Money can’t buy you health or relationships but it can affect your health, relationships, lifestyle and life experiences.

On Expenses:

Go ahead and review your last month’s bank statement — you’ll get the idea where your money is going.

For most of us, it is mostly: Rent, Transportation, Food, and Entertainment.

Your expenses are just the choices of your lifestyle. You can save big by moving to a smaller house or sharing your apartment, by moving closer to your work or by getting a remote job. If you are eating outside 10 times a month - make it 2.

If your definition of happiness is materialistic, then you got a problem.

Think of your spendings in terms of time — how much hours/day/years you have to work to buy that thing.

For example: To buy a high-end luxury car, You’ll have to work for 4-5 years and if You get it financed then consider 6–7 years with interests.

What if I tell you, your money would have been doubled in 10 years with 7% compound interest, which is very easy to get even with Fixed Deposits (in India).

What would you choose? — 7 years of torture, maintaining a high-end luxury with interests which you can hardly afford or double amount in 10 years.

Master the compound interest with the Rule of 72, which says:

If you divide 72 by the interest number, approximately that is the time (in years) when your original investment will be doubled.

For example: if you are getting 7% interest, your original amount will be doubled in roughly 10 years (72/7).

live below your means — save, invest and let compound interest do the magic.

Cutting expenses are way easier than increasing income.

In order to get the most out of your investment, don’t take out the interest amount from your investments until you reach the target amount.

The easiest way to get rich is “get rich slow”, if someone is selling you something which says “Get rich in months” — — run away and close the doors, only he’ll get rich off you in months.

Warren Buffet made his first million at the age of 30, first billion at the age of 56 and at 84, his net worth is over $87B

Warren Buffet Age/wealth

Don’t go “YOLO” with your money, what if you’ll survive till 80–90 years. In that case, your children have to be very successful and well mannered. If you are spending everything you earn, you won’t YOLOing in your 70-80s.

Increase your income:

An average millionaire has seven sources of income.

Start a side hustle, learn new skills, ask for a raise (ideally in every 2 years), sell courses /services online — with the internet, you can work from anywhere and for anyone - take the advantage of currency differences.

specialization is the only way to get the best job in your industry. Be the best (among top 10-20%) in your field and you’ll never have to worry about the job again.

Invest Early and Invest often:

As mentioned above, to get the full benefit of compound interest you’ve to start early.

If you have any debt, pay that first. In case of multiple loans — start with the one which has the highest interest rate.

Don’t get addicted to your credit card.

Mark Cuban and Warren Buffet’s best personal finance advice is to stay away from the credit card.

Using a credit card (unless you don’t have that much of cash) means actually you can’t afford that thing.

After clearing all your debts, make an emergency fund.

An Emergency fund should be ideally your 6 months of expenses.

As the name suggests this money is for emergency (unless you are bankrupt, jobless, homeless or someone is dying — don’t touch this).

Next, start contributing to your retirement accounts

PPF, NPS, PF — in India

401(k), Roth IRA — in the USA.

Not only these schemes will save your taxes but also your final amount will be tax-free. Contribute the maximum amount you can afford.

Then you can start with Deposits and bonds— these are low-risk investments.

Five years of tax saving FDs are available for Indians through Banks.

Follow the “High Risk, High Reward” mantra rationally. Don’t invest all your net worth in crypto to get 1000% in 6 months.

Mutual funds and Stocks make sense after deposits.

Stocks give the best return -if you can pick the right one. Picking stocks is a different skill altogether but it can be learned.

If you don’t have time, you can give your money to mutual funds, where experts will invest on your behalf.

Try to invest some percent of your income every month, make it a habit.

If you are not making any decisions on your retirement, you are still making a decision to work longer.

FIRE?

While investing, time will come when your interests or passive income can take care of all your expenses, then you can FIRE (Financial independence and Retire early) yourself.

Ideally, according to 4% rule “Multiply your yearly expenses with 25” — that’s your FIRE amount.

In India, you can get 7% interest even with FDs and you just have to take out the 4% (as per 4% rule) and rest 3% will do the compound magic — the money will last until you’ll die.

If you don’t want to retire, you can still choose to work without worrying about money or pursue your hobby of traveling, painting, singing.

In this case, Money can buy you freedom and time.

I’m not saying you should avoid luxuries, enjoy luxuries only when you can truly afford it.

With this approach, you won’t have to work for money again - money will work for you!

TL;DR:

Live below your means, decrease your expenses, increase your income, invest often and invest early (rationally), take most out of government’s retirement schemes.

These are the notes from my talk at World Quora Meetup 2018.

If you would like to learn more or want to me write more on this subject, feel free to reach out…

My social links: Facebook | Twitter | Instagram.

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Further Reading:

1. Your Money or Your Life

2. Rich Dad Poor Dad

3. Full Video course on Khan Academy

4. Sub-Reddit