Category: Investors Behavior

5 Challenges which you should overcome to create long term wealth

Posted on by Jagoinvestor

Do you want to create a lot of wealth? Do you want to see crores of rupees in your bank account? I am sure you know that’s not an easy task. You also know that it will take a lot of time and dedication to create wealth over the long term. Do do you know that it’s more tough than you think? I will show you why?

wealth creation

Have you ever seen those retirement calculators online, where you punch in your numbers and find out how much corpus you will be able to generate over the years if you consistently invest a fixed amount year after year at a certain rate of interest?

The calculator throws a big number at you and you feel – “Wow … That’s looks straight forward and simple”

Below you can see an example.

I calculated how much wealth a 30 yr old guy can generate by the time he retires at age 60 (30 yrs tenure) if he invests Rs 20,000 per month at a return of 12% per annum. Below is the result.

wealth creation long term

It looks so simple on paper. One can generate a wealth of Rs 7 crores in 30 yrs period if one consistently invests Rs 20,000 per month.

Doesn’t it look over simplified? It definitely is!

While the calculator above makes it look like a child’s play to create long term wealth, in reality – it’s definitely not that easy and there are various things to be considered here, which I want to discuss in this article.

What are the assumptions in the calculator above?

If you look at the calculator above and the numbers, you will realize that 5 assumptions which are

  • The investor keep earning over the years and bring back the income
  • The investor will have enough surplus each month
  • Investor will be able to generate a 12% return over long term
  • The investor will not disturb his wealth creation process
  • The investor will not use the money out of the accumulated money till the end of tenure

Now if you look at the 5 points above, long term wealth can be created only if all the 5 points above are true or maximum of them are true. Each of the point above is a challenge in itself. If you overcome all these 5 points, you are then set to build long term wealth.

So now, if you try to capture these points as the ACTION and RESULT, then here is how it looks like

wealth creation model

So let’s touch on each of these 5 assumptions one by one and see in detail and see what are the challenges in handling them

Assumption #1 – The investor will keep earning over the years and bring back the income

Let’s start from the most basic foundation point.

A lot of people who have been earning from many years (let’s say 5 yrs) and never faced any issues in their career seem to feel that its a cakewalk to continue doing it without any issues for the next 20-25 yrs of their life. They think that it would be a smooth ride. However, you need to know that

  • There is a section of the population who are struggling in their career and will not be getting the same salaries if they switch jobs
  • There are people whose income is not rising as per their expectation and a lot of people take salary cuts
  • A lot of investors are out of their jobs/business due to competition, policy changes in the industry
  • A lot of investors at times spend many months without bringing back any income because of health issues, layoffs, and other reasons.

At least 3 of our clients have stopped their SIP’s in the last 6 months because their income has stopped/reduced due to some issues at their workplace. While it might be a short term problem, you never know if it can extend for a very long time for some one. One client is working in the Middle East, and his job is not that stable and he is damn scared of this fact.

Another client told me that as per his understanding, he is getting the maximum salary he can command in his industry and if he loses his job for any reason, he will have to join another company at a lower salary.

One client is hell scared because he is just surviving his job from many years and if he is fired due to non-performance, he does not believe that other companies will hire him at the same salary

Focus on your “employability” and potential to earn

My partner Nandish Desai, says a very important point about employability – “To get a job, you need to be useful for someone”

You need to make sure that whatever you do, whichever sector you enter, which ever skill you acquire – do it like a pro. Become a highly useful person in your domain of work. Be among the best. Your skills should be outstanding and you should be the master of what you do. If that happens, you will be highly sought after and everyone will want to hire you.

This way you are ensuring that all your future income is secured. If things get tough in your industry, you will be one of the last people who will face issues. If you face any issue, you will soon find a new job. And if you want to switch, you can command a better salary.

Focusing on your career and investing in your own development is one of the most rewarding decisions you can make in your financial life. Only when you ensure that you have taken care of this point, other points will come into the picture.

You need to understand that only if your future cashflow is protected, only then you can save from it and only then you can think of the returns and everything else. No income, no wealth in the future!

Assumption #2 – The investor will have enough surplus each month

Taking the example above, the 2nd assumption was that the investor will continue investing Rs 20,000 per month over the next 30 yrs without fail. For you personally, this number can be Rs 10,000 or Rs 50,000, the same is true for yourself.

Will you be able to consistently invest that much each month? Will you be left with that much each month? year after year?

You might be able to continue that for some months or years but think of the real-life issues which we all face. And you never know your life will take turns, you never know how unpredictable things are. You might have to switch jobs because of health?

When you will have kids, your expenses might shoot up, you may face an emergency which might last for many months to come, there can be health issues and you can get into the never-ending cycle of –

High income -> high expenses -> less saving.

In fact, I have seen this in reality. Forget about investing each month, one of our clients is redeeming back from his mutual fund’s corpus because there is a prolonged medical emergency at home and he is not able to handle all expenses the way he had planned before.

My whole point is that it’s very very tough to maintain the consistency and discipline in investing in real life and there will be disturbances.

High Lifestyle is making saving tougher

Now a day’s it’s more common to see people living on a paycheck to paycheck basis. The high lifestyle and the increased consumerism have ensured that even if you are earning high, it will get tough for you to save. Salaries like Rs 1 lac or 2 lacs per month are very common these days in many cities, but the savings are not in line with the salary.

Hence, you need to ensure that you after your expenses are done, you generate a consistent and a minimum 20% of investible surplus from your salary. Take it as a game and try to win it each month.

Assumption #3 – The investor will be able to generate a 12% return over the long term

The next assumption is that the investor will generate 12% return over long term from his investments? Now where do you invest your money to get more than 12% returns over such a long term?

Any guesses?

The answer is equities !. It has to be in shares, equity mutual funds, ETF’s, Index funds, etc. This is not an easy thing for the majority population in India, because most of the people in India do not understand how equities work and banking products are their lifelong favorite. They are earning 8-9% (6-7% post-tax) from years.

So for them to earn 12% would be very tough because first, they need to get clarity about how equities work and get comfortable with it.

Data and chart:

Now let me show you some data and charts which will convince you why you should be in equity to earn a 12% return on your investments.

Below is the chart which shows the CAGR return for 10 yrs periods if the money was invested in NIFTY. The data is from 1st Jan 2001 to 1st Jan 2016, so there are many 10 yrs period like

  • 1st Jan 2001 – 1st Jan 2011 (first point)
  • 2nd Jan 2001 – 2nd Jan 2011
  • —
  • —
  • 1st Jan 2006 – 1st Jan 2016 (Last point)

We then plotted the CAGR Return for all these periods and below is the answer. The CAGR return almost always was above 12%, however for few months towards the end it was a bit below 12% .

CAGR return nifty 10 yrs

Another graph which I want you to see is the 10 yrs CAGR return chart from Sensex, which is for its 36 yrs of existence.

So there are 26 different “10 yrs” tenures and we calculated the CAGR return for all the 26 data points and below is the result. Around 21 times out of 26, the return was more than 12% and at times it was very high like 20%-30 %. Few periods had fewer returns like 6% or 11 %, but then if you look at the overall 36 yrs period, the CAGR return converts to 17% return.

CAGR return sensex 10 yrs rolling returns

Now while it’s very easy to conclude that if you invest in equity over a long term, you will get required 12% return, its very tough to practice in real life, which we will see in next point very soon.

asset class returns

Lets me share with you that a very small percentage of our India population invests in Equity.

The major money lies in FD, Gold and insurance products and even real estate. And it’s going to be very tough to generate a 12% return from these asset classes. In fact, Morgan Stanley’s Research has clearly shown that equity has beaten all the asset classes in the long run and below is a snapshot of that research.

So if you want to build wealth over the long term and you are investing the majority of your money in FD, understand that your post tax return is lower than the inflation.

Your money might be growing in numbers (Rs 10 lacs became 20 lacs in 9 yrs), but the worth of your money has come down (20 lacs today can buy less of what 10 lacs could have bought 9 yrs back). You are in fact getting poorer in a slow-motion and you are not realizing that.

Assumption #4 – The investor will not disturb his wealth creation process

Read the following question and answer.

Q – Do you know what is the biggest challenge for an investor if he has invested in equities (mutual funds or Stocks)?

ANS – To remain inactive and sit tight without doing anything and let his wealth grow.

Making money in stock markets is challenging, not because markets have any issue, but because we investors have a behavioral issue. We can’t handle the uncertainty and volatility which comes with the stock market. It’s not for weak-hearted.

For some one who has been with FD’s and has the habit of seeing his investments grow in a linear fashion, he can literally go crazy with mutual funds because it brings so much of ups and downs and volatile movements.

Should I stop SIP when the market is falling?

In the last 2 weeks itself, we have got many emails from our clients whose SIP’s are going on in equity mutual funds, asking if they should stop their SIP’s as markets are falling? I have told them to act like a ninja investor and see it as an opportunity and pump in more money because in the coming years we might see a very good bull run? (any body remember what happens for the next 2-3 yrs after 2007 crash ?)

