Even if we start as an ordinary salaried person, what can we do to retire rich was covered in "Building Wealth" series.
But what are all the things that come in our way as roadblock for our financial growth?
We will review the top 5 wealth killers in this episode.
Hi. My name is Vijay Mohan. You are watching - Investment Insights.
Top most in our list of wealth killers is "Debt". Specifically credit card debt.
There is nothing else that impacts our financial growth like a debt.
We all know the power of compounding and its potential for growth in long term.
If we are in debt, instead of us enjoying that compounded growth, we give that to the person who loaned us the money.
Let's say that we have 1 Lakh rupees debt and we are paying 15% interest.
If we are paying off that debt in 5 years, we would have paid 43,000 just as interest.
Its not just that 43,000 we lose.
We could have invested this money. We are missing the growth from that as well.
That is why - do not borrow money.
We should try to avoid getting into a debt as much as possible.
We have already explored in detail on identifying good debt vs bad debt and how to pay off a debt faster in this channel.
If you have not watched that yet, please do so.
Next killer is bad habits.
That would be smoking, alcohol and other related items.
These are all not just wealth killers, but also literally our health killers.
We always find a excuse saying that these are all stress busters.
Do some calculation on how much you are spending on these every month.
Instead of smoking the money, we could have easily invested in the company ITC that makes cigarettes.
If someone does a rough calculation of money loss from this thru their YouTube channel, we do not leave them alone. We make fun of them through memes.
But in all seriousness, do not lose the long term happiness for instant happiness.
A person who is smoking less than 1 cigarette per day on average has 64% higher chance of dying early than a non smoking person.
That risk jumps higher to 87% if the person smokes 1 to 10 cigarettes per day.
Remember the power of compounding. It compounds negatively as well.
Oh, the power of compounding reminds me of something.
I made a short saying, 3 numbers to remember the power of compounding. 15%. 50 years. 1000 times.
You might have seen that as well. Many comments said: 50 years? Who is going to live that long?
The life that we have got here is a blessing.
We should try to maximize that blessing as much as possible.
Shouldn't we be hopeful to live up to at least 100 years?
Just in our investment world, people like Warren Buffet and Charlie Munger are actively contributing even in their 90's.
We might not be able to do what they are doing in their 90's.
But shouldn't we be hopeful that we will live longer like them? Are we that hopeless?
What to do? Some of us are.
Third wealth killer is - the spending that we do to impress others.
What comes to mind immediately? iPhone.
If someone asks us why we are wasting many months of salary in a phone...
We will proudly say, "We are no less than rich...."
If they comeback at us saying that this phone will be old in a month. How would you show off your richness then?
We will reply smartly, "oh, we will buy a bike then. If that gets older, we will buy a car with loan..."
"Instead you could have bought a simple phone and invested the rest for your future" - some might advice us with good intention.
But our response would be "Uncle, when are we going to enjoy all these then? At your age?"
Excuse me for including me in the youth as well. ;)
I am not saying not to buy any of these fancy items.
We can buy it, but only after reaching a good financial stage.
If our savings rate is over 30%, then we could indulge in expenses like these.
You already know what is savings rate.
The percentage of money saved from our income is our savings rate.
That savings rate should be at least 30%.
But do not indulge in expenses like these while living paycheck to paycheck without any savings.
Our life is a marathon race. But we see it as 100m sprint and try to stay ahead.
But the one who is coming behind us, but slow and steady will eventually beat us and get ahead.
So decide yourself whether you want to get ahead now or you want to finish the race successfully at the end.
Next wealth killer is oversized home.
Buying a home itself is financially a questionable decision.
Specifically in India. Because the rent is that cheap in India.
"Does 20,000 rupees rent look cheaper to you?"
For a home that costs 1 Crore, 20,000 is definitely cheaper to pay as rent.
Though financially it is not a good decision, we do need a home for our emotional strength.
Though own home comes with its own head ache, the happiness from it is immeasurable.
Just for that emotional strength, we can definitely buy a home.
But the mistake we make is - we are buying a home anyways, let us buy the biggest that we can afford.
Buying a big home is not one time expense. The loan gets bigger. The maintenance cost shoots up.
Though it gives us the satisfaction that we are living in a big home, it is stumbling block for our financial growth.
So it is better to buy a home that fits our needs rather than going for as big as possible.
Our target savings rate should be 30%. We should buy a home without affecting that savings rate.
Final wealth killer is - life style creep.
Spending more as years go without our knowledge is lifestyle creep.
Till then we would have enjoyed a tea from our local corner tea shop.
Now we look for Cappuccino in coffee day.
We would have upgraded from street vendor's vadai to Mall donut.
Dosai? What are you talking old man - bring me a pizza.
OK. This is the story from eating outside. How about in our home?
"Who is cooking at home man? Its all Zomato and Swiggy".
How about TV subscription? "Netflix, Prime, HBO, hotstar... You name it" we proudly announce.
And then there is gym membership.
We would have joined in the beginning of the year. But it would have been months since we last visited there.
After all these, we complain that we do not have any money left for investments.
"Shouldn't we enjoy all these? Are we supposed to eat the vadai for ever?" you might ask.
Standard reply for this as well.
As long as your savings rate is at least 30%, you can spend on anything.
That will be the summary of this whole episode.
What other wealth killers are there? Share your thoughts in comments below.
We will soon meet again in another episode. Thank You.