A man saw his 60 yr old father planting a tree. "Which tree is this Papa?", asked the 30 year old son. "It is a mango tree" replied the father. "Ohh great! How long before this tree gives its first mango?" asked the son inquisitively. "18 years" said the father. "What? You will probably be dead by the time this tree starts giving fruit Papa!" exclaimed the befuddled son. "I know son, but you & your kids, kids after them will reap the fruits of my labour for years to come. I think it is worth it" said the father matter of factly.
This story is not written by us. You have probably heard about this story quite a few times. Nobody even knows where this story originated from. But, the underlying message of this short story is priceless. The mango is a metaphor for wealth & riches one earns by being disciplined, working hard towards their objective. Anybody who fails to "look after" the tree & loses interest will be devoid of the sweet taste of the "mango".
It requires a lot of discipline at your end to achieve the goal of becoming wealthy. It will require you sacrificing a lot . But, The Opinionated Indian promises you, that following these steps will make you rich & wealthy.
Make your money work for You: What ever your profession maybe, how much ever you may earn, it is imperative that you save at least 10% of your income. Although, we recommend that you save 35% of your income. The rise of social media, has lead to a lot of pressure on millennials to buy the latest clothes, holiday abroad, buy the latest smart phone, expensive gadgets & to buy expensive cars, just so that they can post about it on social media. Most millennials tend to spend their entire salaries & then max their credit cards to buy the latest smart phone, designer clothes, cars or on that holiday in New Zealand/Europe etc, just to seem successful in the eyes of people, who barely care. The truly successful & wealthy people don't care much for other people's opinion.
Warren Buffett famously said " If you buy things you don't need, you will end up selling things that you need". The world richest people are frugal spenders. Warren Buffett, Carlos Slim, Azim Premji all drive modest cars.
So how do we save, you ask? The trick is to first take money off your salary account &; invest it, only post that should you spend. Your car loan ideally shouldn't be more than 15% of your income. Apply for a credit card, instead of taking high interest personal loans. Overall, your monthly EMI's shouldn't be more than 50% of your income. Resist the temptation to buy on every fashion sale, use your smart phone for at least 2 years before splurging on the latest i-phone, use your car at least for 5-6 years before buying/upgrading to a new one, travel abroad once in 2-3 years. Travel during off season if possible, do not overspend on hotels &; eating out. Safeguard your investments from theft or fraud. Have multiple sources of income. In today's times, where there is no job security & with the shelf life of businesses being short, it is advisable to have multiple streams of income.
So where to invest the money saved? Here are your options
Stocks or Mutual Funds: It is imperative, you get at least a basic understanding of stocks or mutual funds. Invest money you won't be requiring for the next 3-5 years. INR 50,000 invested in nifty in 1999 had grown to INR 522,000 by 2014. Investing the same money in a fixed deposit @8% interest would give you INR 119,827 post deducting taxes. Einstein once said "Compounding is the eight wonder of the world". You totally stay away from investing in equities, you will end up paying a high price for it. Based on your risk appetite & your age, financial planners will advise you on the money you invest in equities. Equities are the most liquid form of investment. Long term capital gains on equities attract no income tax whatsoever. High dividend yielding stocks lead to decent returns in terms of dividend income. Track your investments regularly. For people not too interested in following the market, investing in mutual funds is recommended.
Real Estate: Indians tend to love investing in real estate. Buying a house, can get you a steady stream of rental income. The property can give you handsome returns, on being sold after a few years. The three important ingredients for a real estate investment is Location , location, location. Although we would like to tweak the formula a bit. Apart from the location, please do your due diligence, in terms of the property papers, ownership etc. It is recommended, that you take a bank loan to finance your real estate buy. Apart from saving tax, bank loans guarantee the safety of your investment, A bank won't sanction your loan, before checking each & every aspect of the deal. But, unlike stocks, real estate is not a liquid investment.
Gold: Indians love their gold. Owing to the curbs on gold imports, gold prices have been highly volatile & have offered dismal returns.Unless there is a huge calamity, Indians don't tend to sell their gold due to the emotional attachment to their gold.Gold tends to just lie in your locker & ads no value. So it is advisable not to allocate huge amounts to this investment. We do suggest investing 10% of your portfolio in gold, as it is a counter to your other investments. It has been observed that, when real estate & stocks go down, gold prices tend to go up & vice versa.
Invest in a Start up: A new form of investment, which offers decent to very good returns. People have started to invest in start ups, through crowd funding websites. There have been several examples of crowd funded start ups giving handsome returns to their investors. People should invest only after thoroughly researching the company.
Fixed Deposits: It is one investment we hate to make, owing to the sub par returns. But, it is an essential part of your portfolio. Owing to the liquidity & guaranteed returns of the money invested, it helps safeguard your investment against stock market crashes & delays in selling your real estate investments. If your honeymoon/kid's college fees are a few months or a year away, we would suggest you sell your stocks & or real estate & put it in an FD.
Be very careful while investing your hard earned money. Research thoroughly before investing.Dont's:
- Credit cards might be a very important tool, if used wisely. You can buy important things, with money you don't have. But, this often leads people into a huge debt trap. Clear all your credit card dues in full, every month. The interest rates on credit cards are deadly.
- Invest in multiple asset classes. Your portfolio should be a mix of equities/ mutual funds, real estate, gold & fixed deposits.
- If the returns sound too good to be true, there probably is something wrong. Never invest in dubious schemes, promising 200% returns on your money in a few months & no effort whatsoever.
- Investing money in a tech start up, founded by your dhobi is a horrible idea. Invest in companies, whose founders have a solid background & sound knowledge of their field & have clarity of vision. Investing in a laundromat, founded by your dhobi makes much better sense!
- When it comes to lending money, consider money lent as gone. It is advisable not to lend money.In case you do, don't ever expect to get it back. If you do get it back, it is a bonus.
- When it comes to gambling in a casino or intra day stock trades, always keep a cut off limit. It is strongly advisable, to stay away from gambling in casinos or betting, as they are designed in a way that the house will always win.
- Never live on borrowed money. Clear of all your loans, as early as possible. Do not account for sporadic income earned from royalties/performance bonuses or inheritances. 80% money earned from inheritances or royalties or performance bonuses should be invested.
- Do not neglect your health. Health is Wealth. Do not eat in unhygienic restaurants or stay in dingy hotels just to save money. Be frugal & not stingy. It is one thing to value money & people respect it. It is another thing to live just to save money & watch your money grow.
- At the same time, do not spend way too extravagantly on weddings or throwing parties to friends whom you barely know.