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Here are some golden nuggets when it comes to creating wealth. Read them and if you find yourself saying, ‘This everybody knows’, cross your heart and ask yourself how many times you have forgotten these simple rules, says P V Subramanyam.
The problem with simple steps is most people do not believe in them. I remember that, sometime in 1999-2000, somebody asked me: "Give me some simple steps to great wealth."
I asked: "You mean?"
He said: "Suggest three shares which will make me good gains over the next 10-15 years."
I said: "If you are not planning to actively manage, it makes sense to invest in three mutual fund schemes."
He said: "No. No. I want good shares ONLY."
I said: "I can tell you 4-5 shares which I have in my portfolio; take your pick. I review them on a quarterly basis and may buy, sell, trade, so you run the risk of not keeping in touch with me."
He said fine.
I opened my list and showed him HDFC, HDFC Bank (HDFC Ltd has now merged with HDFC Bank), Kirloskar Cummins (now called Cummins), Coromandel Fertiliser, Tata Motors, Tata Power, Grasim, Infosys and L&T.
He looked aghast and said, "These everybody knows."
It was my turn to be shocked!
Here, then, are some golden nuggets when it comes to creating wealth. Read them and if you find yourself saying, ‘This everybody knows’, cross your heart and ask yourself how many times you have forgotten these simple rules while living your life:
1. Spend less than you earn: On a month-to-month basis you may be living within your means but also recall all those times when you were worried about who would pay your credit card bill.
Putting away money for your future goals like marriage, children, children’s goals and retirement is what one means when one says ‘spend’; it doesn't just refer to dal chawal.
2. Borrowing is avoidable: If you have money, use it.
I found a man earning Rs 5 lakh a month being encouraged to take a Rs 12 lakh loan to buy a car. I said wait for 3-4 months, surrender one stupid ULIP and the car will be yours :-).
Attitude towards debt has to be ‘I hate you and will touch you ONLY IF I HAVE TO’.
3. Cars and air conditioners have a greater running cost per year on fuel and electricity -- MUCH more than the EMIs. See if you can afford that.
4. Save, invest, index and take term insurance: Medical insurance is not an option you can avoid if you are over 35 years old. Till then, if you depend on company medical cover, it is not so scary. But, as a rule, if there is a risk it should be covered -- that's simple risk rule 101.
5. Take care of your health: I know an 87 year old man spending Rs 1,000 a year on medicines and a 55 year old woman spending Rs 3,800 per month (which will continue for the rest of her life) on medicines. Do you need a PhD in math to know who will have more money in the bank, assuming the corpus is not very different?
6. Wash your hands before you use your fingers for eating: People who have read (bestselling author) Malcom Gladwell will appreciate this better. If you have not read MG, go and read all his books. They are interesting.
Seriously folks, there are zillions of such things you can do and you know most of them. The question is: Do you implement them?
Life, as you all are aware, is not just about knowing; it's about doing.
P V Subramanyam is a chartered accountant with more than four decades of experience in the field of personal finance and blogs at subramoney.com.