Note that all these clients SIP’s are running for very long term goals like retirement or children’s education which are going to arrive only after 15-20 yrs. There is no problem as such with that behavior.

It’s very natural, but I am just trying to tell you that it’s not that easy to handle the pressure which comes from the volatile nature of markets and very few investors have that dedication and understanding of how things work in the stock market.

Very few people can control their greed and fear and that’s the reason very few people are able to make the most of the returns from the equity markets over the long term. Below you can see a snapshot of kind of queries which start coming up if markets show any kind of fall for a long time like 6 months or a year.

markets are down

The cycle of Greed and Fear

If you see the stock markets right now, you will realize that we currently are in that same phase where investors panic and take out the money from their portfolios. Markets are falling from last 1 yr and especially this month it has gone down by a big margin.

So even if an investor is investing a good amount each month and he has read about how equity markets work and they understand the game of equity, still it’s very tough for an average investor to stay calm and stay with markets consistently for a very long time.

Some stop their SIP’s, Some redeem their money and shift it to FD’s thinking – “I will again be back, when the markets will calm down and start going up”.

However, you never know when that up move started and by the time you realize, you lose the next bull run. The below chart clearly shows how 99% of investors think and behave in stock markets.

cycle of greed and fear

So what is the solution? What should you do?

Remember that if you are in equities with a long term view like 10-15-20 yrs, then you are going to see many cycles of ups and down. You can’t escape it. You need to think of the down market as the “sale” where you can accumulate more stocks or mutual funds units at a cheaper price so as to gain from the up move later.

And when markets are going up, don’t redeem your money or try to “book the gains” because you will most probably miss the bigger up move trying to redeem the smaller up move. You need to understand that you are not there for “trading” or short term profit booking (incase, you are there for trading, then this does not apply to you)

Just sit tight, keep your SIP going and make sure you are in right mutual funds (not the best, because it does not exist). Review them in a few years and let the process of wealth creation take place. It requires patience and only a small percentage of investors are going to reach the final destination. Be one of them.

Assumption #5 – The investor will not use the money out of the accumulated money till the end of tenure

Having 5 lacs in your bank account is very different from having Rs 5 crores. You might think – “What’s the difference? it’s just 100X, rest everything is same”

No, your feelings about your money, your risk appetite, your thoughts around money, your desperation to do something will be at a very different level when you have 100X money in your bank account.

It’s a very tough thing to “not do anything” when you have so much money getting accumulated in your account. Once your corpus reaches a respectable limit like 80 lacs or 1 crore, you will start thinking in these lines

  • Let’s shift some money in FD now.
  • Let’s upgrade our house now, I can surely take out 50 lacs from my portfolio
  • Now I deserve that dream car I always wanted, I have good money now
  • Let me have a grand wedding for my children, after all – I have a good corpus now

Your lifestyle will go up, your vacations will get luxurious and you will get all the reasons to spend the money and take a dip in your portfolio.

Let me be clear, that I am not saying there is anything wrong with spending your money or using it for yourself.

please do that. After all, if you have managed to earn so much money and accumulated the good corpus, you surely deserve a better lifestyle.

All I am saying is that it’s a challenge to let your portfolio grow and not disturb it. So in our example at the start of the article, you might not reach 7 crores as per calculation, but may be 4.3 crores or just 3 crores, because you keep taking out the money out of your corpus many times in between for various reasons.

If you are just taking out a portion of your corpus and reinvesting in something else which you can redeem back later, it’s still fine. But if you are “spending” the money and consuming it, then it’s GONE. That part will not reflect in corpus now and you will have a lesser corpus to that extent.

If you can make sure you have that ability to stay calm and see your wealth grow without disturbing it, then you are bound to see a good amount of wealth in your life.

So here is the final checklist before you start your wealth creation journey

  • Spend a good amount to time to understand how equities work in the long run. I have explained about equity in the 3rd chapter of my 1st book – “16 personal finance principles every investor should know”. Get a copy and read it
  • Work on your career strongly and become very very good at what you are doing. Make sure you are highly employable even if the bad time comes. This will make sure your cash flows are more or less ensured.
  • Spend 10% time on cutting down your expenses if there is any scope, and spend 90% of your energy in increasing your income. Remember, reducing expenses is tough and has a lower limit. Increasing income does not have a ceiling.
  • Make sure you start the SIP in equity mutual funds with a long term perspective. When markets fall, rejoice ! and keep adding more money. Be a tough hearted and you will be rewarded over long term
  • Make sure you plan for other goals separately so that you do not use your main corpus in between for small things

Let me know if your way of looking at long term wealth creation has changed or not by reading this article. I would love to hear your views.

Why most investors struggle to save money every month & how to fix it?

Posted on by Jagoinvestor

Recently, I came across one interesting short story on quora, which I found interesting and worth sharing with all the readers. This story will help you understand why you are not able to save enough money by the end of the month. You will get to know why your hard-earned money is spent into useless things and you don’t have enough control over it.

Lady: Do you smoke?
Guy: Yes I do.
Lady: How many packs a day?
Guy: 3 packs.
Lady: How much per pack?
Guy: $10.00 per pack.
Lady: And how long have you been smoking?
Guy: 15 years
Lady: So 1 pack is $10.00 and you have been smoking 3 packs a day which puts your spending per month at $900. In 1 year, it would have been $10,800. Correct?
Guy: Correct.
Lady: If 1 year you spend $10,800, not accounting for inflation, the past 15 years puts your spending total at $162,000. Correct?
Guy: Correct.
Lady: Do you know if you hadn’t smoke, that money could have been put in a step-up interest savings account and after accounting for compound interest for the past 15 years, you could have by now bought a Ferrari?
Guy: Oh. Do you smoke?
Lady: No.
Guy: Then where’s your fucking Ferrari?

The story above sounds funny. The lady did not smoke, so that money must have got accumulated and she should have owned a Ferrari as per the logic. But that did not happen in reality.

Why?

The answer is – “Ferrari was never on her mind”

Her money was not put on the purpose of buying the Ferrari someday. She did not spend the money on a cigarette but then that same money kept getting consumed on some other things which came in small chunks.

Life kept throwing small and tempting desires and she fell for it without realizing it. And finally at the end, did neither have the money, nor the Ferrari.

You are the biggest enemy of your financial life

If you leave your money in the saving bank account without giving it a strong purpose. Then the lifestyle today is such that no amount of money is enough to meet your short term desires.

Life will throw all kinds of requirements and if your money is available right in front of you, you will keep trying to handle those requirements without much analysis.

Justifying the expenses becomes very easy when you have the money sitting in front of you, waiting to spend. Investors are generally over-confident about their saving abilities and there are tons of research to prove that.

Take out the manual mode of investing from your life

Here is the rule – “Lesser the money available in front of your eyes, higher the chances that you will restrict your useless spending.”.

You need to take out the manual mode of saving money out of your life and take the help of automation. There has to be some way, where some part of your salary leaves your bank account and gets invested on its own. Because the more you leave the decision making to yourself, it’s not going to happen on a consistent basis. Humans are designed to take the path of least resistance. Machines don’t make mistakes.

Let some automated way to save your money, and it will happen consistently, without fail. No one will

The best example of this is your EPF

Your employer deducts a part of your salary and that gets accumulated over months and years. That small deduction becomes a very big amount, if you leave it just like that and don’t disturb it. EPF does not earn very high interest, but still, it accumulates a decent amount.

Now just imagine this, Your employer tells you that they will not deduct that amount and you have to save money each month. It’s fully in your control now.

You should feel great that you have EPF and some form of automatic saving. If you were given the freedom to choose the EPF, it would be a bad thing. Because most investors won’t have chosen it. Here is a similar study from the US, where employees were asked to enroll for the 401K program (similar to EPF in India). However, the catch was that they had a choice to not opt.

When the enrollment was made a compulsory thing as a default choice, with an option to opt-out if one wants, the enrollments more than doubled. Why did it happen? Because enrollment happened automatic!

power of default saving

So coming back to EPF example, Will you save money equal to your EPF each month if it were not taken out of your salary automatically?

Are you really confident that you have the determination and commitment and control over yourself to save that money month after month, year after year without fail?

Are you understanding what I am trying to tell you here? The point is, YOU are your own enemy when it comes to saving. Take your manual judgment and your decision making out of saving each month. Let it happen on its own, automatic.

My personal Experience

Around 6 months back, my wife wanted to start a recurring deposit.

She started a recurring deposit of Rs 15,000 per month for 1 yr period. After 8 months, when she checked the bank accounts, she could see the 1.2 lacs in the deposit account. Suddenly she felt – “How this money did came there?”.

The point is – it was automatic saving. It all happened in the background and didn’t give her any scope of judging the decision again and again. She always saw her salary minus 15k in her bank account.

All her expenses, shoppings, indulges, bills had to happen out of the money which she saw in her account and it happened. The expenses fit themselves in the amount available. It’s the nature of money, and I will share more about it in some time.

Don’t trust yourself for saving money

Don’t trust yourself, when it comes to systematic saving. Your intelligence can be your big enemy. If you decided that each month you will carefully set aside some part of your money yourself, after all the expenses are done, then it’s going to be a tough time for you.

