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How to be richer : Master your money in 2010-2011

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I know. You must be thinking that, by mistake you have landed on some personal finance blog. But let me assure you. You are right where you wanted to be. You are on Lumuhuku. 😉

Since the FY 2009-2010 has just ended and we have just entered in Financial Year 2010-2011, I decided to do a post on personal finance for a change.

[Caution: Dev is a self proclaimed financial expert (read stalker) and not a certified one. So beware. Your decisions should be your own, as the money you have is your own. Period.]

Before I start talking about money, I would like to specifically address those who believe that Money is the root cause of all evil. The underlined text just before, is bullshit. And to help you digest this fact, I recommend you read something historical here. And if you are still not convinced, just drop a comment. I’ll try to convince you. 🙂

So, lets start and let there be money,

First of all, do you know where you stand in the list of world’s richest people?

This is where I stand –

You can check your own rank here and then if you are inspired enough to rise up the ranks, read on.

1) Change your mindset: Think like the rich think

It all starts in that thing between your ears. You need to believe that you can take control of money rather than money taking control of you. In very simple words, you can become richer in just 2 ways.

The first one is to make more money. And the second one is to spend less of it.

Yes. It is as simple as that. And it is as difficult as that. As a matter of fact, the second option is much easier than the first one. Talking about the mindset, I would like you to download this free report (the link collects personal details; but it is worth it) from Donald Trump [Donald once said – “Show me a man without an ego & I will show you a loser.” Read more about him here]. This report is full of ideas which will ‘force’ you to change your mindset. Atleast, you will start ‘feeling’ rich when you read it. 🙂

Now, whenever we refer to financial planning of any sort, it should be realized that it is not just about managing your wealth. It is about how you can finance your ideas, stuffs & experiences you want from life. And this is a very important fact worth remembering.

2) Calculate your networth

Networth is your financial-worth-till-date. It can be calculated by subtracting your liabilities from you assets. Is it important to know your current worth? Following example will answer your question. Suppose you have Rs 2 Lacs worth of cash, FDs & investments. But you are also serving a loan whose outstanding amount is Rs 2.5 Lacs. So, what’s your worth? The answer is (–) Rs 0.50 Lacs. So even having loads of money is useless, if you have liabilities bigger than your assets. Plainly speaking, your networth tells whether you head is below water or above it. 😉

3) Budget

In India, a budget is something which we all hear around late February. Our finance minister presents the Annual Report of India’s Financial Health. But, for you and me, what is budget? Budget is a tool. A tool that will help in making a spending plan and also allow in planning one’s savings & investments.

Budgeting is tough. But it has its own rewards. Only resources required are a small notebook, a pen & you.

There are a few good approaches available for budgeting which are highlighted below –

There is a good approach known as the Balanced Money Formula [from the book All Your Worth: The Ultimate Lifetime Money Plan]. This formula is based on your actual net income (after taxes) and looks a bit like this –

As you can see, ideally, you should spend not more than 50% of you income on Needs. Of the remaining 50%, 20% should go to savings and rest 30% to wants. Here I would like to differ a bit. I feel that since ‘need’ of each and every person is unique, we can’t do much in this category, unless we take some concrete steps. What we can control is our ‘wants’. Wants are optional. 30% on just fulfilling our wants is fine for a time or two. But not everytime. I would rather propose a different pie –

I would increase the share of ‘savings’. And that too at the expense of reducing the fund allocated for ‘wants’. It is because, money going to ‘savings’ is the money that is going to work for you. It will earn you more money from interests, dividends, etc. So why not curb our wants a bit and make more money? And, if you really do want to have a better financial position, you should bring your ‘Needs’ down too. I know it is difficult. But it is possible. I will take up the topic in later part of the post.

Using this approach of budgeting will need a bit of labor from your side. You will need to keep track of each and every rupee you spend for one whole month to know what exactly is your money upto. Where does it come from and where does it go. And how you can take control of it.

A more simpler budgeting approach is proposed in The Only Investment Guide You’ll Ever Need. It gives 3 steps to a better budgeting

  1. Destroy all your credit cards.
  2. Invest 20% of all that you earn. Never touch it.
  3. Live on the remaining 80%, no matter what.

This approach is good for the starters as it removes all the complexities associated with budgeting. Taking an example of a person earning Rs 40K per month, needs to save/invest atleast Rs 8K per month (20% of 40K). The rest Rs 32K can be used as per his requirement.

