“Sahil, you should focus on your studies. Whenever you need something just tell us and we’ll get it for you. Leave the money handling to us.”

Big mistake

“Dad, I want to open a bank account of my own.”

“But Arushi, except for a little bit of pocket money that we give you, you don’t have any more money. What will you do with a bank account? It will be one more account for us to manage”

Bigger mistake

“Dad, I read in a book that we should invest our money wisely so that we can stay ahead of inflation. I think I should invest the money from my savings account in a Fixed Deposit. I have heard that Fixed Deposits earn a better rate of interest.”

“Harshita, you only have a few hundred rupees in your account. It’s not worth investing that anywhere. Whatever investing needs to be done, I am doing for you.

Disastrous!

Knowingly or unknowingly, consciously or unconsciously, or perhaps based on what we have inherited over generations, it has been engrained in our minds that money is the root of all evils. Though we understand that we cannot avoid dealing with money, we believe that we should at least keep our children away from this ‘evil’. And this mistaken belief is what drives our behaviour whenever our kids question us on money or want to deal with it themselves. We become so protective that we do more harm than good for them.

First things first

Is money evil? Is it so bad? Well, if it was so bad, why are you working for it? Money is not the cause of evil. It is only the ‘greed of money’ that causes evil. Let us assume that you are holding a kitchen knife in your hand. Now, if I ask you whether kitchen knife is good or bad, what will your response be? You would say that it depends on the intent of the person with the knife—he can use that knife to kill someone or as a kitchen tool. It is exactly the same with money. Money is neither good nor bad. It depends on the intent of the person holding it. Look at Bill Gates and Azim Premji and you would realise that money can be such a boon for the society.

Now, I never understood the logic as to why we should keep our children away from money. We are preparing them in life to earn and deal with money, but want to keep them away from it till they start ‘mis-managing’ it and start learning from their own mistakes. What an irony! I know that they will finally learn by making mistakes, as all of us did. There is no harm learning from one’s mistakes, but there is one thing your child would have lost if you wait till she makes money for her to handle it—and that happens to be the most critical element that makes the money grow—TIME.

The time leverage of INR 50 saved and wisely invested over 15 years is far more than the value of INR 10,000. The key is to teach your children early. And lecturing will not work. Get bank accounts opened in their names while you are the guardian. Their curious eyes must see the interest being credited into their savings account under their name. They must realise the power of the fact that their money can earn more money for them.

They should see their interest earning more interest for them. They must see time leverage in action in their own bank accounts. Once they absorb this concept that money is their slave, they will never have to be taught about saving a part of their pocket money. You will be surprised to see the changes in them. I have seen this with my children, and with most mature adults who were not aware of the power of saving early-on.

Every parent should do this

Every parent should keep in mind the following to ensure the future financial wellbeing of their children:

• Irrespective of the amount, make sure that you give your child pocket money. This ‘earning’ helps them learn concepts like money is limited, that they must plan and spend, and they must save a part of the money they get.
• They may start saving in a piggy bank, but sooner rather than later, open a bank account for them and get them involved in the process. Preferably take an online banking facility. Your kid’s bank account can be linked to your account and you can monitor it at any stage.
• Show them the bank account statement—either online or a hard copy—which shows the interest credited. Do not worry about whether the amount is big or small; it’s the concept that has to be explained, and engrained in them. The concept is that their money just became their slave; it just earned more money for them in the form of interest.
• Starting to save early is the single most important factor that will determine their wealth in the long run. If you have missed this train in your life, do not let your child make the same mistake. Tell him that he or she should try and save from his/her pocket money. This habit will go a long way.
• Let them define their own saving target every month. The equation “Expenses = Income – Savings” is far wiser than the equation “Savings = Income – Expenses”. The former teaches you to spend after you save, while the latter inculcates the wrong habit of saving whatever is left after spending, which in most cases is negligible. Though technically same, there is a world of difference between these two equations.
• Lead by example. Your child will follow what they notice you doing. If you are in the habit of saving money and controlling your expenses, it will not be difficult for them to follow suit.
• Discuss money with them—openly and quite often. Money is not a taboo. It is a necessity of life. Its priority ranking comes quite close to oxygen. Teach them to deal with it properly. If they don’t learn to deal with money from you, and our academic institutes do not teach them, the chances that they will mismanage money are quite high. Do not leave this critical life skill to chance.

This was first published in the November 2014 issue of Complete Wellbeing.

