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10 Useful Rules of Thumb for Your Personal Finances

I had written this post in February 2012. However, given a lot of reader emails on topics covered herein, I am re-posting it.

I use a few rules of thumb when it comes to how I manage my personal finances. Here are some rules of thumb that I practice for managing my own personal finances. I hope you will find some of these useful for your own purpose.

1. Rule of 72. The Rule of 72 states that you can divide the number 72 by whatever yield you are getting to see how long it would take for your investment to double.

For instance, if your fixed deposit earns an annual interest of 8%, it will take 9 years for your money to double (72/8).

2. The number one rule of saving money is: Pay yourself first. It’s very important to set aside your savings every month before you use the money for other things, including paying of bills. Always pay yourself before anything else.

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How to Handle Your Money

Benjamin Graham was one of the most successful investors who ever lived and remains the most influential investment thinker of all time.

He was the one who taught Warren Buffett the art of investing, and was also his first boss.

Graham worked on Wall Street for more than four decades, ran a market-beating mutual fund, taught finance at Columbia Business School and wrote two classic books on investing.

Security Analysis (1934) is still the bible for professional money managers. The Intelligent Investor (1949) is, in Buffett’s words, “by far the best book about investing ever written.”

In June 1955, Graham gave an interview on the basics of handling money. Almost 60 years have passed since then, but a large number of investing ideas that Graham talked about then, remain valid to this day.

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The Painful Decision to Hold Cash

One of the many investing mistakes I made during the early part of my investing career was to be rash with cash.

One salary hike, one bonus, or one big inflow of money (family gifts etc.) and I would invest the same into stocks I liked, irrespective of what the stock markets were doing.

Cash in bank was considered a wasted opportunity and every chance to “let-me-buy-stocks-now” was grabbed upon.

The question I used to ask myself was – “Why should I hold cash when it is paying nothing while stocks can grow my money much faster?”

However, over the years and after learning my lessons (from not holding cash) the hard way, I’ve found several reasons to ‘hold cash’.

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The Hidden Force that Won Me Financial Freedom

Imagine that you get up late one day and make it to the bus stop 15 minutes later than normal. But while waiting for the bus, you meet your future spouse with whom you are going to live a beautiful life. This happened just because you woke up late one day. An event that seemed insignificant at that time had a significant impact on your life.

Now imagine another situation. You work in a small company where you are mistreated by your boss. After months of being disrespected, you start to hate your job and decide to quit.

Before you quit, you speak about your experience with other employees and the result is that three other people decide to quit too. When these people find themselves unemployed, they decide to start their own business. After some time and a lot of hard work, their business becomes successful to the extent that they start competing with the company they used to work for. Under pressure of fierce competition, the old company declares bankruptcy. In a way, it all started with you quitting your job.

These two situations seem exceptional but that is what happens to a lot of people a lot of times – a small, hidden force causes a big effect in their lives.

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15 Things You Must Know About Your Money

“You write so much about what your readers need to know about money and investing,” said my wife as I sat down to write my next post. “Why don’t you write what people must know about their money? You know, the real truth about money…like the 10 commandments on money?”

As always, I thought she had a point. 🙂

So, here are a few ideas – not 10, but 15 – that I’ve picked along the way, and that I believe are some of the most important ones you must know about your money,

  1. You think too much about your money. Stop doing that because your money doesn’t think about you.

  2. You are not your money and your money is not you but you best look after each other anyway. You might be together for a while.

  3. You’ll never have more money to save and invest than you do right now, so find a way to save and invest more of what you’ve got.

  4. You don’t have a I-have-less-money issue. It’s a how-you-manage-your-money issue.

  5. You’ll never be perfect with managing your money, so aim for getting better.

  6. You’ll never live in the future or the past, so find a way to be happy with your money in the now.

  7. Your financial life doesn’t get better, you do. Life is life – it will happen to you. It’s your job to get better in the middle of it all.

  8. Your ‘average’ financial position is not the problem. It’s the consequence.

  9. Even though you might not feel it, think it, believe it or hear it, you are good enough with your money than most experts would have your believe.

  10. Your happiness works from the inside-out. Money really can’t buy you more happiness.

  11. Your money is your responsibility, not anyone else’s. So stop blaming others when things go wrong.

  12. Master your fear of not having enough money in the future, and you’ll master your life.

  13. Real success is not about what you earn, own, achieve or win but who you become along the way. So work towards ‘becoming’, not towards ‘having’.

  14. If you’re in the luckiest 1 per cent of humanity that has money, you owe it to the rest of humanity to think about the other 99 per cent.

  15. Money just brings out the basic traits in you. If you were a jerk before you had money, you are simply a jerk with a billion rupees.

These last two thoughts come straight from Warren Buffett, who knows about money better than what you or I can ever know.

Finally, as the famous proverb goes, “If you want to feel rich, just count the things you have that money can’t buy.” (Like that smile on your child’s face when she is with you)

So play the money game, but only for the excitement of playing it.

Don’t take it too seriously, for life’s too short to be wasted running after money.

How I’m Planning My Life After Retirement

I am not an expert on retirement and planning for life after sixty (if that is what defines the term ‘retirement’).

I am also willing to bet that anyone who has never retired can never be an expert on this subject (you can only be an expert in things you do), however sagely an advice he/she can offer on how to plan a life after retiring from active work.

But in planning and working towards my own retirement, here is one big mistake I see most retirees (and to-be-retirees) make and how it can be a such a dangerous mistake.

I’ve never heard it mentioned by retirement experts. Nor have I read a word about it in retirement books.

Everyone talks about saving money and allocating it well so that you accumulate enough to spend through the 20-30 years of your post-retirement life.

This is a good advice, but one that misses a big point.

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Life & Money Lessons from Kantilal

“Wadala Station?” I asked as a taxi approached me while I was returning home from a trip to the Siddhivinayak Temple here in Mumbai today.

“Come, sit,” the driver said, as I thanked my stars because a few drivers had turned my request down.

“I was going towards Chembur, and Wadala is midway, so would take you there.”

“Oops, but why does your meter start at 20 rupees? Isn’t this high than normal fare?”

“Sir, this is a cool-cab (Mumbai’s AC taxis), so the rate is higher. But don’t worry, since you don’t need the AC, I will charge a normal taxi’s fare only.”

“Thanks! By the way, Chembur is very close to my home. Why don’t you take me there?”

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How to Save an Extra Rs 25 Lac

A three-bedroom apartment. Two cars. Enough flying miles to send an airline into losses (well almost!). Job with a foreign consulting company. Annual salary of Rs 30 lac…or around 45-times India’s average per capita income.

Yet my friend Rohan is not happy.

Whenever I meet him, he is, as I put it, caught on the “work-spend treadmill.”

So, last week when he was showing off his latest purchase, a third mobile, and one costing in excess of Rs 45,000, I told him, “Spend less money, my friend.”

“But spending money is what makes me happy,” he replied.



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“You don’t have to feel deprived when you spend less money,” I said. “In fact, if you keep spending and spending even as your income rises, you’ll keep running and running and never get anywhere.”

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