Answer to the BIG question – “Why Am I Not Getting Richer?”

Didn’t you always have this question? 

That even after earning so much, why are you are not getting any richer?

I guess you must have felt like this before. In a post I did some time back, a person earning more than Rs 1 lac every month was barely able to make his ends meet; but that is before he took matters in his own hands and retired at a young age of 37.

What does it mean?

This simply means that there is something fundamentally wrong about the way we manage our incomes and more importantly, expenditures. But all is not lost. If you are ready to take care of some really simple but critical factors while managing your finances, then chances of you getting richer are bound to rise.

So here are the 5 less-discussed but really important ways to help you become rich.

Reinvest your profits
I have seen people making the mistake of not reinvesting their profits many times (to be precise, 19 times out of 20). Don’t be tempted to spend your profits. If you reinvest profits from your investments, then you would be helping yourself in the long run as you would be contributing to the magic of compounding. And don’t worry if the profit is small. In the long run, compounding takes care of converting small amounts into very large ones.

Control small expenses
Be obsessive over controlling small but wasteful expenditures. For example, just because one of your colleagues has got himself a new phone, you decide to buy a newer one to satisfy your ego. Agreed that such expenditures can give you pleasure & satisfaction. But these would be short lived. And such useless expenditures also dent the process of long term wealth creation. Exercising vigilance over small expenses can help you divert funds from going towards unnecessary expenditures towards better investment (profit) opportunities.

Limit What You Borrow
It is simple common sense. Living on credit card and loans won’t make you rich. Period. It is only when you are debt-free that you can think of saving and investing to become rich. If you are not debt free, then most of your time would be devoted in servicing the EMIs and Credit Card Bills. Think about it.

Assess The Risk
Just because a family member or a good friend introduced you to something which looks-too-profitable-to-be-true does not mean that you should blindly do what you are being told. Asking ‘and then what’ can help you see all possible consequences and risks involved when making the final decision.

Be Willing To Be Different
Just because it did not work for somebody else does not mean it won’t work for you. But more importantly and similarly…just because it worked for somebody else does not mean that it would also work for you. Remember this and assess the risk provided by every opportunity. It’s always possible that life is offering you something unique to benefit from; and which was never offered to anybody else. So be ready and be capable of recognising such opportunities.
Warren Buffett Richest Man
To be rich (& not poor) is glorious and glamorous | 🙂
Note – Most of these 5 points/ways are based on Warren Buffett’s philosophy. Hence the picture above.

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Written by Dev Ashish

Founder - Stable Investor Investing | Personal Finance | Financial Planning | Common Sense

7 comments

  1. Thanks to Stable Investor for pointing out this special situation of inheritence. Thanks for sharing your story, Krish.
    You have already pointed out what you could have done to correct the situation.
    I personally feel that the guy in the story has done his homework before leaving the job.
    1. He decided that he wants to be selfemployed or an investor. One shouldnt just leave a job but has to leave the mindset of a person in job and think like an investor. In a job, he was responsible about a certain part of work, whereas now he is completely responsible for his own success or failure.
    2. He has established contingency fund so that if things dont work out, he can always go back to job after 2 years.
    3. He has eliminated his debt.
    4. He diversified his capital in asset classes he understands. If he is comfortable with FDs, fine even if they are not tax efficient. He has peace of mind. He diversified in many flats as well. (As Krish says, he could have done it too) Investing in asset classes he understands was the most critical step he took.

    And finally, I think we should set the priority right. To make a transition like this, we should always follow Income > Invest > Spend cycle as pointed out many times by Stable Investor.

  2. Agree with Analyser that fresh mortgage at 11% may not be great idea. But if its purely capital appreciation move where the loan is being used as leverage and he is going to sell the property in 3-4 years, it can work out great. Depends on the commercials of the new property.

    But yes, I have slightly different view about leaving the job. Like many of us, if the person is stuck in the job he hates and has better things to contribute to the world, leaving the job at 37 and pursuing a role of investor for next 40 years is a good idea. and can be very rewarding one too. There are different skills to be learnt in the real estate investing too. So its surely not 'buy and forget' thing. Just that it can free you up from the full time job and give you bit of freedom in terms of time and finances.

  3. One of the imprtant things which you have pointed out in your views is 'peace of mind'. And that is one very important aspect of investing which a lot of us ignore.
    Thanks Girish…
    It was an important point which I missed to highlight in both the parts. But will make amends in 3rd part.

  4. Once again, its good that you have raised the aspects of freedom in terms of time and finances… And that is very important aspect if you give it a serious thought. Just imagine that you don't have to worry about working for anybody else. It is your money that is working for you.

    But Analyzer's point of keeping your skill sets updated is also very very critical…

  5. Stable Investor, thanks for the fantastic post.
    I have some concerns about the points related to investing in Fixed deposits and the point related to investing in flats.

    Given that he is investing a large corpus in debt kind of instrument, I think investing in debt funds would be a tax efficient approach.

    Real estate as an investment avenue is a SUICIDAL idea for most of the common people.

    I personally believe that in India, real estate market is best avoided. Any more real estate than you need to cover your head is a waste of money. I am saying this after having done this mistake.

    I think real estate is a fantastic investment if :1. You have a lot of black money. 2 . You have strong political connections. 3. You yourself are a criminal with cash.

    A good market is one where there are large volumes and good transparency. Look at the indian stock market. If you are trading in liquid stocks, you have humongous volumes. Most of the INdian stock market qualifies for both of these criteria.

    Think about real estate. Do you think you can reliably find out the cost details, rental trends ( earnings ), Price/rent ratios, vacancy rates reliably in the indian real estate market? It lacks transparency so much that you have no clue about these data to make an investment decision.

    How about volumes? I have myself tried to sell real estate and realized how low volumes can affect price discovery. When the times are bad, you will hardly get a good number of buyers. So what happens is that the seller demands a huge price and there are very few buyers and they ask a huge discount. Ultimately, the deal is not done if it is not a distress sale. So, a real estate is highly illiquid. Further, if your flats are large 3BHKs then, forget it.

    Now, another aspect of real estate. Lets say you rent a flat and god forbid, the tenant refuses to vacate the property. Or, further, if there is a crime in your premises. What do you think is your situation? Do you know how many decades it takes for a court to give you justice in India? Also, if you google the supreme court decisions, you can find some decisions where the SC gifted the property to the tenant because the case was settled after the death of the original landlord and the SC felt that real estate is for shelter and not for making investments.

    Here is the alternative that i myself have tried and you have written similar things many times in your posts:
    1. Create an emergency fund
    2. Since the P/E is above 22, put all the investible money in a debt fund
    3. Use the proceeds of the debt fund to Institute a very heavy SIP in 5 star mutual funds. If you do some back testing, you will realize that an SIP in a 5 star mutual funds beats real estate hands down.
    4. Any time, the P/E rating falls below 20, ensure that you are increasing the SIP amount.

    What I am myself trying is a small variation:
    I have set aside a small part of my savings to buy good quality blue chips at reasonable prices. NOw, using Zerodha as a brokerage, I sell Call Options. Please note that some option selling strategies are really really safe. I am not talking about Covered calls, I am talking about a strategy called as delta neutral and gamma neutral strategy.

    Now, selling options generates monthly income.

    Bottomline: Avoid real estate as an avenue to generate monthly income. You CAN generate equivalent monthly income using the Options market. You can make it safe.

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