Do this simple exercise

Take a sheet of paper (or open an excel sheet). One the left side write down your income each month and one the right side, write down all the expenses per month.

Now subtract your expenses out of your income, and you get your monthly surplus. So each month after all your expenses are made, you should be saving that surplus amount. Correct?

Is that happening? Did I hear NO

do you really save enough

Why does it happen? Why are you not able to save the money equivalent to your surplus each month?

MONEY is like flowing WATER

Have you ever wondered why you are not able to save enough money, even though your salary has kept increasing in the last many years? Your expenses keep on matching with your expenses.

Even if you are saving some money, are you reaching your full potential? I guess NO

Why?

It’s because money is like flowing water. If you do not give it some direction, then it will find out its own direction.

When you do not automate saving money, then all the money will get consumed into “something”. Life will keep throwing various kind of expenses, desires and requirements, and if money is easily available in your bank account, then trust me, you will always come up with strong reasons why you can’t avoid those expenses.

money is like water

Some of our clients get shocked when they fill up the datasheet we send them. The most common complain is – “I am not saving anywhere close to what my income – expenses is showing up”, where is it all going?

The answer is – “Its getting consumed into things which looks important and urgent in short term, but in reality, they are not”

My friend real life case

Few months back, I was talking to one of my close friends. He told me how he is not able to save anything by the end of the month. He was very confident that it’s very tough for him to save anything. After all, if he had any surplus, why it’s not there at the end of the month?

I asked him a simple question – “If his income increases by Rs 1,000 per month. Will it remain in the bank account after all his expenses?”

This one single question was a game changer.

He told me that he is very sure that even if his income increases by Rs 1,000 per month. His life would be same, it will surely get consumed somewhere.

I told him – “In that case, if your income drops by Rs 1,000, your situation will be same”

So why not set aside that Rs 1,000 in the starting of the month itself, and see fewer months in the bank account. Trust me, your financial life will figure out something, it will adjust. It will surely try to fit it.

And that’s exactly what happened. I helped him in starting his first SIP of Rs 5,000 per month.

Just a few days back, the first auto debit happened. I can almost guarantee that by the end of the year, these Rs 60,000 which was getting consumed somewhere, will “automatically” get saved in mutual funds.

So what is the worst case?

Ok fine, your financial life is really in bad shape & you can’t save even a penny. Let’s say, you show some courage and start a recurring deposit of Rs 1,000 per month, even though you know you will need that 1k later.

What is the worst case?

You would need that money back in some time again? Right?

Solution – It that happens, then break the Recurring deposit and use the money …

Or you could start a SIP of Rs 1,000 and incase you needed it, you can always redeem it and take back your money.

But you know what, you will not take it back. You will not redeem it. Because like most of the investors, you are lazy when it comes to money. It’s easier to adjust rather than take that pain to go to the bank and sign that paper for redemption.

We humans take the path of least resistance. You don’t know how amazing human laziness can be for your financial life. Ask those who bought IT stocks and never cared to think about what to do with it. Its only their laziness, which has made them millionaires, because they still hold the stocks

Most of the people are living with this myth that they will not be able to save even a penny by the end of the month. It’s not true. For 95% of investors, it’s a self-created illusion.

They have just not tried enough in the right manner. Let me share with you this in detail

Income – Expenses = Saving

For most of the investors, the default equation each month is “Income – Expenses = Saving” . This equation looks very natural and logical. First, you take care of expenses because they need to be handled NOW, and then if something if left, you will save it. This is how any normal person will think like. But that’s the root of the problem.

If you are not able to save enough money each month, I am ready to bet that this is the equation that is destroying your financial life. Let me guess how it looks like.

Each month, you must be earning some money, then you take care of various expenses, some fixed and some random surprises and if you get lucky, you must be having some surplus money in a bank account each month.

But wait, The money is still in your bank account. It’s still “easily available”. You decide that you will do something about it very soon. You decide that once it becomes a big amount, you will create an FD out of it.

Next month, again you have some surplus and more money got accumulated in your saving bank account. Suddenly in the third month, your spouse tells you that she wants to upgrade the washing machine. After all, anyways its Diwali time and she deserves it.

And why not? After all, you have the money available in your bank account. What’s the problem then?

Your timing is also perfect, the thought of upgrading the washing machine has come up just when Flipkart sale is round the corner. I am sure it’s a coincidence.

How expenses take shape

No , it’s no coincidence.

The point is – the money found its own direction and that’s because you didn’t gave it any direction beforehand.

For a moment, think what would have happened if the additional surplus was not available easily. It was there in a recurring account or was into SIP in some mutual fund or ELSS (locked for 3 yrs). It’s hard to imagine that you would have said – “Let’s stop our RD or SIP in mutual funds and upgrade the Washing Machine”.

Can you see how everything changed in both the situation?

Or imagine you would have created an FD out of that money before hand for paying the school fees for your kid at the of the year. Would you break your kid’s related FD to upgrade the washing machine? Generally not.

I am not against the expenses

Trust me, In no way, I am judging the urgency of your needs or desires. They might be genuine and very much reasonable. Please go and upgrade your washing machine, if it’s really needed. I am not even against taking a loan for that, but just assure that your requirement is genuine and not a made up one.

Just 1 yr back, I bought a sports cycle out of impulse and you should have met me just before I purchased it. I would have convinced you that I need the cycle more than I need oxygen. Plus, I had the money with me at that time. Today I am not using it enough to justify my buying decision.

I can tell you – this false belief of “I need it so much” and the availability of money in your bank account is such a deadly combination.

So what do you do ?

Change the equation to “Income – Saving = Expenses”

Few changes in life give a new direction to life. Everything changes.

Trust me, this is one such change if you really understand it well. If you decide to change your saving equation to “Income – Saving = Expenses”, it can drastically impact your financial life in positive way.

Here is now you implement it.

  1. Find out what is the minimum amount you think can save each month. Is it 10%, 20% or 30%. Take a lower amount at the start, else it won’t be sustainable in the long run.
  2. If your salary arrives in your saving bank account on date X, then, setup a recurring deposit or a SIP in mutual funds on date X+2 or X+3
  3. Trust automation, it will do wonders for you
  4. And in the worst case, if you really need the money, you can redeem it back and use it or stop the RD or SIP.

If you can take this first step, then you have already won the big part of the battle. Other things like great returns, advice, controlling risk, finding the best financial product and all that will be taken care of later. But the first step it this – changing the equation

If you can spare 20 min, you should watch this amazing video by Shlomo Benartzi, on the topic of Saving for tomorrow, tomorrow. You will understand the impact of automatic saving in a better way in this video

And you don’t have to compromise

Don’t confuse automatic saving with compromising on your expenses and fun. We are not asking to stop eating out or cut on your entertainment in life. A lot of investors live in this myth that financial planning is all about compromising your desires and spendings. No, it’s not.

It’s all about giving a meaningful structure to your financial life and exploring various possibilities to make your financial life awesome. That all.

I would love to hear what you think about this idea of changing the equation. Do you think that this single thing is really a very important parameter to live a good financial life? Please share your own saving habit in the comments section

The secret of taking better financial decisions in your life – 4 point decision making framework

Posted on by Jagoinvestor

Do you know, which is the one thing – which is responsible for making financial lives complex these days?

The answer is – LACK OF CLARITY!

Most of the investors take wrong decisions in their financial lives and regret later about it. However, I want to assure you that by the time you complete reading this article, you will learn how to take better financial decisions and lead a simpler financial life.

Each financial decision you take has some pros and cos and some advantage or disadvantage. Some decisions will put pressure on your cash flow and some will make you rich in eyes of society, while some will create assets for you and some will destroy your net worth.

And finally, decisions will give you peace of mind and some make your life hell.

Some examples of decisions which investors have to make !

  • Should I prepay the home loan or invest it?
  • Should I buy that plot or not?
  • Should I take 2nd property or put the money in mutual funds?
  • Should I buy the higher end model of the car or the lower one?
  • Should I change my job for higher salary or be in my comfort zone?
  • Should I give 1 lac to my friend as loan or make some excuse?
  • Should I buy the 2 bhk or 3 bhk?
  • Should I keep so much money in FD or invest in the 2nd house?
  • Should I save for my kids education right now or leave it to fate?
  • Is it fine to spend money on outings so much?
  • Did I make a mistake by spending so much on myself? Am I selfish?

I must acknowledge that its always going to be tough, to take a decision. But can we do something which can simplify the process of decision making and give us a framework using which we can quickly decide and take things to next level.

4 point Decision Making Framework

Let me introduce you to the concept of “decision-making framework”, which I recently invented and to test its effectiveness, I ran a survey which was taken by around 132+ people online. I will share the results with you below shortly.

Below are the 4 points which I have included in the decision-making framework.

decision making framework

What is decision-making framework?

Like you saw above, a decision-making framework is nothing but few choices which you make before hand. So whenever you need to take some major financial decision involving money, you can check if it’s aligned with your overall decision-making framework and vision for yourself. You can check if the decision will take you closer to your goals in life or take you farther!

So now, let’s dive deeper into each point and you decide for yourself which side you fall into.

