over time as well as cost so even the fall in prices is actually an advantage for you.

Unlike big investors who have to look for a big price advantage to invest their millions or billions, for the small investor this is an advantage. They can enter the market at any time because the SIP will take care of any gyrations that the stocks go through and will end up with a very large core inthe long run.

The key is that you are not investing lump-sum, you are investing small amounts and you are investing systematically and you are letting compounding play its role in the long run, then your returns will be similar to the overall market

In the LONG TERM, and this is a very important point, in the long term the stock markets have given compounded returns in double digits. If you can spare small amounts of money every month for an extended period of time, its mi days boggling to the corpus you can create. In my earlier posts I have given ready to use charts to help you compute.

However if your time horizon is short then its better to put money in debt instruments so you are sure about your returns. These returns are small single digits but they are guaranteed.

Take your first step, start an SIP and get financial independence.

Till next time.

Carpe Diem!!!

Relentless- Part III

compounding, Financial Independence, Habits, Marketing, Uncategorized

Even passive activities can be relentless

Last 2 posts I have been talking about being relentless with respect to Marketing and sales of various kinds

Today I will be talking about how I realised that the systematic investment plans or SIPS are a different kind of relentless activity.

I have mentioned multiple times that you should give a mandate to your your ETF or mutual fund to deduct the amount directly from your account and invest.

On one level this becomes a passive activity because you are no longer involving your brain to make a decision.

However we have also noted that being relentless is a habit which is needed if you want to succeed systematically rather than episodically.

So where’s the paradox.

If you have to become wealthy then you have to invest relentlessly on a regular basis. A systematic investment plan is also a regular, consistent activity a.k.a relentless. The only difference being that you don’t need to tax your brain. You are automating the process of being relentless for your investment.

To that extent it’s an ideal opportunity….you have outsourced your relentless activity to a system….and you can become wealthy on the way

Think about it…..small amounts of money invested relentlessly…taking advantage of the magic of compounding…can get you financial freedom.

Till next time,.

Carpe Diem!!!