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Sitting in the balcony of our bungalow, as I was sipping hot cappuccino while holding my life partner’s hand, I wondered what else is left to achieve in life. We were just touching 40, already living the best that life could offer. If there is nothing else left to achieve, am I truly happy and blissful? Not that we were dissatisfied, but the answer to this question was never a whole-hearted ‘Yes’.

Searching for something more

Monday mornings still bothered us. We were occasionally involved in workplace politics and sometimes had to step over someone to get ahead. We still felt jealous of someone with a better car or a bigger home than us. Our kids did not know what we did yesterday at work, and we did not know how much our kids scored in their last tests. We hadn’t talked to our parents for months. We hadn’t played ‘stupid’ games with our children, who would soon outgrow that age where silly games were fun. We had hundreds of friends on Facebook but couldn’t recollect one ‘real’ friend whose excitement gave us joy. We were constantly connected to people on WhatsApp, but did not have any time for our ailing parents.

We definitely wanted ‘something more’ in life—but we did not know what. There was a missing piece to the puzzle—a piece we were yet to figure out.

Running the rat race

We kept assuming that money, achievements, promotions, career, a big car or a bigger house will give us lasting happiness. Because we followed this myth, we were in a money-making race. We made money so that we could buy the things we want, so that those things could give us happiness. This vicious cycle is a ‘rat race’—a race in which you work extremely hard and achieve nothing worthwhile in the end. As someone once said, “The problem with running in the rat race is that even if you win the race, you are still a rat.”

My life now

Today, seven years after ‘waking up’, the scenario of my life is very different. A morning walk, yoga and preparation for the upcoming half-marathon, kicks off the first three hours of my day. We were lucky that we ‘woke up’ before it was too late, with our health intact, unlike most people. We eat a healthy breakfast, instead of skipping it so that we can rush off to work. We listen to spiritual discourses, music or meditation to get the day going.

The next three hours go in pursuing our true calling in life. We grow trees and help our society in many different ways. I also make sure that I do not miss my guitar classes, since learning to play the guitar has been my childhood dream. I return home to have lunch with my wife. It is now that I truly realise that having a life partner is such a beautiful feeling, especially if you are able to spend time with her. Time is what builds relationships and ours has only become stronger over the years. Post lunch, we share our respective dreams of life. Then we play a game of cards with our ageing parents; spending even one hour with them is truly blissful.

In the early evening, we pick our children up from their school. We make sure that we go together, and give our children the rare privilege of both parents coming to fetch them from school. An ice-cream on the way back is a treat for all of us. The rest of the evening is involved in helping the children with their homework and getting involved in their projects.

We then drop them off at their tennis lessons, while we go on our evening walk. All of us come back home at around 8pm. We have dinner together and then watch some good movie or educational programmes on television. After that I tuck the kids in and it is story time—the best way to end a beautifully-lived day.

Living a great life

Life has drastically changed over the last seven years.

This is what we have learnt—

1. Time is our most important asset. The reason is very simple—time is limited. Everyone has a constraint of 24 hours in a day. You cannot create any more time.
2. If we have a job or a business, we are trading off our most valuable asset i.e. our time to earn money. So it is better that we figure out how much money is enough for us so that we can stop trading more time for money after that. Essentially, we must be able to distinguish between our need versus our greed for money.
3. Invest your time on yourself, your family, your dreams and your true friends. Invest your time in giving something back to society.
4. Happiness and bliss will never be experienced in achievements, goals, targets. It will always be in the process of achieving them—provided the process is stress-free, as per your values and aligns with your true passion of life. For this to happen, you need to possess ample time.
5. Money is like the fuel in your vehicle. You definitely need it to run your life. But you must know how much is enough. If you think you can enjoy your drive in the race only by accumulating fuel, you must know by now that you are highly mistaken. Find out how much is enough, stop accumulating more and enjoy the ride.
6. We start earning money to ultimately make ourselves and our families happier, and if the process of earning money itself snatches our happiness away, then earning more money becomes self-defeating.

We found that the missing piece of the puzzle was us not participating in the race to garner more money, and getting financially free. Today, we have gotten out of the rat race, and snatched back the greatest asset of our lives—our time.

We had a good life and now it is great.

This was first published in the September 2014 issue of Complete Wellbeing.