4) Emergency Fund

Now this is really important. An emergency fund is what its name suggests. A fund where you can dip in when you have an emergency. Emergencies like job loss, theft medical emergencies, etc. So what is the adequate size of an emergency fund? Experts recommend that it should be able to take care of 3-6 months of your family’s living expenses. I am a bit conservative in the matters of money and will strongly recommend it to be on the higher side, i.e. 6 months. So if you earn Rs 40K per month and your expenses are Rs 25K, you should maintain an emergency fund of around Rs 150K (25K x 6 months).

An important point here is that you should not confuse this fund with your investments in stocks, mutual funds, gold etc. This is different from investments and should be highly liquid and readily available. It should be in the form of cash or in savings account.

I will also recommend that before making any major investments or purchases related to ‘Wants’ [as given in the formulae above], you should relentlessly add money to this emergency fund, till the time it becomes of adequate size. And remember to give this fund its due respect and dip into it only in cases of emergencies and not when you are bloody optimistic about some stock in a rising market [Read why the Reliance Power chaos happened 😉 ]

5) Frugality Rocks! Unless otherwise stated

As already mentioned earlier, easiest way to become richer is to spend less.

So how can we spend less every month?

Let me take a few examples –

Eat Out LessIt won’t be wrong to say that our generation is in a habit of eating out a lot. We just need an excuse to eat out or party. I am not advocating that we should stop going out with friends. What I want to convey is that we can reduce the frequency. An average working person in mid twenties will have 5 eating out expeditions or parties each month. Now if each one of it costs around Rs 750-1000/-, it shows that the person is shelling out around Rs 3500 to Rs 5000 per month!!

If the same person now realises that instead of 5 times a month, he should eat out only 2 times a month, it will lead to a monthly saving of about Rs 3000/- per month. Now if this amount is invested intelligently, the magic begins. This magic is known as the magic of compounding.

So here is the magic –

An amount of Rs 3000/- invested each month, for the next 30 years can get you a cool Rs 97 Lacs!! Yes. Rs 97,00,000/- [Assuming a rate of return of 12%][Forget inflation for the time being.]

& will you still eat out as many times as you already do??


Think before you buy that thing A lot of us are into impulsive buying. We suffer from the” We-need-it-when-we-see-it-and-then-we-have-to-buy-it rather than thinking-about-what-we-need-and-then-going-to-buy-it.

Whenever we want to buy something, we should ask ourselves some questions like –

  • Can I avoid buying it?
  • What purpose will it serve if I buy it?
  • Is this my ‘need’ or ‘want’?

The answer to the last question, if given honestly  will save you a lot of your money.

There are a few more examples where you can save money –

  1. Don’t drive to your nearby market. Walk or take your bicycle there.
  2. Do It Yourself – Reverse outsourcing [If you think hard, you will realize that there are loads of things which you pay for, but can do it on your own]
  3. Switch off those lights and appliances when you go out of the house. And when you are using them, use the energy efficient ones.
  4. Use that cellphone of yours a bit less. It is tough, but possible. 😉

Always remember to spend according to who you are and not according to who you want to be.

6) If possible, earn extra

When I say earn extra, I mean that you can convert some of your hobbies & stuffs you are good at into a source of extra income. If you watch TV or surf the internet without any purpose, you won’t become rich. But if you love gardening and can grow certain plants which people might be interested in buying, then you can definitely make some money. If you love making cakes and people are ready to buy them, then you can make some serious money. You can make money online also. But that is something that will take time and you will need to do a bit of research about the ways successful people like ProBlogger do it. You will also need to be aware of people who may fool you 😉

You can even start a consultancy if you are interested in selling your expert services & advices rather than products.

There is another good book, The Other 8 Hours. The author makes the reader realise that apart from sleeping 8 hours and working 8 hours, a person can also use the left over 8 hours do his monetary benefit.

Some of the words in the book are quite motivating –

This “free” time is the most valuable resource you have to achieve your ideal life…How you spend the other 8 hours determines where you are in life, your happiness, your weight, your level of debt, the satisfaction you have with your relationships, the car you drive, the languages you speak, your love life, your education, the places you travel, your bank account balance, and just about everything else that is important to you.

[Caution : Do not turn the other 8 hours into just another period of work. 🙂]

7) Investments

[Read this section only if you have interests in Stock Markets]

You should never confuse investment s with savings. Investment is what grows your wealth. Savings are what support you in bad times and your investments in good times.

