MONEY

 

PART 5

MONEY

When I was young, my father shared an interesting side of money with me.

He said, because you grew up without money, you would either go after money or you would grow beyond money.

While I always think money is important, it is the worst use of your time and life to keep running after it.

Money buys freedom.

Freedom is a privilege.

That freedom helps you make wiser choices.

However, before those wiser choices, I have made several mistakes with money.

I share them with you in the hope that you are aware of them and make a meaningful relationship with money.

Mistakes I made with money We grew up without any money.

Perpetually in debt. Hand-to-mouth existence.

Which is why I grew up hating money.

I thought it was the cause of all our problems.

And I never wanted money to rule over me.

What I didn’t realize though was that this desire to dismiss money led me to disrespect it.

Because I had a knack of making money, I never really spent any effort in understanding how to manage and grow it.

In the process, I ended up making a lot of mistakes.

Mistake 1

I took loans to buy real estate.

Assuming the price appreciation would take care of the interest rate I pay.

I didn’t take into account taxes.

I didn’t take into account inflation.

I didn’t do the maths, that to get a respectable return, the price will have to grow approximately twenty percent year-on-year.

Mistake 2

Whenever I made any extra cash, instead of paying off the loan, I invested it in startups.

Convinced that the startup would multiply my money several times over.

I basically went to a casino convinced I would make enough money to repay my loans.

That’s what I did!

Mistake 3

I invested in illiquid assets – startups, real estate.

And rarely in liquid assets – stocks, gold.

So, when tough times happened, I had a lot of ‘paper wealth’ but no cash.

Which meant collecting even more debt.

Never trying to pay it back.

Because hey, the previous example – of not paying off loans with extra cash!

Mistake 4

For an entire decade I took lower-than-market salary, overindexing on equity.

I believed the equity would make me much more than the salary ever would.

So when things didn’t end up as expected, I was left with no wealth.

Mistake 5

I overindexed on the future.

Continued to maintain my lifestyle when I should have lowered it.

Maxed my credit cards.

Accumulated more debt.

All in the hope that one mega event in the future would resolve all issues.

Mistake 6

I invested in stocks when the markets went high, in the hope of making fast money.

I sold in panic when the market tanked, so that I didn’t lose money.

It should have been the exact opposite.

Mistake 7

Whenever I was in need of money, I broke my mutual fund investment to generate cash.

I basically broke compounding.

I persisted with it during the painful slow-growth period.

And just when compounded growth was about to take off, I clipped its wings.

Mistake 8

I discouraged my wife from investing in mutual funds and buying gold.

She still did.

I mocked her, laughed at her.

Challenged her to a return comparison at the end of the decade.

It was her investment that saved us.

Not once, thrice.

Because I hated money, I never respected it.

And I realized that money didn’t respect me either.

While I knew how to make it, I never understood how to preserve it.

How to grow it.

Today I think I know.

1. Taxes are a thing. A real thing.

Always look at your tax-adjusted returns when comparing.

2. Inflation is a thing. A real thing.

Money loses value over time. Always include that in your return calculation.

3. Compounding rests on a very important element – time. You need time to witness compounding in action. Give it time. A lot of time.

4 Liquidity is critical. Invest in a way that you can withdraw cash whenever you need. Else what’s the point?

5. If you have excess cash, wait.

Wait for the right opportunity.

Wait patiently.

Wait for markets to drop.

Wait.

The price you buy at, determines your return.

‘No one wants to get rich slowly.’

– Warren Buffet

6. When in your 20s, live like a pauper.

Live within your means.

Pay your bills, and then pay yourself by investing.

Pay for your desires last.

Do not take loans for your desires.

7. Take loans only for things that appreciate in value.

Education.

Maybe a house. Only one!

8. Do not invest according to your echo chamber.

Angel invest because you are a founder.

Invest in stocks because you are in finance.

Invest in gold because you are a trader.

Get to learn and respect all asset classes.

9. Double down on what is working rather than diversify.

Diversification will not yield supernormal returns.

