The SImple Path to Wealth - by JL Collins

I liked the book, The Simple Path to Wealth, by JL Collins. The book is slim, with less than 170 pages. That is because the message it gives is a simple one. Its basic theme is:

• Avoid debt.
• Save maximum.
• Invest what you don’t spend.

While I would not hesitate to recommend this book to anyone interested in improving their financial life (who isn’t?), I did find many of the details are aimed at North American readers and would be irrelevant to India. But the underlying concept is universal.

Some of the ideas from the book:

• Treat money as your tool to use in creating the life you want.
• Treat money as your servant.
• Don’t be so obsessed with money that it becomes your master.

• Aim to become financially independent.
• If you live salary to salary, you will not be financially free.
• Avoid getting into debt.
• If you already have debts, first do everything to pay off those.
• Build up a reserve fund for emergencies.
• The reserve fund should be at least equal to 6 months’ earnings.
• Limit your spending to increase savings.
• Deploy the savings to increase your investments.
• Prefer index funds over stocks or mutual funds, for your investments.
• Index funds are simpler and more effective at creating long term wealth.
• A portion of your investments can go into top grade bonds.
• Bonds are less volatile and makes your total portfolio grow smoothly.
• As you get older and older, reduce investments in index funds and increase in bonds.
• (We in India can also go for Govt's savings schemes and FDs in banks or in PSUs, in place of bonds.)
• Stay away from stocks and complex financial products.
• Plan your finances in such a way that you can withdraw 4 to 7% annually for your post-retirement life.
• When you plan your finances in a simple, least complicated way, you can focus more on enriching your life.
  
  In short, to have a financially independent life:
  Avoid debts, spend less than you earn, and invest the difference.
  
  That’s it. Simple and straight-forward. Very practical and sane advice.

Buy Smartly

 

Buy Smartly

This time too Anand agreed to write-up the gist of the free-wheeling talks between the multi-millionaire Kalidas and a group of about 20 persons, including Anand, who were interested to learn from their mentor. Here’s that write-up:

Buying things

When you know what and why you’re buying things, you grow conscious of how your spending habits evolve. For example, if you adopt a concept of needs, wants and desires; you can categorise each purchase accordingly. You will be aware of how much you are spending on items of desire, for example.

Some of the things you bought regularly as wants make you think they are now needs. As someone named Sebastian Junger said, “Comforts, once gained, become necessities.”

How do I know if I'm buying something unnecessarily?

In the past, I have counselled a couple to adopt a method so that they could manage their emotions better and reduce or avoid impulse buys.

What is the method you told them?

Members of a household discuss and agree to a threshold amount, say, Rs. 1000. If the husband wants to buy any items that are not daily necessities, he has to discuss with his wife if the item costs more than Rs. 1000. Basically, this helps to think it over before deciding to buy high-priced items.

What is the benefit of following this method?

You'd be surprised; how many times the couple decided not to buy; or to buy a better alternative or manage with a substitute they already possessed. The very fact that a spouse must discuss and both should agree avoids or delays the purchase.

An additional feature of this method is it reduces arguments between husband and wife!

Any other methods, sir?

Before you buy something that is expensive, give yourself a ‘cooling period’, a pause, of at least 2 days. After two days, if you still think you must buy, ok, go ahead. Often, however, after that delay, you would find you are not keen on the purchase, after all. This method teaches you not to act on impulses.

Oh, ok. You are saying many purchases are made on impulse and could be avoided by this method. Right?

Yes. As the saying goes, "A penny saved is a penny earned. And the habit of discussing with the spouse and arriving at a consensus is also a good one. "

Thank you, sir, now I can understand and appreciate what you are telling me. 

Are there any other 'hacks' on intelligent buying?

There are many such 'hacks' as you call them. I remember telling a relative of mine not to buy anything (other than fruits and vegetables) from door-to-door vendors. Instead, make a habit of buying from reputed retailers, preferably when they offer discounts.

Another more important point is to keep your credit card at home when you go shopping. People tend to buy more when they use credit cards. That’s because, it feels as if they are not spending a lot of money.

Sir, a final word of advice to end this session?

Well, before you buy high-value items, you are comparing costs of different offers. However, remember also to work out the lifetime cost of the product. If you make it a habit to estimate the lifetime cost and the opportunity cost, I am sure many a time you would decide not to buy.

That’s all, till the next meeting …

You want to save money?

“Tell me, Sir, how can I save money from my small salary? I want to save but find it very difficult,” Anand asked Kalidas.

Anand was a bachelor, just a couple of years into his first job.

He considered Kalidas as his mentor. He and his friends gathered together to meet Kalidas and seek his guidance on financial matters.

