Real secrets for building wealth

There's this famous conversation between a prude lady and a carefree gentleman:

 

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?

 

 

Most of us have this mentality that financial planning means penny pinching and not spending on things, counting every money spent and extreme frugality. But there is only so much we can save by not spending. The easier option is to focus on few big things which increase your income rather than scraping for pennies.

 

In the words of legendary investor Warren Buffet, scraping for penny stocks is tantamount to picking up “smoked cigarette butts” – you can find a lot of them and free, but wouldn’t let you have a real good puff. It wouldn’t take your far even. Rather, its best to search and invest in those high quality assets which make them you really rich.

 

Likewise, doing accounts on every rupee spent, making detailed rupee budgets, beyond a point, doesn’t help much because you are spending too much time and energy on insignificant things.

 

Get few things right and you will not have to live a miser's life, and be able to enjoy your vices without guilt. Truth to be told, everyone has a vice – smoking, alcohol, sex, poker, trading, Facebook, TV or any other form (I am certainly against Smoking and Alcoholism, don’t read this post as supporting it).

 

The important take away from the cigarette joke is not let your vices prevent you from being wealthy. I personally know many people earning Rs 1.5 lakh every month but still in debt.

 

Talk to me to ensure that does not happen. 

 

Wealth creation is about habits

You don’t have to break your head on picking up the best multi bagger stock or do day-trading to become overnight financial success. Those rarely happen.  Rather a person who regularly set aside a few thousands even in a basic FD will have more savings. Say from 2009, you have been keeping 10,000 in an FD. You would’ve made Rs.11.40 lakhs  pre-tax. Check out your friends who trade/invest in stocks; most of their portfolio and savings wouldn’t have crossed Rs 3-4 lakh despite spending so much time researching, analyzing. That time could’ve been spent elsewhere unless one really enjoys doing it

 

Build an Auto Pilot wealth machine which makes you wealthy

 

A few habits like setting credit card payments on auto pay, doing an SIP every month where certain amount goes to PPF/FD/Mutual Funds can do wonders than most people achieve doing all kinds of stuff. You could focus your time on adding an alternate source of income, opening a small business or just trying out your hobby. I wanted to highlight the Financial Planning which allowed me to quit my high paying job and test out my startup itch.

 

But you don’t have to quit your job. One of my friends is passionate about photography. He spends his additional time there and is adding 20% to his monthly salary. Money is just a byproduct.

 

Also, humans aren’t machines, their willpower is limited, as is their energy. Too much focus on several things is not only impossible but ineffective. Rather focus on just a few things which can really change your life for good. You must know the Pareto principle otherwise called 80/20 rule where 20% of things count for 80% of results. Focusing on those 20% can make lives much fuller and easier

 

What should you do next?

Check out our free DIY financial planning course, where you would be sent step by step instruction to help you manage your money. It would need just 6hrs of your time to get stock of your finances, savings, earnings etc.

 

Disclaimer: This article is for educational purposes only and is not an investment advice / financial advice and should not be construed as such. Decisions taken are solely at your own risk. Read disclosures page for more details.

     

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