Most writers of personal finance have spent half their lives talking about the virtues of compounding, well, at least I have. So not compounding your money is bad. That is done and dusted.
What can be worse?
Borrowing. Borrowing is worse than not compounding your money – it is a case of NEGATIVE compounding. It destroys your wealth, make no mistake.
So be careful about how much you borrow – and remember if you HAVE TO BORROW, borrow as small a figure as possible, and for as less a time as possible. I am sure nobody borrows for fun, but try to keep the loan as small as possible.
Having said all that, what can you really do as a youngster:
1. Whether you borrow or invest, TAKE IT SERIOUSLY: ‘Subra Sir I do not know my father looks after my investment’ is the last sentence that I want to hear. See what you are doing, why, what time period, what risk, …etc etc. before you invest or borrow. Do not play blind. In flash or real life 🙂
2. Start tracking an imaginary portfolio and compare yourself to the index or to a few good funds like Hdfc equity, Franklin India Bluechip, Icici Pru discovery, ..and see where you stand. Of course the index should also be a benchmark…
3. Start a PPF account and invest Rs. 3000 a year to start with…apart from your SIP that you will start ASAP.
4. Put a true value on money: If your take home pay is 24,400, please remember a smart phone is 1 months income. Ask yourself do you want to work 2 months just to buy a phone – which you will throw out in 2-3 years time. Translate cravings to number of days wages. It is numbing. For heavens sake use the number post tax number, please!
5. Remember every craving is setting you back from your normal / long term goal of car, housing, baby, own business…etc. So keep your focus on the MAIN GOALS. That will keep you away from distractions. Not easy but worth learning.
6. The greatest ASSET you have is the ‘Present Value of your Future Earnings’ – so go and invest in yourself. Visit places, meet people, do your CFA (from US), Ivy League MBA, …etc…these are going to define how much YOU will have for compounding.
A good amount well compounded for a long time – that, kids, is wealth.
PS: want a feed back – have tried to keep it as jargon free as possible….
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