Before even you think of investing, you should make the following very clear –

  1. You should have your emergency fund in place.
  2. Don’t expect to double your money every year.

There are millions of good books written about successful stock market investing. And being a non-pro, its better to avoid giving advice on the same. But I will like to share some of my own rules which I follow in the market –

  • I will invest only when I have adequate money in my emergency fund.
  • My primary aim is return of capital and not return on capital.
  • I will never buy a business that I don’t understand.
  • I will not invest for the short term.
  • I will buy stocks that have slipped out of popularity. 😉

I guess most of my readers would have been scared off till now. 🙂 So I will stop giving advice on stocks now. Rather, I will recommend you read about Warren Buffet [read about my imaginary dinner with him], Peter Lynch. I will also urge you to check out this site called Investopedia to get your basics of stock markets right. And if you are passionate about some books on stock market, then I’ll advocate Benjamin Graham’s Intelligent Investor & Letters of Berkshire Hathaway’s Annual Meetings (These are legendary!)

8) Get some financial education

In financial matters, it is very important that the source of your knowledge is authentic and worth knowing from. [If I still have any readers who have been able to read down till here, I will ask you to check with your own financial planners before taking your advice.]

One of the books I would like to recommend here is The Richest Man in Babylon.

Based on some very simple parables of ancient times, it tells you how to become rich. That’s it. Simple & Awesome. And if you can follow the advice given in the book, nobody can stop you from getting up the rich list.

Another one which should not be missed by anyone planning to be rich is Rich Dad Poor Dad.

Though a lot has been said against this book, but I still like it for the way in which it makes us relate to all that has been said in the book. The book is definitely worth a read.

You can also subscribe some good personal finance blogs, which can keep you on your toes and help you with loads of things financially. I recommend –

Get Rich Slowly

The Simple Dollar

[Now all these blogs are not Indian by origin. But art of getting rich is independent of currency. J So do read them. They might be helpful.]

I guess I have talked a lot and its time to end this attempt of mine. So my best wishes to the readers and always remember – “To be rich is  glorious”


Written by Dev

April 7, 2010 at 11:24 pm

Ram Naam ‘Satyam’ Hai – What a start to 2009

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All of us had put the year 2008 (Read – The year that should not be ‘named’) behind us when we welcomed 2009. After having lost more than 50% in the stocks in a year, who wouldn’t??

And just then, at the very start of the year, Mr. Raju of Satyam makes a shattering disclosure that he was fooling the entire IT industry and everyone else in the world, for the last 7 years or so! The company had almost nothing at all in bank balances and assets except its workforce of 55,000. What happened to the stock was not surprising. It lost more than 75% in a single session.


And what does Mr. Raju have to say at the end of it all –


“It was like riding a tiger, not knowing how to get off without being eaten.”


The tiger being the company, with him riding under the fear of his past misdeeds getting back to him.

An awesome analogy to say the least.


But shouldn’t we sympathize with Mr. Raju’s courage to come out and admit his mistakes? After all, it takes a lot of guts to do the same.


I don’t think so.


It is quite simple. Just the fact that a person admits to have lied for several years is reason enough for anyone to suspect that what he might be putting forward as the real truth, might just be another piece of lie!

Maybe he found this the best way to get out of the soup. Maybe there are more unpleasant surprises for all of us in store.

Mr. Raju says that he never took a single rupee for himself or his family. Now that is crap. How the hell is it possible that an IT major which has been competing with other international organizations was not profitable? How the profit margins were just 3% and not anywhere near the industrial average of 25-30%? He even went on to say that they have not sold a single share of the company for the last 8 years. But it has been made publicly known that the promoters have reduced their stake from 22% to around 7% now. So, who is lying again…you get the pattern??

We have just been around 2 weeks into the New Year and still have another 50 to go. God know what shall happen next.

My dream lunch with Warren Buffet – The Greatest Investor Ever

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Let me confess it first. Warren Buffet is the equivalent of God for me. So any biases & excessive use of superlatives that might have crept in this post should be acknowledged & respected by you.  🙂

$600,000 is what I paid for a lunch with Warren Buffet. I know it is too much for anything, leave alone a lunch. I could even have bought a Class A or B share and would have been granted an access to the now ‘a pilgrimage of sorts’ Berkshire Hathaway Annual Meetings. I would also have received the letter from Berkshire Hathaway as well as some of the cool See’s Candies… 😉


But this is the price I was always ready to pay to meet my God. And almost an year after having won the bid for the privilege of dining out with the world’s richest man and my idol, Warren Buffet, here I was at New York’s famous steakhouse, Smith & Wollensky, for my big moment & pilgrimage.

