Avinash.tech(…)

This is a follow up post on Networth101 and Calculating Networth . Please go through them prior to reading this article.

My grandad was a great investor himself. All his life , he read books on investment and made sure he passed on that knowledge to everyone in the family. All the knowledge he soaked in through books made him plan his investments wisely and retire by his 40’s.

Visiting grandpa during summer vacation was a norm and all grandchildren were welcome to stay as long as they wished. Food and fruits were always in abundance. Never did I see shortage of any sort. He always stayed in a rented house and argued why should I build and maintain a house when I can move to a new one. His exact thought “Fools build , smart stay :)”.

I heard about the power of compounding at a very young age. He used to feed me random data on investing that made very little sense then. Now that I look back at what he was trying to teach me , every word of his resonates with what I have been reading in highly acclaimed investment books.

How I wish his precise practical lessons on life and wealth were available to the next generation. Though these article cannot touch upon each one of them, I will make an attempt to talk about the financial aspects of his gyan.

Grandad also taught me the power of savings and how saving is important than trying to constantly increase your earning. If you don’t save what you earn, no matter what you earn will soon be not enough . You are like a ship with a hole in its hull.

He looked frugal to an outsider , but made it a point to always have surplus for food and basic necessities of life. The idea was simple , buy something if it’s a necessity and say no to something even if it’s being offered at a throw away price and is of no use to you.

My grandad was frugal but considered Music to be a necessity for himself. He had the best Audio system (with woofer/bass) that money could buy. He had great headphones from Panasonic. He loved making me listen to music of my choice on those headphones. I usually had to hold those headphones with both my hands to stop it from falling off my tiny head :).

What I am getting at? Add a couple of hobbies like music, art , travel to you list of necessities and make sure you treat yourself once in a while.

Save for the future mindset helped me when I started earning. I used to save every bit of money that came my way. I used to travel in an old 2 wheeler that my dad bought me in college. Then drove a second-hand car gifted by my brother to my parents for half a decade or so. Life was not bad, but the bank balance was getting exceptionally great!

Early in my career as a software engineer, it so happened that my previous month’s salary had not been credited. Thanks to some unforeseen issues with my newly opened salary account at the bank. I had not even realised this until the company’s Finance department gave me a call. They explained how the wire transfer had not gone through and they were working with the bank. I ignored conveniently as things looked fine at my end.

This led to a follow up call from an HR lady, an aunt with a disapproving voice. We all have come across these Acid Aunts in our family who shower advice on any random topic on which they have somehow written a thesis on. It seemed as if the HR lady had finally had been presented with the golden opportunity to express her deep dislike towards the younger generation. She blurted out  “How can you be so careless? Don’t you want your salary?” . Like an opera singer trying to reach the audience in the last row. Her shrill tone made me jump like a cat and scamper to quickly switch away from speaker phones. Employees around my cubicle stood up to soak in some fun in their ever boring daily lives as engineers. She would have liked to add “You guys have no value for money, do you know how hard it is to make money” . I was surprised at her remark and my irresponsibility at the same time and wondered why the thought of checking salary credit had escaped me. ( I was making peanuts , but hey peanuts matter too 😛 )

Later that day, after finishing my long hours playing Table Tennis, I realised , the discipline of saving first and spending rest had accumulated a sizable corpus over the years. I was no longer dependent on my monthly salary for day to day expenses. Do note , that as a young professional in those days, my salary was peanuts. Unlike the current generation who have been spoilt with fat paychecks and yet struggle to stay afloat till month end. The discipline and art of savings is something the younger generation is lacking these days , most live like daily wage mazdoors. 

Every penny saved can go into investment and power of compounding can generate huge wealth on a long run. Never underestimate the power of savings. 

If you save 20% every month , it’s as good as getting 20% hike in your salary. When was the last time you got a 20% hike ?

In Figure-9 : These high net worth individuals are working hard for you, all you need to do is invest in their companies through right investment vehicle.

Most people forget that becoming wealthy is not earning more. Being wealthy just means saving more , because earning more and spending it all only makes one have a short lived lavish lifestyle. Stop making money and they are broke. Take Anil Ambani for example, he was handed 40,000 crores to start with. Now is bankrupt.

Imagine buying ice cream with all the cash you have on a hot summer day. The ice cream won’t last and has to be consumed somehow the same day. You will find plenty of people to help you consume the extra ice cream bought. Ever wondered why your party has so many friends and none when you are hospitalised ? 

Instead if you bought a fridge to store away the excess ice cream , you could easily buy only what’s needed and also store away the excess for later consumption. Wealth is like icecream 😅. The only difference being the fridge here is your investment choice. These investment fridges not only secure your ice cream but also help generate more ice cream. How cool is that ! ( No pun intended)

In the articles that follow we will look at how one can build wealth, but before we begin on this journey some important life lessons on debt , properties and more need to be brushed upon.Its important to understand how net worth is a measure of where exactly we stand in financial terms .

I know we already discussed a lot on debt. I would still like to add one more top related to buying a own home. Everyone raises their eyebrows when I say “Given the current bloated market, it’s good to stay in a rented house”. We will try and solve this mystery of Rented vs Own house soon !

Read Next : The Home loan Bubble

Please read the disclaimer carefully before making any investment based on the articles published on this Blog !!