Owning more of what is working, will.

10. Allow compounding to happen.

It takes time. Decades.

For the longest time it will seem nothing is happening.

It is happening!

The biggest lesson that I have learnt about money is that it buys you freedom.

And freedom is a privilege.

For the longest time I denied myself this freedom.

And today when I do have it, I realized all the mistakes I made that prevented me from getting this freedom.

These mistakes have made me wise today.

I hope they make you wise today, much earlier!

10 common money mistakes to avoid

Mistake 1

Not valuing your time and treating it like its free.

We don’t know how much our one hour costs.

We don’t know how much we ACTUALLY spend when we watch Netflix two hours a day.

We don’t know how much we should charge for a project.

We don’t understand how our time equals money.

Mistake 2

Spending your time on things that are easy to measure money-wise.

We will spend half a day travelling to one end of the city to save Rs 1000, because we know we will conclusively save that amount.

But we won’t spend two hours preparing for our salary negotiation!

Mistake 3

Taking too many loans.

We overindex on our future earnings.

And spend more today than we can afford.

Loans tie us down.

They increase our burn rate.

They make us risk-averse.

They make us feel like we are stuck!

Mistake 4

Believing that our income is capped.

Our income is not capped. There is no upper limit to how much we can earn.

Instead, it is our spending that is capped. We have to spend a bare minimum to live, to survive.

Instead of reducing expenses, focus on increasing income.

Mistake 5

Trying to time the market.

Market is too high. Let it fall.

Market is low. Right time to buy.

No one knows the highs or lows of a market. The best way to invest over a long term is to invest regularly. Irrespective of the price at that time.

Mistake 6

Investing because of FOMO.

Everyone is investing in Bitcoin. I should too.

Everyone is selling Bitcoin. I should too.

Everyone is buying ITC. I should too.

Everyone is selling ITC. I should too.

Everyone is NOT you!

Invest in your beliefs and research and as per your appetite.

Mistake 7

Renting your time and not owning any assets.

Everyone in a job isn’t going to create supernormal wealth.

Because we have to spend time working, to earn.

Assets, on the other hand, make money, even when we sleep.

Start a company. Own stocks. Create rental income.

Mistake 8

Investing late.

20s is the time to have fun. Will start investing in the 30s.

30s is the time to build a family and enjoy it. Will start investing in the 40s.

The right time to start investing was when you turned 18.

The next best time is TODAY.

Mistake 9

Comparing your money to others.

Money, for most of us, is an outcome. Not an input.

It is the result of the decisions we have made, not the reason for the decisions we made.

Compare the decisions people made to get to money.

Comparing the outcome won’t help!

Mistake 10

Running after money.

Money gives you freedom.

Freedom is a privilege.

But the minute we run after money we are not free any more.

Use money to earn your freedom.

Don’t give up your freedom to earn money.

Bonus

Not taking risks, when you can.

In our 20s, when we have little to lose. And even if we do lose, we have time to recover.

Lesser so in our 30s/40s.

That’s why our parents love fixed deposits.

But we shouldn’t.

Take risks early on.

And don’t worry about the short-term ups and downs.

I wish money was a topic that our parents spoke about, or our schools/colleges did justice to.

In the absence of it, we are left to learn from those who have made mistakes and realized what to do.

Or make those same mistakes ourselves.

Three books that have helped me tremendously to understand money:

• Rich Dad Poor Dad

• Psychology of Money

• Intelligent Investor

Three people who have taught me a lot about money:

• Ruchi, my wife

• Naval Ravikant

• Morgan Housel

If you do not know how to care for money, money will stay away from you.

– Robert Kiyosaki

10 lies I was told about money

Lie 1

Money is the root cause of all evil.

From an early age, thinking about money was not encouraged.

It was the unsaid rule that money is important, but thinking about it is evil.

After all, money was the reason behind fights, wars, disagreements.

Now I know, it is not money that is the cause. It is the importance we attach to it in our lives.

Money is simply a medium of transaction.