I was out of breath when I came out of the taxi. I was already late. That too at such an occasion!! I was really feeling very stupid at this when I saw Warren, dressed in a dark suit and yellow tie, seemingly in no hurry and ‘waiting for me’ outside S&W. I bet I could see a halo around his head! Really. But he had no airs of being larger than life figure. But shit!!! was this a dream? I could see that Warren was not alone. He was accompanied by none other than Charlie Munger and Ajit Jain. Now it is one thing to bid and win a lunch with god (read Warren Buffet), but getting to have lunch with 3 great men @ a price of one, is one great investment. 🙂 But just then the dream ended, and Charlie and Ajit left me with my God alone. They had some personal priorities greater than me… ;-)The Oracle of Omaha was more than happy to let me get as many pictures clicked with him as I wanted.

After the pictures were done, we sat down for our meal. The menus arrived and Warren ordered for a medium New York T-bone steak with hash browns and a Coke (Berkshire Hathaway owns shares in Coca-Cola Co.). Out of awe and respect, even I ordered the same, completely forgetting that I was a vegetarian!! I realized it after a while and called the waiter back, and modified my orders. Warren was all smiles and I knew that nothing was hidden from my God. 🙂

It didn’t strike me when we were chatting, but when I look back now I realize that over the 4 hours , we discussed millions of different topics, ranging from Warren’s value system as an investor to his friend and Berkshire Vice Chairman Charlie Munger to the importance of picking the right life partner. But really the thing that made the biggest impression on me had nothing to do with Warren’s investment philosophy. Rather, what was moving was his love for his former wife, Susan. “I never did anything for Suzie, but she did everything for me; I wouldn’t have been as successful without her.” Even great men like him are not perfect when it comes to relationships. 

It was time for dessert (ice cream in shot glasses) and for our lunch to end.

And with that my ‘Cursed’ alarm clock buzzed me out off the bed. Shit!!! I never realized that this was a dream. 😦 And I swear that I will always be ready to swap my realities with this dream.)

It has been around 3 years that I have been learning vicariously from Warren. And I, not a very ‘awesome’ investor, have turned into a vastly better human being. Now this is what should be called a dream lunch…isn’t it??  😉

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Why Reliance Power’s IPO tanked on listing ? Warren Buffet has the answer

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Reliance Power

Reliance Power’s IPO got fully subscribed in the very first minute of its opening (!!!) & attracted $27.5 billion of bids on the very first day, equivalent to 10.5 times the stock on offer. But the IPO was neither floated to augment any existing infrastructure of the company nor to expand the company’s presence in its sector. The money was to be used for funding the development of 6 power projects (from scratch) across India. i.e. The company was just a virtual entity till then (!!) And to get the shares in the IPO, people borrowed from various sources, hoping to make a killing on listing and paying back to ‘those’ sources.

Reliance Power debuted on the stock markets when the bearish phase of the markets had just started (January 2008). And ended the day 17 per cent lower than its issue price on the Sensex (BSE).

Yesterday, the stock closed at Rs. 122.60 (down more than 70% from IPO price)

So how does Warren Buffet (the God) answer our question “Why Reliance Power’s IPO tanked on listing ?”

He once said –

“When you combine ignorance and borrowed money, the consequences can get interesting.”

In Reliance Power’s context,

IGNORANCE – People were ready to pay a high price for a company that will earn its first Rupee after 5 years of IPO (!)

BORROWED MONEY – People dug into their life’s savings to invest in the IPO & some idiots even took loans (!)

Warren Buffet>Anil Ambani

(Buffet – “Hey Anil, Were you sleeping when you priced your IPO?”)

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Credit Crisis – A Layman’s Guide

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I found this really ‘intelligent’ presentation on the ongoing credit crisis. In just 23 slides, it shows how stupid the American Financial Geniuses have been.

Credit Crisis Pictualized

View SlideShare presentation or Upload your own. (tags: presentation comic)


For knowing what really did happen in the last 5 years, which led to this current economic mess, you may read a really simple article – A step by step process of world economy destruction


Or see how a Sunday (A holiday!) changed the World Economic Map at Wall Street & US Economy destroyed


Have any questions regarding the $700,000,000,000 bailout package? Or you feel that this gigantic bailout is bad for the American taxpayers? Or you wan to know what the experts have to say about it? Read it all at $700,000,000,000


Or for a complete coverage of the current economic mayhem, read The Financial Mess


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Sensex at 8500, Nifty at 2500 – What does Shankar Sharma (The Bear) has to say – An Interview

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Indian stock market investors will always remember 24th October, 2008 as the blackest Friday the Indian stock market as seen till date. The Sensex plunged 11% while the Nifty ended down by 12.20%.

The gains of the 4-year bull-run have been wiped out in just eight months!

