Let me name the 4 pillars to creating wealth..

  • Earn well
  • Spend smartly / Save very well / Save till it hurts
  • Invest well and smartly
  • Get the record keeping, insurance, etc. perfectly in place

Lets get the basics right, you need to get a good degree, put in a lot of effort in a good company, in a tax friendly country, AND THUS EARN a lot of money. You cannot slack off in efforts and end up with a poor degree in a weak and competitive economy and hope to earn a lot of money. Think of the Middle East in the 1970s, 80s,…etc. People without much qualifications too made a lot of money. Professionals really made tons of money.

You have to live frugally. Herein you can dramatically outperform the average Joe. JUST too many people earn Rs. 100 and spend Rs. 99 if not Rs. 101. They assume that it is their right to have at least a second hand car, a 3 bhk while renting, travel only by air, use a big car, ..and just do not save enough. If all the rents, emi,..etc. are more than 30% of your take home pay, you are living beyond your means.

Proof of living beyond your means!

Once you know what it is to live frugally, you will have accumulated a lot of money in savings. Savings means liquid fund, income fund, PPF, savings account, bank fixed deposits,..and the like. These are all nice instruments which will make you feel good, give you guarantee of capital and a GUARANTEED erosion of capital. Nice, safe government guaranteed instruments which are guaranteed to under perform INFLATION. They help you feel good and noble, but do not make you rich. To get rich (wealthy) you need to invest all this money in sensible instruments like Index funds till you understand investing. Once you invest in index funds – you are protecting yourself against inflation. All index funds are good, choose the index funds with least tracking error – or the one with reasonable sized corpus and a low expense ratio.

Then get the basics of documentation (will, nomination), insurance (term, medical, and other relevant ones), keep proper records of your investing, and also make sure that all documentation is done properly. Learn the art of saying NO to products that you do not need.

Get the basics right. As a good saver you can outdo the national averages by a far greater percentage. As an investor you can out perform say 100% – your index fund gave you 12% in one year and the best fund gave you 24%. Possible? well tough, but not impossible. However if your salary was Rs. 10,00,000 and you were saving Rs. 49,000 a year, obviously you can dramatically increase your savings ratio. The aim for the primary goal is about Rs. 500,000 of savings. That would be a dramatic 10 times increase. Even Warren Buffett believes that YOU can outperform him..with a huge margin.

Now, go get going…

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  1. Dear Subra Sir,

    Don’t you think that the percentage mentioned above (30%) of expenses outflow from a monthly salary is very low? For eg – if i am earning Rs 30,000 INR monthly or 10,000 Dirhams, The rent alone of a decent 1 bedroom apartment will take up if not 30% than atleast 20% of salary, combine that with essential expenses (utilities, grocery) will atleast take up another 20 to 30% alone even if i don’t have any loans, emis or credit card debt? How do you think it’s possible to live with only 30% of salary even with 0 debt be it in India or US or Dubai?

    What if I am able to save 20% of my monthly salary into an emergency fund and another 20% towards savings (mutual funds/stocks), and keep the balance like 60% expenses (including term & medical insurance premium) & 40% savings with zero debt. Am i atleast not safe then compared to the average spender?

  2. If all the rents, emi,..etc. are more than 30% of your take home pay, you are living beyond your means.

    Sounds little too much Should it be like 70% of your take home and 30% as available surplus…

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