Be Rich (Part 4)

My first real job was as an Assistant Accountant in a State Government Undertaking. In my young age, I had got great benefits of learning a lot – I took the opportunity to enter into each department, to learn about their basic working in name of audit of their accounts involving their income and expenses heads etc., but as a low ranking employee of the undertaking, my take home pay wasn’t worth bragging about. I was earning a comfortable living for a 18-year-old, but I didn’t think that I had enough money to invest. It turned out I was wrong.

One day, I had an opportunity of discussing the priorities of investments out of meager salary with our Managing Director, belonging to Indian Administrative Services. Though I knew his academic back ground, the talk with him made me rethink the way I viewed investing. During the conversations I brought up the topic of investing and mentioned I would like to start in a couple years when I had more money. He listened to me giving several excuses why I couldn’t invest and then, he said something that changed the way I think and act about investing.

He told me saving and investing wasn’t hard, you just have to treat it like a bill. He said, “When your salary comes in each month, you pay your bills, right?” I nodded. “So treat investing like a bill. If you want to maximize your savings, you may put at least 10 to 20% of your salary in fixed deposit at least for one year, each month. If you want to make it easier, then go to the finance office and request them for a salary linked savings scheme, you’ll never think about it again. When such fixed deposits mature next year one by one after each month, reinvest them for a longer period. It will cultivate your habit of savings and ensure a good amount for you if you ever needed that to meet some ambitious need, like construction of house or higher education or happy family settlement. If I am not able to do so, I may get some good insurance policy – that will arrange risk cover as well as payment for my needs in future.”

It turns out he was right. It’s not that I didn’t have enough money to invest. I just wasn’t prioritizing how I used my money. Treating investing like a bill forced me to make investing part of my budget. I followed his advice and set up an automatic withdrawal from my salary and I began investing in a fixed deposit every month. I accumulated a lot in a set of the eleven years following our conversation, and for building my house, I did not need any additional assistance from any corner. That 15 minute conversation literally changed my life and might just make me a millionaire by the time it’s all said and done.

This concept of paying yourself first applies to different types of investments as well. Perhaps the most common way to take advantage of automatic investing in salary linked saving schemes, In fact, many brokerage firms will waive account minimums if you agree to fund your account with a minimum contribution each month. Some brokerage firms even offer lower transaction costs with automatic investments.

If you do not get any fixed salary, you may ask some financial consultant to contact you every month, week or day to collect some amount from him and invest it. Since he would get some incentive, he would come to you surely and in order to meet your commitment, you will be under pressure to ease out the money. Or, you can ask your banker to transfer some amount to the savings plan as and when balance in your account exceeds a particular limit. That will become your savings.

Here are three reasons you should consider income linked savings.

It is easy.

You don’t have to remember to do it. Just set it up once and you know it will get done.

There is no emotional barrier.

It can be difficult to write a check each month for a future goal when you have current wants you could easily fulfill with those funds. Automatic investing makes it easier to stick to your long term plans.

You don’t try to time the market.

Market timing is almost always a losing battle. For the average investor, dollar cost averaging can be a great way to avoid market timing and ensure you get your money in the market for a longer period of time. Automatic investing gives you the greatest opportunity to realize the growth of compound interest.

If your circumstances permit you, you can become millionaire by allocating your income on the above lines. Kindly remember, you can effectuate the savings only when you are under pressure or you put apart, with strong determination, some amount out of your income as fixed time deposits, before allocating funds to your regular and contingent expenses.

Be Happy – Be Rich.