“My salary is great, I save a lot of my income and make investments regularly. So, why am I not getting rich?”
If you find yourself asking this question all the time, let’s do a reality check.
In all probability, there are two reasons that get in the way of your creating everlasting wealth.
One: You think small is beautiful
Do people just not know how to deal with larger numbers? Or do they believe that small is beautiful?
Nothing happens in a short duration. For instance, you do not become general manager with merely two years of work experience. Similarly, a mango tree takes years to bear the first fruit.
Anyone who asks a question or even gives a recommendation of what is ‘good for now’ is thinking short-term. This could be from an hour to 10 days to a couple of months. Either way, it’s too short a period of time.
The same applies to stock prices and returns.
Are you so happy with 5, 10 or 20% returns, that you are unable to think beyond that? Or is it just tough to imagine the prospect of returns of 80, 100 or 200%?
Do you think that a stock worth Rs. 60, which grows to Rs. 75 is a realistic gain, but a stock worth Rs. 8,000 becoming Rs. 10,000 is unrealistic? In terms of percentage return, it is the same!
Maybe we are more comfortable with smaller numbers or simply do not have enough courage and confidence to make it big.
Two: You like debt
When I look at the mutual funds industry, here’s a proven maxim: Debt oriented funds manage far more money than equity oriented funds.
This is strangely true for individuals. What is so exciting about an 8 or 9% FMP or some cash, liquid or floating fund? You just cannot build wealth if you think small, and find solace in small numbers.
Another example: You will not find old money ie shares that were built in say 1985, 1990 or even 1995 in over 90% of portfolios.
If you are young or even middle-aged, you need to create wealth. In this phase of life how does a capital-protected product even sound interesting?
There are companies, which give ‘stock tips’ and thrive on ‘daily recommendation’. The disclaimer they forget to put in my view is that ‘trading is a zero-sum game’.
As kids we were told that if we aimed for 90% or more in our exams, we might make the cut in the range of 80%. We were taught to dream big right from the beginning.
So, does being more educated or intelligent make us turn backwards, or at best sideways in matters of financial prudence and practicality? This affinity for small is a very big roadblock in creation of sustainable long-term wealth.
So, what do you really need?
Wealth is ruthless
If you don’t respect it and treat it well, you may have unforgiving times with wealth, and for the rest of your life. In fact, many a reputed family business-house has split up, lost a significant portion of their wealth, or actually become poor.
If you are wealthy today and have assets — probably own a property or other assets — it is pretty easy to forget how it was created. Remember that it was someone’s hard work, dedication, disciplined savings and most importantly sacrifice that created what you have today.
The first generation was busy creating the wealth. The second generation nurtured it. The third generation was born with a silver spoon and hence the value of money is never understood by this generation. Not only in India but in many parts of the world businesses do not survive for more than three generations.
Hence I am not talking about merely making some savings from your income every month. It is about a discipline that needs to be followed like a habit each month, year and for decades, and from one generation to the next.
Save today, retire in peace
If your family has a rule that 20% of the total income must be set aside as investment, then it must be done, no matter what. In the beginning, it may be tough. However, give it time –say 15 months. Many people are surprised with what they have saved in a year or two versus.
All you need to do is create that pile of cash. So, place your family flag on that little mountain and it will serve many for years to come. Teach children to keep adding to the pile during their earning years.
In about two to three decades your family could have amassed ample wealth. If you follow such basic principles, then you may not need to do much retirement or other planning.