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Compound interest generates just some extra money

There is hardly anyone who has not heard about compound interest. But perhaps the biggest tragedy of our financial life is the extent to which we underestimate it. Compounding works with time and has the potential to create such wealth, that you just cannot foresee. Let me illustrate: imagine holding a paper sheet. Try folding it in half, so as to double its thickness. Fold it once again to double its thickness further. Do this 50 times. Just assume that you can physically fold it 50 times. Now, guess what the approximate thickness of the paper would be after 50 folds. A few centimetres? Maybe a few metres? No! It is stunningly higher. The approximate thickness of a normal paper after 50 folds would be more than 112 million kilometres! Yes, it’s true. Now imagine what would happen if we allowed just one more fold. We would achieve in the next one fold, what we achieved in the last 50 folds.

This is how powerful compounding is, provided you give it enough time to create an impact. The only reason most people are unable to realise its true power is because compounding works on the concept of delayed gratification. You do not really see its impact for the major part of the tenure. But the magic happens in the last part of the tenure, wherein, it just explodes exponentially. To the common man, compounding has always been just some extra interest over interest. But for a smart investor, it is, as Albert Einstein described, the eighth wonder of the world.

Handling finances is complex

Warren Buffet, arguably one of the most successful investors of all times, says that managing wealth and investing money does not require more than a fundamental school education. On the other hand, most of us shy away from this subject with the consideration that we may not be qualified financial planners. The fact is that we don’t need to be.

Financial planning is not at all complex, provided you can clearly differentiate between your financial need versus greed, and possess some fundamental sense about numbers [which you should have acquired by standard 10].

You do not need any financial degrees, you do not need to inherit great wealth and you don’t have to be lucky to create wealth. What you really need to get wealthy is only rudimentary financial knowledge. But on top of that, you need planning, discipline and commitment. And this is where most of us struggle. While we might not lack knowledge or the ability to acquire knowledge, we lack the commitment to get the results. It is easier said than done. It is not a cinch to stay disciplined and committed for, say, 30 years at a stretch. Your goals and dreams in life are the key to drive your discipline and commitment. If you have a clear mission of your life, everything else will fall in place.

Increased income is the only way to increase wealth

When people think about getting wealthy, what they usually focus on is increasing their income. Well, increasing your income is definitely one way to get wealthy, but is definitely not the only way. And is certainly not worth it—if it makes you busier and takes away your family time, peace and happiness. Increasing your income has the potential to increase your savings by the same proportion. If you increase your income by 30 per cent in a year, you can potentially save and invest a large portion of that increase.

However, quite conversely, it has been observed that an increase in income generally leads to a proportionate increase in expenses, rather than an increase in savings or investments. While a higher income is desirable, there are two other smarter and more efficient modes to get wealthier, and these are often overlooked for lack of our own appreciation of the impact these can have on our financial portfolio.

1. Reducing your expenses: A penny adds up to a dollar earned. Sounds old fashioned, but this wealth management principle is time-tested and proven.
2. Increasing your returns on investments: As your wealth grows bigger, even a small percentage of increase in your returns on investments can have a more significant impact on your wealth than a substantial increase in your income. In this case, you are letting money work for you here, rather than you working for money—again, a time-tested principle for financial freedom.

I don’t need to track my monthly expenses

I overlooked expense tracking for 10 years of my earning life, and am still paying a heavy price. Tracking your daily expenses under various heads like grocery, fuel, entertainment, eating out, travel and kids’ education and the like is not only important, but making it a family routine can actually help you reduce your monthly expenses by as much as 20 per cent. Yes, it’s proven through multiple scientific studies that just the act of tracking your expenses consistently can reduce your expenses significantly.

20 per cent of money saved is as good as 100 per cent more money earned, because you usually save only 20 per cent of your income. Do not underestimate the power of tracking your expenses and writing them down every night before your family goes off to bed. Make it a family exercise every night and you will nurture good money management practices in your children too, without having to specifically teach them. Increased family bonding and new money saving ideas from your kids—are just some of the by-products of this activity.

Wealth has nothing to do with a written plan

How much money do you want, by when do you want it and why do you want it? These are some of the questions that must be answered in a ‘written’ format via a proper financial plan. If you are more of the ‘thinker and intellectual’ type, then my advice to you would be to ‘think on paper’. Do not make the mistake of having the goals and targets in your head. Your head is not a database, it is a computing and decision-making engine. Use it for the right purpose, to get the most out of it.

Nothing worthwhile in the world has ever been achieved without a concrete documented plan. Your plan should have your financial goals, monthly targets to achieve the goals, and a mechanism to track your actual portfolio against those targets. If you are failing to plan, then you are planning for failure.

This was first published in the July 2014 issue of Complete Wellbeing.

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