Had He Not Bought That House For Rs 27 Crores…

Since childhood, we are brought up with this idea that we should buy our own houses as soon as possible. And for almost everyone, house is the biggest investment (or expenditure) which one makes during his lifetime. And there is absolutely nothing wrong with that.

But there is something that makes me restless.

Why is it that as soon as we start earning, we should commit ourselves to make the biggest investment of our lives, and tie ourselves for next 15 – 25 years of paying EMIs? Are we really supposed to live a life like that?

Real Estate Cartoon

Don’t get me wrong. I am not saying that one should not buy a house at all. I am just weighing the pros and cons of buying a house early on in one’s career.

Few days back while surfing the internet, I came across this interesting post, where it was said that in 2005, one of India’s most well known investor Rakesh Jhunjhunwala sold some shares of CRISIL for purchasing a house in Mumbai. The amount received on selling the shares was Rs 27 Crores. The house today might be worth Rs 50 to 60 Crores. This means a compounded annual growth of 7% to 9.5%.

Now what would have happened had he not sold his shares in the company?

I am not sure if he purchased that house for living purposes or for investment. Had it been for living purposes, it’s possible that he would still be staying in a house on rent(!) And assuming he paid a rent of Rs 2 Lac a month, till now he would have paid close to Rs 2.1 crores as rent itself. Seems horrible… right?

But what happened to 27 Crores worth of shares then?

The shares are now worth a whopping Rs 700 Crores!! A growth rate of more than 43% every year!! 🙂

Now we are not experts like Jhunjhunwala or Buffett. We may not be able to find multibaggers like CRISIL. But we can find mutual funds which offers reasonable growths…isn’t it? Any reputed well diversified equity mutual fund scheme would have given returns in excess of 15% in last 10 years. And that is more than what real estate offers.

Now does it not make sense that early on in our financial lives, we should invest as much as possible in equities? If not directly, then through mutual funds? Returns are far more than what average real estate offers. And you also don’t have to remain stuck with paying EMIs for decades. Why not stay on rent and invest the remaining amount? I know it sounds controversial but I am just doing loud thinking.

I seriously think that our mindset of buying house early on in our lives needs a serious rethink.

Note – I know people around us these days, are constantly talking about doubling their real estate investments every 2-3 years. But believe me that this is an exception and not a norm. Trends like these do not continue forever.
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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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