When it becomes an emotion, that is when it consumes us.

And that is true for all things in life!

Lie 2

Be wary of those who are rich.

It was always assumed that getting rich was possible only through exploitation of others, being cold-blooded and twisting the law in your favour.

The rich are the ones who have compromised on their morals.

Now I know that for every immoral rich person, there are countless more examples of people who treat money, people and values with respect.

It’s just that, by design, they are not the ones we hear of or speak of.

News covers the abnormal. Not the normal.

Lie 3

Saving money is important.

Of course saving is important. But we were never told the complete story.

That investing is more important.

Post demonetization, all the money ‘saved’ by our parents came out.

They were lauded for their saving capabilities.

Most ‘savings’ approaches that we were taught destroy the value of money.

To make your money beat inflation, we were never taught how to invest.

Lie 4

Buying jewellery is an investment.

We bought jewellery at the smallest excuse. It not only added to the social status, it was also considered a wise choice because gold appreciated in value over time.

It was an investment.

Now I know, gold is an investment, jewellery is not.

When we disguise our desires as our needs, we almost always end up making a mistake.

Lie 5

Buying a house is the ultimate financial goal.

Paying rent was the classic middle-class curse.

And also, the middle-class crime towards oneself.

Our own home, as early as we can buy one, gives us the security we deserve and the status we ought to have.

Now I know buying a house early in your life is binding and thus can be a regret-filled decision.

It most likely doesn’t make financial sense (do the maths), it also binds you to a size, to a city and to a locality that you will always find hard to escape.

Lie 6

All expensive things that we buy are assets.

The way to define an asset was by ‘how expensive it is’. The more the cost, the better the asset.

Started with home appliances, then scooter, then car, then house.

Buying ‘assets’ was the middle-class indulgence!

Now I know most of these are not assets. Even the house we stay in.

The only two assets that I perhaps built over years was my network and my content.

None of which I had to pay for, with money.

It was bought through my time.

Lie 7

Taking loans and using credit cards is a sign of your confidence in your future.

Because you believe in yourself, you can afford something now, as against in the future.

And the fact that someone approved that loan, or made you eligible for it, is testimony to that fact.

Now I know.

Financially smart people take loans even if they can afford, to save money.

Financially weak people take loans knowing that they can’t afford, to spend money!

Lie 8

There are two ways to get rich – either work in the same place for a really long time or keep changing jobs every one to two years!

Getting rich was either pegged to your provident fund and gratuity amount or to the ‘jump’ that you got if you changed jobs.

Now I know that your salary has nothing to do with your wealth.

It is not how much you earn in a job that determines your net worth.

It is how much do you own of what makes money for you, even when you are sleeping.

Lie 9

The only way to make money is to get an education.

You go to college, get a job, start saving, buy a house, keep doing well in your job, keep getting a raise.

And you are rich.

That is the path.

The predictable path.

The only path!

The financially wisest people I know are not just the ones who followed this path, but also the ones who followed no path.

They kept creating/buying assets – whether their own company, whether stocks, whether intellectual property, whether a side gig, whether investing.

They didn’t settle with where they were.

Lie 10

Once you get rich, give money to those who do not have it.

Giving money is a noble action.

And when you have the means to, you should help others.

That brings good karma, brings you more money, and thus makes you give more.

The circle continues.

Now I know, it is not money that makes people change their orbit. It is an opportunity.

I spend my money helping others not by giving them money, but instead by creating opportunities.

So that tomorrow they might not need my money.

Growing up . . .

Dreaming of earning a lot of money was a taboo, investing money was never discussed and spending money was always considered a socially desirable action.

Worst was that no one knew that they were believing in lies.

My parents, my relatives, my network genuinely believed all these lies to be true.

They guided me and influenced me with the best intentions.

Just that they weren’t the right ones.

It took a lot of mistakes, a lot of undoing and a lot of reflection to get to a point where I began to see the truth for what it was worth.

My hope for all of you is that you get there much before me.

THANKS FOR READING EPIC BEING!

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