1. Debt Free or With Debt – What is your priority ?

The first point in your decision-making framework is if you want to lead a debt free life or if you are comfortable with debt and side by side you are creating your wealth.

This question is very important to answer because debt trap has destroyed many lives and made some really amazing people slaves in today’s world. So a person wanting to be debt free asap, keeps getting into debt because each opportunity looks so promising that they are attracted towards it and even though it does match with his vision in life, they still fall in.

Its happens because of instant gratification problem !

The first home loan is allowed!

Note that I am not taking about the first home loan you take in your life. No matter how much logic I put in, I think in today’s times, there is a very high chance that most of the people will end up with a home loan at least even if they want to be debt free. So for the sake of this 1st point in the framework, we will allow one home loan and nothing more than that.

So if you look at the other side, a lot of people after they have taken the first home loan, keep taking additional loans for 2nd house, 2nd car, plot loan, loan against property or topup loan and keep giving away their salary in EMI and keep making assets on the side.

While this is not an issue as such, but the problem happens when you realise that you wanted to debt free long back, but have spent all your life living in the pressure of EMI’s and never felt that independence of not having debt on your head.

Let’s see what most of the people choose out of the two choices.

As per the survey, it was a big tie between the two choices and almost 50% people said that they want to take the route of debt free life asap, but the other half were fine with the debt in their life while they create the wealth on the side. I am sure these are the investors who have a strong predictable income structures and safe job which gives them the confidence to say that. Below are the results

Is debt free always a good option ?

Real life example when it becomes tough to choose

Imagine you have taken a home loan which is 50% complete. You are regularly taking all the efforts to prepay your loan and because of your extreme focus, the loan will soon complete (in few years). You also have few lacs in your bank account accumulated from last few years which you wanted to keep as surplus funds and are now planning to repay the home loan further and that will almost make you debt free.

BANG!

Now suddenly you come across an amazing flat/plot which sounds like an amazing opportunity and you start visualizing how this can be an amazing addition to your portfolio. How after few years you will make 100% profit on it. You visit the site, the sales guy tells you about the amenities, location, the future prospects of the property and now you don’t want to miss the offer.

Your spouse is already happy and proud of you making further real estate investment.

You were closer to get debt free, but you again get into that debt trap, because this offer comes and now you are on the way to take another loan to fund the purchase of a new property. On one side, you are so happy, but on the back of your mind, you are worried if something happens to your job, will you be able to handle the EMI for another so many years? You are worried if the new property didn’t turn out to be that great, then what?

You are worried, if it really really makes sense to buy something which you will use after many years? What if it didn’t fetch you good rent? 

Truly speaking, there is no right or wrong decision of the above problem, but your decision has to align with what you wanted in your life and hence you should before hand if leading a debt free life is bigger priority or not.

2. Simple or Luxurious – What will be theme of your lifestyle?

The next thing which I feel should be part of your decision-making framework is a clear choice between what kind of lifestyle do you want to lead? Will it be simple, plain, minimilistic or a lavish and luxurious one?

I know some people will say, they want a balanced life which has a mix of simplicity and luxury both? I get that !. But there is always one of these dominating one, which will be the major part, we are talking about that here. Its totally ok to choose to live a simple life, which occasionally has luxury in it or vice versa. But the theme has to be clearly defined for you and your family.

When I asked this same question in our survey, around 66% people said that their life theme has to be simple and minimalistic and 34% said they wanted it to be lavish and luxurious.

simple or lavish financial life

Let’s not judge people on this parameter. I am sure a lot of people who want to choose luxury theme deserve it and are working hard for it. It’s a choice of leading a life, after all it’s one life and when will you not live like a king if not right now at this moment.

On the other hand, there are people who are very uncomfortable with lavishness and want their life to be simple and plain. These people also spend a lot of money on few things they love and they become spendthrift at various points of their life. I am on of them.

Both the themes discussed above are RIGHT, and we never know why people choose the theme they are choosing. It all depends on how they have lived their lives till date, what is their outlook towards life, their past experience with money, the struggles they have seen in their life and what kind of people they associate with. There are too many dimensions to it

Why choosing your theme is important?

So that when a big purchase comes, you can see if it fits your theme or not?

  • So that you can choose which car to buy?
  • So that you can choose how much furnishing to do at your newly bought home?
  • So that you can decide if you want to buy a premium villa or a normal 2 bhk house.
  • So that you can decide where you want to give the kids birthday party.

I am associated with both type of people in my life. One of my friends bought 70 lacs home and did a 25 lacs of interior (his house is awesome), while the other friend bought a 35 lacs home and bought minimal furniture and setup, but he has bought a high-end camera which is very very expensive.

Its not about show-off

A lot of people might feel that those who want to lead a life of luxury want to impress others and show off, but let me make it clear that it’s not like that. It is how those people want to spend their life on this planet which is anyways limited and its very natural. Just because you are not like that, does not make the other person wrong.

So, if you have made the choice of lavish living as your theme, then “to hell” with those friends who keep saying why you should save for future. Spend yourself like a king, earn more and spend more on yourself, buy awesome clothes, go on exotic tours, travel like there is no tomorrow. But be clear that you wanted it 🙂 and the best part is that you will not be guilty about it. After all, you have chosen your life to be that way.

3. Blocked Assets vs Liquid Networth – What excites you?

For those who think a lot of money will solve their struggles, you will be amazed to hear that there are many investors with net worth of 2-3 crores depend on a personal loan if they suddenly need 8 lacs of money and if they suddenly loose their job, they will panic like anyone else, because they are not sure from where the next month EMI is coming up.

Why is it so when their networth is 2-3 crores? 

Because, its all blocked and locked in assets which is highly illiquid. If they want to take out the money, it will take many months and years to get the best deal. These investors choose to spread their money across various assets (especially real estate like plot and houses) and anytime they have some cash in their FD or mutual funds, they feel it should be diverted to something concrete which they can touch and feel (even gold is one asset class).

So they keep increasing their networth, but are always low on liquidity. The biggest problem which I feel with these investors is that if some great opportunity comes and knocks their doors, they are so low on liquid money that they cant take advantage of the opportunity and have to take help of loans.

The worst part is that a lot of these investors never wanted things to be like that. But because they never slowed down in their financial lives to think of how it should eventually look like, their financial life took the shape on their own based on circumstances.

Some investors like Liquid money !

Liquid money means the money which can be redeemed very soon, but with fair and decent returns. So A lot of money in mutual funds, fixed deposits and limited money in real estate is what I call as “liquid networth”. In our financial planning terms, Me and Nandish think that having 1 crore in liquid networth has to be one of the primary milestone of every investor.

You will find many investors who are having networth of a crore, but all of it will go away if you take out real estate out of the equation.

So the main question comes – “What excites you more?”

Do you want to create high networth comprising of liquid networth (stocks, mutual funds, FD,Cash + 1 real estate for living purpose) OR you want to be high on real estate, various properties, plots, businesses etc and lower on the liquid networth?

Whatever choice you make, it will help you to take further decision in life which you have to decide where should that Rs 5 lac go which you got as bonus!. I was surprised that 73% people in our survey said that they want high liquid networth (not sure if its because real estate is not doing so well from last 1-2 yrs). Below are the results.

Should you block your money in various assets

It would be a good exercise to see if your current networth is aligned to your theme or not ?

4. Yourself vs Others – For whom are you creating wealth for?

This point if the decision-making framework can be a bit uncomfortable for many investors, because now we are going to be a bit selfish in life here. And the tough question for you all is – “For whom are you earning this money?”

  • Mainly Yourself + a bit for others in your life (kids, parents, others in life)
  • OR Mainly Others + a bit for yourself

Our parents created wealth primarily for us – their kids. They earned all their live, but never enjoyed the fruits of their labour. They never gave priority to their desires in life. They never owned a car, so that we can have a bike. They never created their retirement fund, because they were busy funding our post-graduation. They never went for any lavish vacations despite having money because their daughter’s wedding had to be planned years before and the money was to be accumulated.

But this story is taking a new shape in last many years. 

I am constantly seeing the shift in mindset. From last 10-15 yrs, the mindset has shifted on “them” to “Me”. from “their needs” to “my wants”. The aspirations have gone 10X  high and we want to consume, spend, enjoy, live life in a very different way compared to our past generations.

We have seen many of our clients focusing more on their “Retirement goal” rather their “kids education” or “kids marriage” and to some level I think they are going right.

Kids Education and Retirement

In old days “Kids Education” means “Retirement goal”

You will find various parents today who have hit retirement, have nothing great in networth to talk about and don’t have a penny to feed themselves and there is no help coming from their kids as well for whom they spend all their wealth till date. A lot of parents secretly wonder, if they did the right thing to over think about their kids and others and never thought about their own retirement or aspirations.

But things are changing !

Today, you have to plan both the goals separately and for most of the people its not possible to reach both the goals easily. Kids today have many options like taking education loan (if they are highly smart and crack good institute) or first take a basic job go for higher education few years later using their own money. In fact, many parents are now taking the route of education loan (they help taking it), but finally ask the kids to repay it themselves.

