Here is an interesting financial journey of one of our readers who went from “zero savings” to “debt free free house owner” .. I would like to handover to handover to Him directed Thought process.
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Hello all, Rahul here.
I was born in typical middle-class family where my father has spent Around 32 years as professor in government college and mother is housemaker. I have completed my masters in Computer Science and Security a Job in Multinational It Company.
All is not set
Like Everyone Who Enters in his first job with good company after completion of college, it was looking “all is set”. But when I started looking around and inside, I was feeling that something is not what I was expecting. My salary was finishing by mid of the month.
Saveings were Zero,
Rest of the month was eater going on Credit-Card or Killing Daily Needs. When I looked Around in First Year of My Job, I Found That I am Not the Exception and Same is Situation with all my colleagues who joined with me. Also, in first three years after talking with my school and college friends I observe Self-comloyed who was earning excellent amount.
What was Wrong?
Self-realization
Fortunately, from My College Time, I Had Ample Amount of Interest in Finance Specially in Wealth Management. I realized at that point of time I read multiple bogs and books on personal finance but never applied them. Once I Started My Job and Money Started Flowing, I Thought Irrespective of My low experiences – Money would be over one day and that was devastating thought.
I have Never Saved for Future in First two Year, Borrowed by Credit Card and in Next Month Paid All My Expenses which was alredy don in past.
Before I move ahead, if you think changing habits and continue programs on this is easy please see below video link:
https://www.youtube.com/watch?v=mfzdabzbl0
Implementation
My Wealth Issues Provocated Me To Jot Down Each Basic Principles of Personal Finance Three Times and Started Following Them. That was:
Step #1: Saving
As per basic rule of personal finance I changed my equation from:
Saving = earning – Spending to Spending = earning – Saving
In summary I need to save before I spend. As soon as i would receive my salary 30% of that I would save, 50% would be for Necessories and Rest 20% for splurging (for difference (for differentt people percent percentage would beer).
Step #2: Start Investing
As I was avid reader on personal finance it was knowledge fact to me that only saving is not going to help me. Inflation would eat all my savings. My Savings Needs to Grow. It needs to be investment at some place where even if i am not present my money is growing.
Initially I Invested In Tax Saving Instruments Like PPF, NSC, Ulip Policy. At the end of fifth year of my job I realized that even thought thought i am saving tax that become my main focus instead of investment. I need proper solution which solve my both the goals.
Step #3: Equity Investment
Meanwhile in addition to different blogs like jagoinvestor (www.jagoinvestor.com), I read three books which completely changed my view on wealth (which was money till then). I read them against and against and implementation of Lessons in that Completely Changed My Life.
Book One: The Richest Man in Babylon – I was (few of) in luckiest people who came across this book. When implemented Lessons in this which is given in form of stories, I was alive to grow my wealth, was more wiser while handling my finances and had tools like life insurants, Medical Insuration to Safeguard.
Book two: The Intelligent Investor – When i read this book first time I was not that much convined (as warren buffet was) but this book has done wonder in my life.
I TILTED Towards My Favorite Investment Instruments – Equites/Share Market. I re-red that book and took multiple lessons from it specially “Margin of safety” and “theory of mr. Market Who is manic-depressive with his estimate of the business’s value going from very pessimistic to wildly optimistic. “
I have started making good fortune with this. My Investments Wealth Was Generating More Wealth Without Much of My Active Presence. Still I was feeling that I am making lots of Financial Mistakes. I have closed my ulip policy as that was one of my Worst Financial Mistake.
Still I was Loosing Fortune. Stocks which I was sold on 20-30 Percent Profit WORE BOCCEMING 10-12 Times of My Purchase Price While Many of My Stocks WERE SITINT SITINT SITINT SITINT NITING IDLE in My Portfolio EITH Zero or Negative.
Here I Came Across something which changed my investment approach complete. I GOT My (Imaginary) Mentor “Charlie Munger”. I heard speechs of charlie munger “and finally read his book:
Book Three: Poor Charlie’s Almanack – After listening and reading to munger I found where I was lacking. Ideas was not complex, but I Never Realized I am in simple but wildly affected traps. That was “heuristic biases”.
Thos was as simple as if i am trying to search a flat for rent, broker would show me first two flat which I would directly reject reject (broker alredy knows that) Exactly looking for. I would say immediati ‘yes’ (Hindsight Bias). If he might have shown me last flat as first i might have asked to show Him Better Flats. Same things were happy in personal finners as well.
My So Called Financial Advisers (Originally salesmen) Were showing me Financial Products which they know i would seect and Later Showing Someaking for Which I would say… yes… yes…. Market Hundreds of MUCH Better Options were available.
I Started Grasping Different Biasses which impact our financial decisions like Confirmation Bias, Red Queen Effect, Social-Proof which are close to hundred and still percticing them.
Now I have a solid value investor portfolio with which I say “Value Investment Plus Approach”. In addition to cigar butt approach it has margin of safety of graham, growth principles for which I paid more and management quality as top three priorities.
After 12 yrs, how it helped me?
After 12 years of it experience and practicing saving, investment and controlling differentty biases I have benefited on all aspects of my life:
- On Financial Front I am feeling completely secured. Bough a two bedroom flat in bangalore for which completes emi in first 7 years.
- On Personal Front I Have Happy Married Life With My Wife And Kids as I am Assured on his future needs and alive to spend more time with them
- IAM not limited to Single Occupation. Both active and passive wealth systems are working for me. I am practicing financial instruments, learning cutting edge itchnologies (if thrown out of job, I can go in Teaching) and Learning how to cook healthy food.
- I can return to socialy what I received from Them. In addition to social charity for needy people, I am managing finances of my close friends and relatives
8 Lessons for Jagoinvestor Readers
Manish Always Kept His First Priority as Benefit to Readers of Jagoinvestor. He Requested My Learning from Above Journey which can help his readers. Below are the pinpoints which I nailed down on my desk. Hopely it would be useful for you as well:
Lesson 1: Spend Less than you are earning irrespective of in which job/Occupation you are. Save and Invest Some Money Every month Before Expenses.
Lesson 2: Create an emergency fund. The fund should be ideally equal to 6 times of your monthly needs.
Lesson 3: Buy Life and Medical Insurance. Life Insurance Plan must be Pure Term Insurance Plan. Strictly no Ulip, No Endowment, No Money-Back, No Child Plans.
Lesson 4: Before Starting Any Investment in Direct Equity Try With Selected Mutual Funds.
Lesson 5: Equity must be Necessary Component of Your Portfolio. None of the fix return instruments like FD, NSC, Bonds are going to make you wealthy. Take Calculated Risk in Equity (Share Market) with Keeping Important Point in Mind “Liquidity Should be always available for your daily and emergency need”.
Lesson 6: Don’t Jump in to F & O Segment of Share Market. You can Never Predict Share Market Direction in Short Term. Option can hedege but you must have at least ten years of experience in value investment.
Lesson 7: Keep Learning and Implement Them.
Lesson 8: Practice Controlling biases which are negatively affected you. As Munger Says “Practicing Few Hundred Biasses would make not only a successful investment but a successful man (Woman).
Happy Investing Friends !!!
Do share your thoughts about my journey in comments section.