All were younger than 30 years, except of course, Kalidas who was 48. Kalidas was a multimillionaire with stakes in several businesses.

Naturally, Anand’s question of how to save money interested every one and they all looked at their financial guru, mentor, and adviser. Kalidas was a busy man whose time was precious and so he had asked the group to gather at the roadside tea-stall nearest to his house.

Looking at Kalidas in his cotton pants and white shirt, sipping masala chai by the roadside, no one would believe he was wealthy. A simple man with a simple lifestyle. Uncomplicated. Living in the same house for years and having a single car that was now more than 5 years old.

“There are many ways,” Kalidas said. “For example, I used to keep aside the five-rupee coins that I came across in my daily transactions. Later, I upgraded to keeping aside twenty-rupee notes, when my finances improved. Of course, all this was many years back.”

Many in the group were in shock and awe that their mentor started his financial journey from a situation worse than theirs.

They listened in rapt silence as Kalidas continued, “Putting coins in a piggy bank might not give you a fortune but it strengthens your focus on saving and investing. Habits are powerful. Make saving money a habit. Most important habit I would recommend is to set aside minimum 10% of your take-home salary as savings before you do anything else.”

 “Many employees in my companies do this,” Kalidas said. “They expect some amount as their annual bonus and if the bonus is more, they save the ‘extra’ amount.”

 “Here is one other trick. Whenever you are buying things that involve bargaining, at times you succeed in getting much lower prices than expected. Put the difference into your savings account. It’s a small but effective way to save.”

“I think we understand the concept of what you are saying,” Anand said. “Saving small amounts regularly can become a habit. We just need to be creative about it.”

Vivek, one of the regulars in the group, added, “This reminds me of what my mother does regularly. Whenever she buys things and the bill total is a certain amount, she would round up the total to the nearest multiple of 10 and save the difference.

Like if the bill was Rs. 284, she’d record it as Rs. 290 and save the Rs. 6.”

Kalidas smiled, “Yes, that is a good trick to save some money. In fact, ask your mothers, grandmothers, or other elders, you might get to know more such tricks. Alright, let’s call it a day. See you all next time!”

How to Improve Your Financial Health in 3 Simple Steps

Although money cannot buy happiness, it certainly helps to reduce unhappiness!

You feel confident if your finances are in good shape. You are optimistic; things look brighter. As the Jewish proverb says, "With money in your pocket, you’re wise, you’re handsome, and you sing well too."

Here are three suggestions to improve your financial life.

1. Do not ignore Government’s Savings Schemes

Take advantage of various government savings programs. The Sukanya Samriddhi Yojana, for example, is an excellent option for parents with young daughters. Or consider other schemes from the government, such as PPF, POMIS, etc. Your money is absolutely safe and as a general rule, it is safer to park your money with the government rather than non-govt. organisations if you are saving for a long horizon of 5, 10, or 15 years. 

2. Pay Yourself First

Draw up some rules for yourself that you can always follow. For example, save at least 10% of your monthly income BEFORE you pay for your expenses. Not after but before. This habit will require discipline from you in the beginning but it will prove to be one of the smartest things you can do. 

3. If It Is Too Good to Be True, It Usually Is

The world is full of people eager to take your money. Be alert and be aware! Don’t even pay attention to any savings or lending or investment schemes that sound too good. If some company (there will always be someone) is promising 12% interest or more when all the banks offer you only 7 or 8%, are you tempted to give your savings to the company offering such high returns? Don’t. Such people are adept at appearing trustworthy and making you greedy. If you fall into the trap, you end up with a bitter experience, and they end up taking your money.

Plan your finances and you can finance your plans, besides living less stressfully. Financial health plays an important role in boosting the physical, emotional, and spiritual aspects of your life. You need not become money-minded or obsessed only with money but do not neglect it either.

Simple is not Easy

Do you want to get wealthy?
Do you want to live without many financial worries?
Do you want to reach a comfortable enough position so as to help others?

Here are just seven steps.
They are simple steps.
But they are not easy steps.

Why are these 7 steps important?
Even if you think you do not care much for money, you can follow them.
Why? Because:
 
These steps teach you self-discipline.

These steps show you the magic of compounding.
These steps tell the logic of sacrificing now for gaining later.
These steps equip you with confidence and generosity.
So, you can apply these in your physical, emotional, social, and spiritual life.

Okay, what are the seven steps? Here they are:

You have to save, not spend.

You have to save now, not later.

You have to save more, not less.
You have to invest what you saved.
You have to invest safely.
You have to invest profitably.
You have to invest the profits.

 May God help you all to live a prosperous life.

Image courtesy:rupixen / unsplash