Already a lot of kids are guilty these days that their parents have to spend on their weddings and they want to arrange it all themselves. I know this is a sensitive topic, but this always keeps hiding in every investors mind and no one talks about it.

Spending culture in increasing

These days more and more people are going on exotic vacations abroad and within India, spending more and more money on entertainment, eating out, having great experiences, and spending on possessions. But some people are not able to do that because they are not yet clear if its morally right to do it or not.

Here comes the biggest surprise. Almost half number of people who took the survey chose themselves over others and the other half choose others over themselves.

for whom should I-earn

You have to complete your responsibilities in life

In no way, I mean to say that someone who is choosing themselves as the primary beneficiary of their wealth are running away from their responsibility. You still have to pay your kids school fees, clothes, your parents health expenses. Do all that!, but when you have to choice do a SIP for your retirement and another option is to pay EMI of a second house which you think will help you kids in future, you have to make a clear choice on who will get a bigger pie.

Will this decision-making framework help you ?

Truly speaking, YES and NO both are the answers. This whole exercise is nothing but bringing out your subconscious mindset on paper and make it clear to yourself on what you want your future to be like and how you would like to lead your financial life. You will not get robotic about your decisions, and obviously deviate from these points which you decide by yourself, but at least this will give you a structure to think and act.

At least 69% people who took the survey said that just by answering these 4 questions and choosing their answers helped them realise what really they wanted in life and how they should take their future decisions.

financial framework

I also now realize, that why we should not think why others don’t act like us and why some are materialistic and others don’t, why some people spend too much on their comfort and some live frugally. Why some people buy too much of real estate and others don’t. Why some people are in rush to close their loans while you might be thinking that they are not taking right decisions.

SO what works for you might not be others priority and does not fit others life. Its important to understand this point and brings maturity in your thinking.

So what is my personal answers for my decision-making framework ?

I thought I will share with you all about my personal answers for these questions above and how I think about my own financial life. Below they are

my personal framework

Understand that the above points are my personal points based on my life experiences and my mindset, you should think that they are better than yours or anyone else. Because of my clarity on above 4 points, I will decide in following manner.

I would like to hear what do you think about this idea and does it make sense to you. Do you feel something like this simplifies the decision making or not? Also please share your personal decision-making framework. What are your answers on these 4 points?

4 early life mistakes which investors should avoid at any cost

Posted on by Jagoinvestor

We see most of the investors having a complex and bad financial life mainly because they have done a lot of mistakes when they started their financial life, which I think should be minimized by learning from other investors mistakes.

So we are listing down 4 common mistakes which most of the new investors make when they start their financial life.

personal finance mistakes of new employee

Mistake #1 – Buying products only for “saving tax”

I have experienced the power of “tax-saving” season in an investor’s financial life. When I was into my first job, the cafeteria and the reception area was filled with my employee’s sitting with some agent or advisor with various kind of forms all over the table.

The tax season was on and all the people were busy “arranging for the investment proof” and not investing their money. Especially the new employee’s who had no idea about anything and they followed the herd to save tax.

Below is the google trend showing you, how most the people starting thinking about the “tax saving” only in the month of Jan/Feb/Mar when they got emails from their employers. The search trend clearly shows that.

tax saving search trend india

Only after many years, people realize that they have not done great justice to their money and invested mainly for instant gratification of saving tax. If you are a new investor, I suggest do not get carried away and only think about saving tax.

I know tax saving is important and one has to do it, but do it meaningfully.

Explore what all options you have and which one them will align well with your long-term goals and then invest in those products.

Mistake #2 – Waiting for the “right time” to invest

When we work with our clients, we observe that one of the biggest regrets, they have is that they didn’t start their investments early in life and lost the valuable time. A person in India spends close to 20 yrs in school/college and most of the students have seen a lot of struggle around money, because of which all their early life, they suppress their desires. They never freely spend money on anything and keep waiting for that D-day when they will have no restrictions around money. The first salary is nothing less than a big jackpot.

right time never comes when one can start investing but to invest right time is created

The first few months when they see a lot of money in their account, is the time of celebration and fulfilling all their wishes they had from years. There is nothing wrong about splurging, spending and enjoying it all. But some people extend it over many years and over-do it. When it comes to investing their money, they say that they dont save enough after their expenses and once their salary increase, they will invest then.

In short, they keep waiting for the “right time” and it never arrives. Because the nature of money is such that, the more you earn, the more you will spend and your lifestyle will keep changing its shape to fit in your salary.

1 out of 3 investors wait for 5 yrs before making first investments

I ran a survey on this topic, which was taken by 208 investors and as much as 37% of investors said that they made their first investments after 5 yrs of their career. Think about this , around 1/3rd investors wait for 5 yrs before they make their first investment. Thats quite high. If you see the same survey results below, almost 8% investors didn’t invest anything for first 10 yrs of their earning life.

investment late tenure

This makes them loose valuable time, and for many years they do not accumulate any wealth and get into the mode of living on paycheck to paycheck. Even if they had started a recurring deposit of Rs 2,000 per month, even that would be a great thing, because they are atleast getting into that habit of saving some money regularly and later its just about increasing it.

So if you have just joined your first job, I would suggest start a recurring deposit RIGHT NOW, not for a big amount, but just Rs 500 atleast.

Mistake #3 – Getting high on debt, early in life

Debt is not a problem in itself, if you handle it carefully and responsibly. I do not come from a class of people, who suggest that one should not take loans or avoid debt 100%, because thats not possible for a majority of people and its not practical in today’s times.

However, rore and more people are embracing the EMI culture and we are turning into an EMI nation. Everything is available on EMI ranging from gym memberships to Mobile Phones, from vacations to jeans to even flight tickets. Because of EMI, one can afford anything and everything.

So most and more people are buying not so important things TODAY, for which they have to pay in FUTURE.

Are you getting my point?

This is a perfect recipe to get into the never ending debt cycle. There are many investors for whom EMI payments is going on for years and years. For many years, they have never consumed 100% of their monthly salary themselves.

Below is a bit old study by Indicus Analytics on how leveraged are urban Indians, and you will be surprised to know that around 61% of residents in Bangalore have some or the other kind of debt. For Mumbai its 50% . Below is a snapshot of their finding’s.

debt trend indian cities

So if you are young, try to see that you control your desires beyond a point else you will get into huge trouble later in life. Use the credit card and personal loans only and only if you really need it and you have no other options of borrowing and even then pay back the money as soon as possible.

Mistake #4 – Over relying on relatives, friends and parents for your financial decisions

Parents, friends and relatives can bring in a lot of experience and life lessons for us. But a lot of youngsters instead of learning about money, prefer to hand over their overall financial life to their parents. Parents have seen more life then their kids, but then times have changed a lot compared to last 1-2 decades and the many rules don’t apply today.

Also their way of thinking about risk, opportunities, returns etc might differ from you. Hence its not always a good idea to over-rely on parents advice. Mr Anand shares his view about this point in one of my old article

The times have changed so we have to change with the times. In most of the families, it is the ego of the parents which is finally ending with the suffering for the children. Parents feel that the children are incapable of handling money or they may get spoilt if the money is in their name. Also in some families it has become a question of pride saying – My children are so obedient that they are handling over their income to us.

The so called elderly, experienced people do not want to learn the new things and change and their beliefs are passed on to their children also. If we look around many Government employees, we can easily make out this. They are afraid to tell the children about the investments.

Relatives and friends role in your financial life

Also a lot of investors are influenced by their relatives and friends advice. A lot of them turn out to be life insurance agents who want to take advantage of the relation to meet their business targets. Out of 100 people I have come across, 95 people surely have an LIC policy sold by their relative, relative friend, friends relative, parents friend, or someone close.

As per our survey, 1 out of every 4 investors financial life is messed up because of their relatives and friends who sold them some financial product or advice on something and they could not deny them.

relatives role personal finance

We recently found that one of our client who recently joined job is paying close to 40% of his yearly salary in 6 life insurance policies. When we enquired more, we found that it were taken by his father for him 3 yrs back, and now as he has started earning, his father has passed the premium paying responsibility to him. The policies were sold by his father’s sister son’ who was behind his yearly targets

I would suggest learning things in the start of your career and not over relying on advice of your friends/ relatives and even parents. You could do many things like read personal finance books, attend workshops on money (we have next workshop in Bangalore on 2nd Aug, 2015) or just surf internet and ready various things.

How should an investor start his financial life at the start of his/her career ?

When a person joins a job, its a special moment in his life and a very crucial point. Taking good care at this point will be helpful for his whole life and many years worth of mistakes will not happen which happens with millions of people. Hence below is a very crisp checklist of what a new investor can start with.

  • See how much term plan you need and take it
  • See that you buy a good health insurance policy
  • See that you have started a recurring deposit or SIP in mutual funds for a minimum amount you are sure will not stop for next 5 yrs
  • Keep 2 months worth of expenses on the side in a saving account which you generally do not touch
  • Make sure you are meaningfully saving your taxes
  • Hire a good CA or Financial advisor if you feel you need handholding

Wish you best of luck for your financial life. Would like to hear your views on this topic

3 incredible money lessons – I would like to pass on to my Kids

Posted on by Jagoinvestor

We have worked with more than 500 investors till date one on one and we have decent understanding of how financial lives take shape over the years.

