Extremely sorry guys first of all ….
Writing after so many days…
Whenever you are gonna write something, It happens suddenly. when you are going to write an article, it comes from within. The urge is so strong, you just can’t wait to stop write that stuff…
I am just penning my thoughts in flow, ignore spelling mistakes, abbreviations I may use in the article. For me message it should deliver is much more important than the errors possibly it may have.
First of all, I am dedicating this article to my wonderful friends Himanshu Chauhan @anshu781126, Aadarsh Gupta @Aadarsh_Gupta and my brother Atharva Joshi @atharva84908431. Such young fellows,at the same time, such unshakable urge in them to be financially independent. I can correlate them easily with me back in time machine 12-13 years ago.
These guys inspired me to write this article.
Yesterday was having conversation with Himanshu in night and slept. In the morning, during my usual morning walk alongside Godavari riverbank (Yes, I do it regularly yet, I had pledged openely on 20th July, 4km in Morning and 4km in Evening daily, has now become important part of my daily routine) the thought came out in my mind that today I should write something important for youngsters who are dreaming for financial independence.
Thought about financial independence, here comes first thing: ‘Delaying gratification…’
So cliched term. Nowadays many use it in investment world often.
The term is cliched but the power associated with it is unbelievably supreme. It is important and pivotal element in financial independence journey.
Delaying gratification is resisting short term urges, small achievements, rewards for much bigger sustainable achievements, rewards later.
It boils down to again to basic difference between needs and wants.
In my delaying gratification terminology, it is not necessarily you sacrifice your current lifestyle, but ignoring many temptations which may easily ruin your possible odds of making up fortune in later part of life.
Everybody is not born with golden spoon in their mouth. For most of the Indians, (including me) who have come up from modest background, If you want to build fortune for you in future, you need to first save agressively, then the next step comes – Invest prudently. Let the savings compound in different asset classes like equity (CAGR 15-17), property (CAGR of 11-12) which have beat the long term inflation rate consistently over years (CAGR of 6-7%)….
I personally have preferred equity as asset class which has very high fluctuations in short run, but give huge long term appreciation over time. Also, this assset class’s importance is the edge of liquidity it has over ‘propery asset class’ wherein, at the time of selling, you need to run from pillar to post to find buyers and need to take huge haircuts at times if buyer seller equation is skewed against you.
Anyways, the critical question arises in today’s youngsters’ mind, how can I save? With today’s expenses and lifestyle I am not able to save money out of my salary at all. Sounds familiar, absolutely. I have been hearing it all my lifetime when I used to work in company.
Here are some critical elements I am penning down which have probably impacted my financial independance journey:
- Discuss with your spouse. Agressive saving means lots of sacrifices. Discussion and mutual agreement is really important.
- Cut off the noise. Stop seeing what others are doing, focus on what you really want. “Sabse bada rog, kya kahenge log” Ask yourself few questions, why are you doing it? Is it really necessary? Am I doing it keeping in mind, “What others will think If I do like this?”
- Differentiate clearly between needs and wants. You can start preparing your monthly expenses on a spreadsheet to monitor where you are expending more. You can sit down, analyse, cut down on certain “Avoidable” expenses which will start savings to generate automatically.
- Have certain target of saving from your net salary. Let’s say First target should be 25% of your net salary in investment. Keep that 25% aside on the day you get salary. You will automatically adjust your new lifestyle to adjust in remaining 75%. With future possible increments, you can increase saving % of net salary slowly and surely. Imagine you have only got half of the increment this year and redirect the extra half increment part to monthly investment corpus.
- While buying Home and Car which are normally big decisions people take in their early part of the life. Nothing wrong in it. Choose as per your needs. Remember when you save and invest, money works for you. When you start paying EMIs, you are working for lenders. So your right decisions can impact your later part of life significantly.
- Start asking pertinent question. for example, if you want to buy a car: A) Why do I need it?,Do I really need it? Can I use other travel modes? B) Can I buy a second hand good condition car instead of brand new car? These choices are really important as imagine, for a new car probably you are shelling out 8-10 lacs upfront or you may be opting for hefty EMIs. Instead, if you opt out for 3-4 lac worth good conditioned second hand car, you can save upfront 5-6 lacs rupees which can be used to invest or in case of EMIs you can reduce burden of EMI to the extent and channelize the notional saving to monthly Investment corpus.
- Don’t forget these things like car, TV,Refrigerator are not assets, these are liabilities. Their values are going to get depreciated from the next day you bring them out of showroom. (Try imagining, selling your car just the next day you bring it out of showroom and see how much haircut you will need to take)
- Remember, If you save and allow that saving to compound over time, you can buy out much larger quantities or much bigger houses, cars, luxuries (liabilities) than you think of today.
Just for an example, An article in ET says that in 2001 had you spent INR 55,000 on buying the Eicher Motors stock (at INR 17.50 per share) instead of a Royal Enfield bike, your investment would be worth INR 4.75 Cr today. (Probably much more today, as the article is older one) But what you have now is a rugged old bike.
This is just example, there are numerous examples similar to this like Maruti, NESTLE, HDFC Bank,ITC etc etc…
Here I would like you all to see famous marshmallow experiment :
In the early 1960s at Stanford University’s Bing Nursery School, where Mischel and his graduate students gave children the choice between one reward (like a marshmallow) they could eat immediately, and a larger reward (two marshmallows) for which they would have to wait alone, for up to 20 minutes. Years later, Mischel and his team followed up with the Bing preschoolers and found that children who had waited for the second marshmallow generally fared better in life.
So, from the video we can take away few important lessons, one of the most effective ways to distract ourselves from a tempting pleasure we don’t want to indulge is by focusing on “Future pleasure”.
So the next time you find yourself confronted with a temptation, don’t employ willpower to resist it. Key is to distract your attention somewhere else by imagining a different pleasure not immediately available to you. For if you can successfully turn your attention elsewhere until the temptation is removed from your environment or you remove yourself from its environment, the odds that you’ll give in to your impulse will decrease more than with almost any other intervention you can try. The more and more you exercise it, SELF control is very easy thing afterwards.
There are always thought processes which counters this “delaying gratification” thing. Some argue what is fun to enjoy later while we can enjoy now (on western thinking line). No logic is right and wrong over here. Only thing is that, this “delaying gratification” has worked wonderfully for me over years and I could achieve my financial Independence at young age.
The most important outcome of Financial Independence is “Living for your passion. Being the own CEO of your life.”
This thought itself is powerful imagination which may help in delaying many instant gratifications 🙂
All the very best guys,
Convey me if you like the article,