So, what does the biggest bear of them all –  Shankar Sharma would have to say about this carnage?


Q : Good evening sir, did you see what just happened in the stock markets today?

A : Why? Did it rise 100 points?

Q : Oh come on sir, you must be joking!! Sensex and Nifty fell more than 10% today itself. Sensex is trading near 8500 and Nifty near 2500!!

A : See? I have been telling you all for the last 9 months that the party is over. The days of easy money are over dude. India has run way ahead of itself. And investors can’t expect a compounded annual growth rate of 30-35% each year.

Q : But this day is different from other falls. The blue chips like RIL and ONGC cracked today. That too over 15% !!

A : Yeah…I agree with you on this. Your Finance Minister P Chidambaram also tried to intervene and calm frayed nerves but that did not help the markets. And you know what? He was saying that they were ready to adopt conventional and unconventional tools!! Tools?? These are times to go short. Nothing else. Pure shorting.

Q : So you didn’t even buy a single share today? Some of the blue chips were really attractive today.

A : No!! Why on earth would I do anything like that ?

Q : Sorry. Stupid of me. Sir, where do you see Sensex on 31st December 2008 ?

A : 7000

Q : And sir 3 years from now ?

A : 3000

Q : In the year 2015 ?

A : Base Value

Q : What sir?

A : I mean 100. Sensex at 100.

Q : You must be joking sir. Sensex at 100?? No way.. But at least at 7000, will you buy anything in the Indian market?

A : Well, first I will think of covering my shorts. Buying….? no hurry yet…may be by 2015. Lets see.

Q : Sir what are your views on real estate stocks? The Realty Index fell 25% today. And Unitech plunged 52% and DLF fell close to 24%. Puravankara Projects crashed 45% and Parsvnath was down 21%. There must be a lot of value in them now?

A : Value? In real estate stocks? No way. You can better invest your money in buying bricks. Even if Unitech falls to its 2003 prices of Rs. 1.50/-, I will short it. But DLF around 25 will be a good buy.

Q : Unitech @ 1.50 , DLF @ 25 !! But DLF’s IPO came in at about 500? Even I bought it. It was just too good to miss.

A : Then DLF guys made you a fool 25 times over. [Laughs]

Q : Which is the best buy you think currently?

A : Best buy is “short sell”.

Q : Sir a few personal questions. What is your favourite color ?

A : Red

Q : hmmm…oh I should have guessed it….Why do you have a picture of BEAR in your living room?

A : Oh that? He is Mr. Sharma, my father. And did you see our family picture?

Shankar's Bear Family  

Q : What?? ….Ohhkk sir, it was a pleasure talking to you and thanks for this bearish interview.

A : My [short] pleasure.


Disclaimer: Unfortunately, this is not a real interview. 😉

Read about his earlier BULLS-BEARS-OSCILLATIONS view here.

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Zimbabwe Stock Markets gain a record 257% in a single day!!

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First lets see what happened a day before. On Monday, the markets set a record of gaining 241% in a single trading session. And today, that is Tuesday, they gained another 257% !!

Zimbabwe Stock Exchange

But the fact is that these figures are just meaningless. Citizens are turning to equities in a desperate attempt to protect their money from the country’s stratospheric hyperinflation. This is just a representation of Zimbabwe’s collapsing economy. Inflation is officially running at an annual pace of 231 million percent, but some experts put it more at about 20 trillion percent.

These sort of gains might prompt us to think that the guys from Wall Street might be landing their jets in Zimbabwe. But reality is different and on the contrary, only 2 percent of investors are foreigners. This is in comparison to about a decade ago when foreigners made up about 30 percent of investors.

If we talk about the exchange rate of currency, it jumped from 30 million Zimbabwean dollars to one U.S. dollar on Friday, to 100 million to a US dollar on Monday!

Some of the major gainers in individual stocks are –

  • Government-controlled Zimpapers, which gained 3,471 %
  • Cement maker Lafarge saw their share price rise 1,400 %

But everyone does not consider it to be another bubble ready to burst. With the newest listings in the mining sector. Zimbabwe has vast untapped mineral wealth including gold, diamonds and platinum. Munyukwi said markets were driven by strong, cheap assets which are offering returns that were more than matching inflation. He said –

“Some people think that this is a bubble about to burst, but I don’t think so.”

But he did agree that the market was largely overvalued in Zimbabwean dollar terms but said it is undervalued in U.S. dollars. And volumes being traded are very small and there was no real movement year on year.

So what lies in future, for Zimbabwe?

God help Zimbabwe…or rather Warren Buffet could better answer this question…isn’t it??

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