Today I am going to share few observations out of working with clients for so many years and will share some mistakes which you should avoid in your financial life. I really wish if each parent could pass it on to their kids or their siblings when they start earning money.

Mistake #1 – Don’t go with the flow

It’s often said that in life – “Go with the flow and don’t worry”. While that’s a good advice for your life in general, but I think it’s not a good advice for your financial life.

Most of the times, if you just go with the flow, you might not get desired results. It’s a shortcut which you are always tempted to take in your financial life, but often that leads to a clumsy and bad financial life.

There is another saying that – “Only dead fish goes with the flow”.

I am sure you don’t want to be a dead fish 🙂

dont go with the flow

I have observed that most of the people, who today are having a very bad financial life, have just gone with the flow and never planning out things. Nothing in their financial life happens due to their careful planning or conscious effort. Whatever comes in front of them, they take it.

  • Tax season arrives and they buy the policy because they have to submit the investment proof.
  • They take loan because its a “Interest Free loan” and not because they needed it
  • They want to buy a house soon, but then the next moment they upgrade their car !!
  • They sign the documents where the agent asks them too and complain they were cheated

I just want to make a point. You can either choose to move with the flow and let things happen to your financial life OR take charge and make things happen in your financial life as per your plan. The biggest issue today is not just less income, but how managing the money in proper manner.

Mistake #2 – Don’t get attached with past and harm your future

Almost all the investors face this. One bad experience in some area and they carry it with them all their future.

When recently, I recommended a mutual fund from ICICI Prudential to one of our client. He was taken aback and very strongly told me that he does not want any ICICI prudential mutual fund because he has had a very bad experience with them.

On further enquiry, I realised that he was sold a ULIP by an ICICI Prudential Life Insurance agent, which he was not happy with and from that day he took a vow that never in his life, he will deal with ICICI products.

dont let past harm your future

In the above example, did you see that the person had just labeled ICICI = FRAUD. There are so many good things which ICICI has to offer (and it’s true for every company) and just labeling things will only hurt your own future because you then cut down your own options.

Good and bad experience are part of life

Good and bad experience’s are part of life and it happens with everyone. You need to learn from it and move on. Take some learning’s from the incident and see how you can make your own self more strong to deal with a situation.

Like in the above example, the person could have said that – “I will now onwards read the documents and understand where I am putting my money” or “I will not buy something, which I truly don’t understand”. But instead he chose to take the extreme step.

I will give you another example

I see many people who bought a stock or mutual fund and it didn’t perform well and gave them bad returns. Now they are so scared to try out equity in their portfolio all their life, because they equate EQUITY = MONEY LOST

Note that in today’s times of high inflation and high taxes, having a good portion in equity class is not an option, but a necessity. You can’t build enough wealth without investing in equity based financial products for long term.

So coming to the conclusion, all I want to say is that don’t make mistakes of carrying a bad experience throughout your life and avoid the opportunities which exists, this is not a money lesson, but a good life lesson – which applies in all the areas of life.

If you buy a book on personal finance, and you don’t like it, it does not mean that good books on money does not exist. Or if you had a bad experience with a financial planner, it does not mean that all financial planners are bad.

Mistake #3 – Don’t just focus on earning money, but also your networth

Do you know one big difference between RICH and Middle class ? Here it is …

“Rich talk the language of Networth and middle-class talks the language of pay-package”

What have you heard your parents ask you – “Go get a good paying job?” OR “Go and build a great networth?”

Over the years, the income level has risen many folds and today its not uncommon to see income levels of 10/15/20 lacs per annum and the society label them as “doing well”. But the ground reality is very different many a times. The net worth of these high earners is still not upto the mark.

When we do workshops in various cities, we often see people who are earning 10-20 lacs per year who have spend years in their job, but they don’t have enough to show off as their networth. Many of them are empty pots whose size if big enough.

Its because they have focused and worked on their income’s, but never focused properly on building networth. Just because you earn good, does not mean you will have a lot wealth, because that needs conscious effort and mindset to build wealth. It needs actions, adoption of structures in your life which many don’t act upon.

income vs networth

Good Income is very Important

Don’t get me wrong. I am not saying don’t try for good income. In fact, if you focus on good income, you can build wealth more easily and faster, because more income generally leads to good wealth. But often its not true and it can happen only if you choose to consciously work on it.

It might happen that a person earning less than you build;s higher networth then you because he was fanatically working towards it.

We once came across a couple in Mumbai who was collectively earning around 35-40 lacs each year. I know the moment you read this, you must have thought – “Wow .. that’s a lot of money. I want to get there”

But reality is different

But their lifestyle never allowed them to save enough. Their expenses list was so huge that I was almost numb, when I saw their datasheet.

Here was a couple who was doing extremely well from “society standards”, but still their networth was pathetic compared to their income because they just focused on consumption and only consumption. Their were so many leakages in their financial life, that money never stayed in their financial life.

They could not even arrange for 10 lacs cash in emergency situation. So poor was their allocation and planning, that it was a height of mismanagement. We then worked with them for few months and redesigned their overall financial life which they approved.

We set their financial goals, helped them to define things and systematically save for each of them and suggested them how they can improve. We put right structures in their financial life, which forced then to save first and only then spend. They are doing better now.

I know this is an extreme example, but many people can relate to it at some level.

As an investor your main focus has to be on your networth and a good income is a tool for it. A higher income which does not lead to a good networth is only a short term success story.

What I have seen in last 7 yrs ?

Today’s generation is into a deep financial depression. You meet a guy, he is going to a swanky office, his package is bloody 16 lacs per annum, you envy him and you hear this guy has just bought a house (on loan). You feel you want to be like him, what an awesome feat he has achieved.

But the reality is very different. While this all looks great from a distance, deep down a big number of investors are facing a very tough situation, which is only known to them.

They are hell scared of future. Even though they are doing well today, they are still not sure what future has for them, they are depressed and fearful of expenses lined up for future. It has destroyed their peace of mind. They have good money coming into their bank accounts, but peace of mind is missing.

I am sure many readers who are reading this can relate it to their lives. What kind of suggestion would you like to give to a new investor who has just started their financial life?

6 unique traits of Action oriented investors, which every investor should adopt

Posted on by Nandish Desai

We are happy to share that the action month is now ON and it is amazing to see how 200+ people have chosen to participate in action month. It is amazing to see how a small group of people have got together to bring a shift in their financial world. Some of our readers saw action month as an opportunity to get into action, they have realized that ONLY action produces RESULTS.

Action Oriented Investor

Some action month participants got in touch with us and they have already completed life and health insurance area of their financial life. And today we would like to share 6 winning traits that we could observe in action takers.

1. Focus on one area at a time

The participants who bought life and health insurance policy in 7 days of time were totally focused. If you remember as kids we use to play around with magnifying glass to burn a piece of paper. Now, if magnifying glass is focused on a particular part of paper, it starts to burn – but if you continue to move the glass the paper won’t burn. This was my first lesson in life when I got in touch with power of focus. If you want to bring a shift in your financial life, learn to focus and things will slowly start to shift.

2. Take responsibility and get honest

Some action month participants wrote to us about how irresponsible they were in the area of life and health. They saw action month as an opportunity to get honest about their inactions. They started to take 100% responsibility, started to own their inactions, behavior and things started to shift for them.

If you break the word responsibility it becomes “response ability”, which means your ability to respond. All the important areas and situations of your financial life are always in front of you. Now, it is up to you how you respond to those situations. If you are currently under-covered, your response to the situation will determine the final outcome.

3. Awareness is the key

If you want to bring change in any particular area of your financial life, awareness is the key. Our books, blogs and services are all designed about making people aware because we know awareness is crucial element. Those who were quick in completing action month tasks brought their full awareness on the protection area of their financial life. Awareness acts like a spotlight in a dark room, pick an area and become aware about what is present and missing in that area. Let your mind be your guide once you bring total awareness to the area which you want to change.

4. Complete what you start

The rule is very simple, ‘complete what you start’. A lot of investors still fail to stick to this simple rule. A lot of people think of buying term plan or health insurance, they even start the process but somewhere they leave things incomplete. The more you leave things incomplete the more you expand your pending item list. We could clearly see in some action month participants how they completed what they took on. They clearly understood power of completion and they chose to do complete job.

5. Total commitment

Always remember, commitment can rock your entire financial world. Every individual wants to create huge wealth as an investor but very few out of time are committed. Commitment is the secret ingredient which can help you to win the game of wealth creation.  If you generate right kind of commitment, life and health insurance area can be completed in a day. In the first week of action month some investors demonstrated what total commitment looks like, they got on call with us and took the required actions. (You can also participate in Action month by registering here)

6. High Say-Do ratio matters

As an investor always work on your “say-do” ratio. I mean do what you say and say what you are going to do, it is about making and keeping your promises. If you promise to yourself you will buy life cover than no matter what happens make sure you buy life insurance policy. Those who bought life cover and health cover in the week of action month we having high say-DO ratio. They took our support and completed the protection task in 7 days of time.

