I meet people in the ‘well-off’ cadre. I mean people earning not less than Rs. 3L per month cannot be called ‘not doing well’ correct?
Some of the things that I tell them, is impossible to believe. Not sure HOW many of you will even believe this (Subra do not think you know everything and we are all dumbos is a reader comment, …). So let me enumerate:
1. You need to spend LESS than you earn: if people do not understand cash flow, borrowing, etc. MANY a time do not even realise that they are spending MORE than they are earning.
2. However HIGH your current income and your life-style, the day you RETIRE you will need to provide for all this at your own cost.
3. YOU BORROW only and only if you need the cash OR you know the IRR of your portfolio – and you are borrowing because the interest rate at the marginal rate does not matter. You borrow because the assets that you wished to liquidate are now not doing well. You live within your means, simple.
4. Better to earn interest rather than pay interest.
5. If you have a friend who is in a bank / life insurance company, he is first a salesman, and then a friend.
6. Borrowing against gold, house, shares, life insurance policies are ALL SUB-OPTIMAL unless the loan is for 2-3 months ONLY.
7. Creating wealth by borrowing is a brilliant path, and has huge perils. If you do not understand this, ask Vijay Mallaya.
8. Equities may not do well for 5, 10, or 15 years – so if your next EMI has to come by withdrawing from an equity fund, God bless you.
9. All asset classes make money, all asset classes lose money. What makes money is USING your brain. Sorry, no other solutions.
10. It is not so difficult to get a 2% real return even for long periods of time. However if you need to get or think you can get 12% REAL return, go for a medical check up. Hallucination can be cured, I guess.
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