Monday, 19 November, 2012

Wealth by Stealth

Wealth by Stealth

I've often been told: "I know that I get a big fat salary, but I don't know what happens to it - by the end of the month, it is all gone".

The disciplined saver has a simple enough solution: "Make savings your first expense. First put away a pre-determined sum of money in your favourite liquid fund or equity mutual fund or Savings Bank account for onward deployment in accordance with your overall asset allocation. Then start incurring all your other expenses like buying groceries, paying your EMIs, paying rent, paying your phone bills, etc."

Unfortunately, the guy who finds "his money disappearing" is certainly not exactly a "disciplined saver".

Is there a simple solution for such an individual?

Fortunately, yes indeed. Such a person just needs to go back to the late 60's, 70's and perhaps the ealry 80's to find a good enough solution - Try and adopt (with necessary modifications) the techniques that used to be followed by middle-class housewives, bank employees, junior management staff of private sector companies, etc. in those days:

Wealth by Stealth

Your money does have a "knack" to disappear. To make it stay with you, here are a few simple "tricks". The key is not to simply read these tricks, but to put them into practice:

  • Identify 2-3 spots (perhaps one each at your home and your work spot) where you will keep a "Savings Hundi" - It could even be a simple small box / purse / pouch where you will park your temporary savings
  • Identify a "very small" sum of money which you consider as "throw away money" which you'll not even notice if it disappears on any given day. First thing in the morning, every day, without fail, before you brush your teeth, take this quantum of money and put it off in this "savings Hundi". People have told me that 0.5% to 0.75% of your monthly take-home income would be an appropriate sum of money for this purpose. (Congrats, you've just made a beginning.)
  • If you are not a typical "disciplined saver", you will typically be spending money often on a lot of "small-ticket" items of expenditure, often on a whim. For instance, you'll be waiting for someone on the streets, and just to pass the time, you'll buy either a magazine or a cup of coffee or a bottle of coke. Each time you do this, you would have offered the same bottle of coke to any friend of yours who would have been around at that time. Assume that such a friend was there with you, and put the same quantum of money in this "savings Hundi" of yours. This may sound odd, but is a pretty simple tool to ensure "forced savings".
  • Impulse buying is a bane for a person like you. Each time when you are "tempted" to buy something, ask yourself whether you actually need it. If so, (for the moment), go ahead and buy it. If not, pick up that money that you would have "blown up" otherwise and put it in that "savings Hundi". An example: When you are walking down and aisle at a shopping mall, you find an offer: "Buy a box of sweets and get another box free". And you get tempted. If you don't buy it, that's money saved - put it off in that "savings Hundi".

I'm consciously not giving any more ideas - I'd like you to execute the above before proceeding further.

At the end of each month, pick up all the amount collected in the Hundi and deposit the money in a dedicated savings bank account during the last weekend of the month.

As soon as the amount in this dedicated savings bank account crosses a threshold, deploy the sum of money in a suitable investment keeping in mind your overall asset allocation plan.

Review the investment value of these "minor savings" after a year. You'll be surprised. 

Follow this process for a while, and the "Wealth by Stealth"  would convert you very quickly into not only a "disciplined saver", but also a "savvy investor".

Good luck!



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