Opportunity to make the most out of December ACTION Month

We just wanted to share some of the winning traits that we observed in some action month participants. We will share more about them soon in upcoming articles. This article is not just for action month participants, it is for all those who wants to bring a change, shift or transformation in their financial life. Pick the point which inspires you and fill your financial life with right kind of commitment and actions. The action month is on till 31st of Dec, if you want to get life and health insurance in place you are free to participate. Also, in the comments section you are free to share unique traits of winning investor.

8 Core Reasons – Why your income level remains STAGNANT (part 1/5)

Posted on by Nandish Desai

At jagoinvestor we have always been trying new stuff  and this time we are coming up with 5 article series on the topic of INCOME every Thursday. These articles will be inter connected and they will help you to work on any one specific area related to money, this time we are going to focus on increasing your income (I know that you are interested in this topic). Now, there is no formula available in the world or with us by which you can magically increase your income. But we strongly feel that by engaging with certain set of conversations you CAN increase your income.

This is the 1st article of the series where we are first going to look at why a lot of people struggle to increase their income. What is it that stops people to increase their income ? And then over the next few weeks, we will go deeper in this area and touch other points around increasing income. You may be into job or business the series will be helpful to you.

How to Increase your Income

8 Core Reasons why  income level remains STAGNANT

Lets examine some of the key reasons or pointers which can help you to introspect in the area of income generation.

Reason #1 – Overfocus on Controlling Expenses and not ON increasing Income

You will always meet two kinds of people. There are people who focus on increasing their income and you will find people who are always busy controlling their expenses. Now, we want you to focus on increasing your income because increasing income is ALWAYS in your hands; whereas controlling expenses is not in your hands. For e.g. if tomorrow petrol or diesel prices touches Rs.100 per litre you can’t do anything about it. When we work with our clients one on one we always encourage them to work on increasing their income. We ask them to figure out ways by which they can work on increasing their income. Along with making investments it is extremely important to work on increasing your income.

Now, let’s assume that right now you are not exploring your full income potential and we invite you to inquire how you can explore your full income potential.

Reason #2 – They are HIT by “BUT” syndrome

I find a lot of people saying, “This year I was all set to get promotion BUT office politics got in my way” or “This time I was all set to get big business order BUT my competitor stole my order”. The three letter word “BUT” is a bit nasty by nature. The word BUT is a beholder, it beholds some kind of underlying truth in it.

The truth is, I am not promoted and the truth is, I did not get the business order I wanted. You may be in business or job, if your income is not increasing check whether you are hit by “BUT” syndrome or not? – Tell the truth and start taking required actions instead of swimming into the pool of reasons and thinking why you could not produce desired result. Every time when things don’t turn out the way you want, instead of finding reasons go deep inside your own self and get honest with yourself. People who struggle to increase their income are more in love with reasons than results and actions.

Reason #3 – Virus called “What’s in it for me?”

This virus simply corrupts you as a professional. The virus gets in your mind and it keeps you away from identifying opportunities where you can make a difference. If possible for 10 minutes every day keep the thought “what’s in it for me” aside and bring a lot of passion and love into any work that touches your hands.

I was once in a restaurant with Manish and he said something very interesting. He said, “Some waiters expect and work for getting tip (and they don’t get) whereas some really serve well and people appreciate their effort by offering tip to them”. Can you see the difference how your approach impacts your income?

Whats in it for me ?

Increasing income is not a function of greed or expectation . People who fail to increase their income are insanely affected by the virus “What’s in it for me”. You may say, but that’s the way the world works or it is practical to think about your personal interest. This attitude is the root cause of all your struggle. May be a lot of people are searching wealth on the wrong side of the river and so they struggle to increase their income all their life. Empty your mind for 10 minutes and focus and you will start to see many opportunities right in front of you.

Reason #4 – They don’t understand the word “Service”

The word literally trains you to become a go-getter. As a go-getter you get up every day with a thought, Today how can I get more money and from whom? In my view people who struggle to increase their income have yet not experienced the power of word “Service”. If you start operating from service you start to grow inside your profession or work. Every day look at how best you can be of service to your organization or to your team members or to your clients. If your relationship with word “service” is weak it fills your life with struggle and resignation.

Always remember – “When service is rendered, payment gets due”

Reason #5 – They don’t invest in their training and development

If you are useful, people will get ready to pay you for your services or offerings. To be more useful you have to constantly work on enhancing your skill set. There are very few people who invest in themselves. A lot of people wait for their company to sponsor for their training and development program. This is a wrong attitude and it wont help you to grow your income.

Do you keep some percentage of your income aside every year to invest in some skill development programs or not? You have to be really good at your craft for people to invest in you. Increasing income is all about asking and inviting people to invest in YOU for producing measurable results. When people or organizations stop investing in YOU, your income gets stagnant.

Reason #6 – They don’t have a mentor in life

In your professional life you need to find and make someone your hero. It has be someone who is living your dream; he or she is right now in a position where you desire to be in near future. Majority of people try to do everything on their own,they dont have a mentor in life. Now, there is no harm in doing things on your own but having a mentor helps.

You have to find someone who dreams big like you. If you are a writer your mentor will constantly help you to get better at writing. My fitness coach once told me that “Exercise without having a fitness coach is all warm up”. If your income is stagnant having a mentor in life will help you a lot.  In this week spend some time and energy, schedule a conversation with someone and invite someone to be your mentor. (If they charge be ready to pay them) . If you need a coach in your financial life, you can set up a call with us

Reason #7 – They Focus on ‘low paying’ activities

There are three kinds of activities you will engage with; high paying, low paying and no paying activities. Take out your calendar and make a note of what kind of activities you spend maximum time with. People who fail at increasing their income are not wise with their time.

Low paying vs High Paying Activities

I once gave an interesting assignment to one business person, I asked him to track his weekly time engagements, after a week he told me he was focusing more on no-paying and low paying activities. He made a commitment to focus his time only on high paying activities and his business income started to shift. You may be in job or business look at what kind of activities consumes your time. Be honest with yourself because where you invest your time matters when it comes to income generation.

Reason #8 – They fail at creating wow experience

I was once invited as a speaker by one Asset management company. I had to deliver a 25 minute talk to a group of financial advisors and planners. I asked the group “Where does wealth reside?”- I got variety of answers from the group which very interesting to hear. I finally told them that wealth resides in the very next conversation that they were going to  having after they leave the room. You may be into job or business we are all into conversation business and your only job is to leave people with wow experience. You may be in job or business make a commitment to create wow experience for people who come in touch with you.

People, who fail at increasing their income, fail to CREATE wow experience for others/people they work or collaborate with.  Your conversation has to fill the other person’s mind and heart with fresh and new energy. Not just with your boss or important clients but every person you meet from morning till night your only job is to create wow experience. For next few days examine what kind of experience you are leaving people with? Be Honest with yourself and see if you can bring some improvement in this area.

Upcoming article topics of “Increasing Income” series (Stay Tuned, Every THURSDAY)

  • What is Income a reflection of ?
  • Two different types of income
  • Master key to increase your income
  • Completion Article

Work on what best you can do to increase your income

This week take out some time and work on what best you can do to increase your income. Share your insights in the comments section, if you have got some success story, do share with us in the comments section. This week do a lot of introspection and figure out actions that can help you to increase your income. As I said in the start there is no formula to instantly increase your income.  Your sharing will make “Increasing Income” Series more alive and interactive and so we invite you to share your experiences in the comments section.

Allow Wealth coming into your life by breaking your Belief System

Posted on by Jagoinvestor

Most of the TV channels help in selling products like – Lal Kitab, Suraksha Kavach, Shri Yantra . They do this day and night and according to these advertisements, these products helps people in becoming prosperous. Most of the news channels have at least one show on Palmistry too, which solves people financial problems. Some believe in it and some choose to call it superstition.

Stop Wealth Coming in Life

Superstition or Beliefs

Here is an old story to learn something from about superstition or beliefs

When the spiritual teacher and his disciples began their evening meditation, the cat who lived in the monastery made such noise, that it distracted them. So the teacher ordered that the cat be tied up during the evening practice. Years later, when the teacher died, the cat continued to be tied up during the meditation session. And when the cat eventually died, another cat was brought to the monastery and tied up.

Centuries later, learned descendants of the spiritual teacher wrote scholarly treatises about the religious significance of tying up a cat for meditation practice. Now how is this related to financial life ? Many such cats are present in your financial life, which you might not even be aware about, you believe in few things as if they are truth without questioning them and thinking about it.

Let’s look at some real life examples

[note color=”f2f2f2″]
“Advisor: Sir, gold prices have gone up because of festive season I think you should wait for some time?

Mr. Shah: No no, We buy gold only during Diwali. No matter what gold prices are – we would like to go ahead.
[/note]

[note color=”f2f2f2″]
Real estate agent: Sirji, one very good property is available at a very competitive price. The property is main road touch and it is difficult to get such property at this rate.

Mr. Singh: Oye No no. it’s House number 13. It is an unlucky number we can’t go ahead with this property. Show us some other property.
[/note]

[note color=”f2f2f2″]
Insurance agent: Sir I have a traditional plan, where you get high returns and your money is absolutely safe

Half of india: Yes, my parents taught me the same. I believe in LIC, I know LIC is safe and best investment. I am ready. tell me where to sign?
[/note]

Whats your Belief System

Now look at your belief system. Look at what did you hear on TV or read something on blog or magazines, that became part of your belief system. From time to time question your thoughts and beliefs, as questioning will help you grow.

Break your belief system,
Nandish Desai

Are you Scared of Having a kid due to money reasons ? Here are 5 things you should know

Posted on by Nandish Desai

Day by day I am realizing that the impact of money is huge on our decision making capacity. The conversation of money is very deep rooted and not just limited to financial goals or wealth creation.

Today’s article is based on interaction I had with one my relative, who works in IT sector. We do not meet very often but as and when we meet, we make a point to update each other about, what’s new is happening in our work and life. He and his wife both are doing extremely good in their career and their pay scales are also good.

scared of having kids

Here is how our conversation went

Relative: So, Nandish How is life after becoming father?

Nandish: Life is wonderful, it is great becoming father and playing with my kid is great fun. I and my wife feel becoming parents is the greatest gift to receive in life.

Relative: That’s wonderful to know Nandish but I am really scared of this idea of “Having a kid”

Nandish: Scared? Why are you scared? What is so scary about becoming a parent. If you want we can have a conversation that can forward you in this matter.

Relative:  Thanks Nandish. I always like having conversation with you. You are my lifetime coach. Honestly speaking, I and my wife want to plan a kid, but we are scared whether we will be able to handle all the expenses that are related with kid or not?

Nandish: But you can always plan for your children related expenses and children related goals. Your savings per month and year according to me are sufficient.

Relative: When we see other people’s kid, we feel like we should plan a kid – but somewhere we are not confident about this whole process. I personally feel that becoming parent is a huge responsibility and it also calls for financial commitment.

Nandish: Yes, but why don’t you and your wife first get friendly with the thought of becoming parents. It may appear scary, but in reality it may not be so. There are some thoughts or beliefs that are holding you back.

Relative: I and my wife stay alone in a rented premises. Income wise we are good, but we still feel we are not ready financially. We dont know – how other people manage this big change but we are scared. Really scared…(He literally started crying)

Nandish: Hey don’t cry my friend. In life sometimes, we find ourselves on a cross-road. Such cross-road moments are painful but it is a point where you gather courage to make some BOLD choices in life. Over thinking or over worrying wont help you and your wife. Be clear whether you guys want to step into the realm of parenthood or not?

5 things I learnt from the interaction I had with my relative on parenthood

1. Imaginary world is scary

Our imaginary world is always more scary than the real world. We anticipate all the worst things to happen to us, but in reality things turn out very differently.

I feel that a lot of people like my relative are sailing in the same boat. They have strange notions about parenthood and they envisage those strange notions will soon convert into reality.  They always come-up with reasons like let the family income reach to X level, or first let me first buy my own house. etc

(Here reason is not important, but the point is you are in grip of money related concerns)

2. BOLD step is required

Life demands you to take BOLD steps. You have to step beyond your so called fears and worries and you need to take a stand in life. Take a stand to accept parenthood with a lot of power and grace. To bring new life into this world demands commitment.

I am not saying, don’t examine your situation – but get present to what is stopping you and take a bold step in this area.

3. Don’t let conversation of money rule your decision

Don’t hand over all your power to money. Money is an integral part of your life, but at the same time money is not everything in life. When it comes to parenthood don’t let the money conversation hold you back. Take a step forward and don’t get stopped by financial concerns.

4. Trust your ecosystem

After the transition takes place you will start experiencing support coming from different corners of your family. Sharing from my own life, our parents  have brought huge strength and support into our life. After becoming parents I and my wife started experiencing true power of our family ecosystem that we are into.

This whole transition became smooth for us, because of the family support we have. Look around and get in touch with your family eco-system.

5. The Age factor

I am not an  expert in this area, but all I know is that age of women matters when the couple wants to plan a kid. I have interacted with some clients of ours who kept on pushing parenthood for some initial years and finally they had to face some complications due to age factor.

We suggest you to go and consult right person who can guide you better on age factor thing.

Conclusion

Don’t let the conversation of money hold you back from experiencing parenthood or any other beautiful experience in life. Have conversation with your spouse and make a choice that serves you most.  It is a sensitive subject and our intention is to share our observation, we just want to share how money impacts our life decisions.

We are not asking you to do something or don’t do something, it is about getting present to the impact that money have on us.  Jagoinvestor as blog is not limited to personal finance education, we really want our readers to be happy in life.

We want to spread happiness along with personal finance education. If you have experienced something like this in your life – feel free to share in comments section, if you want. Sometimes we are afraid of writing articles on such sensitive topics but as I mentioned in the article we also have to show boldness in our writing.

How I bought 23 things out of excitement and never used them – Lets celebrate SELL week on Jagoinvestor

Posted on by Nandish Desai

This article is one long letter, that I have written to myself and to all the spenders out in the world. We have not got any money to promote OLX, we are using the name of the company because most people can relate to the content that way.

I have a confession to make, I am an OLX consumer and I am not proud of it. Today’s article is not about financial products, it is about products that you bought out of excitement and now it is lying in some corner of your house or apartment. Today’s article may not be about personal finance, but it is about your hard earned money, that gets blocked in different expensive goods and products that you buy.

Whenever the advertisement “O Womania” of olx.in comes on TV, my family members will start looking at me. This is because they know, I am a spender and they feel I spend a lot. They want me to sell a few things, so that we can have some free space in our house.

There is nothing wrong in buying NEW things, but before any purchase make a commitment to gain value from all that you purchase.

My OLX list of 23 unused items

Yesterday morning – I made my “OLX list” which contains goods and products, that I bought out of excitement and I no longer use them. My list has total 23 items. This exercise helped me to gain some interesting insights, which I would like to share with you in today’s article and we will also be posting pictures of some items we bought and are not using them now.

Unused Item #1 : Sports Equipment

I bought a table tennis table 2 years back, thinking that I will invite my friends to play on weekends. Honestly speaking I have not played more than 20 games with my friends till date. Slowly the table tennis table started shifting places in my house and eventually it is now lying in our servant quarter. Before I bought table tennis table I was so excited and I had big plans, but I can see that I did not make the most out of it. My family members have warned me not to buy any such sports equipment in future.

Unused Item #2 : Fitness Equipment

A lot of people invest money in fitness equipment’s but they don’t utilize it fully. Some people choose to buy treadmill over joining gym. My in laws bought treadmill, which is now lying in one of their balcony and no one has time to use treadmill.

I am not saying don’t buy fitness equipment’s, the point is – If you buy one, see that you make proper and consistent use of it. Block some time on your calendar for your fitness equipment before you invest your money into it. Even Manish bought one expensive sports cycle a few months back to regularly bike on it, but when I asked him yesterday – if he is fully making use of it, his answer was “No, but I am soon going to start my cycling regime” . This article is a wake-up call for both Me and Manish personally 🙂

Unused Item #3 : Electronic Goods

There are so many people who invest very heavily in electronic goods. While I was making my OLX list, I found in my house there are total 5 television sets out of which 3 we do not use at all, one spare refrigerator which we do not use, some speakers and music gadgets which I no longer use. So, I have decided to donate 3 unused television sets to one of my relative’s hospital. There are so many people who have more gadgets in their life than financial products.

Counting Challenge – How many things you own ?

I have an open counting challenge for all individuals. I bet, if you start counting everything that you own, you won’t be able to count all the items in one life time. The truth is that you already own so much in life and still you feel you need something more. When your income increases, your purchasing power also increases and you start making random purchases (at least I fall in that category). My invitation is – If something is really required and it will add value to your life buy it or else look for some alternative.

Spenders need one trigger

Spenders like me, needs one good reason for buying any new product or goods. Spenders get triggered very easily for making fresh purchases. Companies like OLX and QUIKR are making millions today, only because most of us are busy making random purchase decisions. I am not against these companies and also I am not endorsing them.

Choose to slow down (listen to awesome audio on this topic) before you make any new purchase decision, ask yourself and your family members whether you will make the most out of that purchase or not. There is no fun in being a master consumer.

Conclusion

We are not saying consumerism is bad or one should not spend on different goods and services. All we are saying is spend wisely, because at the end, it is your hard earned money, focus on the value that you are going to create out of each purchase.  If you own something which is not of use to you, gift it to someone who can benefit from it.

Let’s celebrate this week as SELL week, you are free to share in the comments section what you are going to do with your unused or underutilized goods and products.

Build your “unused item list” – (Share it in comments section)

  1. Make (your olx/quikr list) list of all unused/underutilized products and goods which you can either sell or you can gift to someone.
  2. Make fresh promises if you are willing to make use of underutilized items that you own
  3. What kind of actions you will take in next 7 days to either sell or gift the same to someone in need.

This Article is contributed by Nandish Desai