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Personal Finance - Another Perspective

Recently, one of my friends aged 29 Years who is a motorcycle enthusiast bought Hardley-Davidson motor cycle for about INR 8 Lacs (personal borrowing of 3 lacs), costing him his entire savings. He is an IT Professional and draws around 50K/month. His explanation for this costly affair was primarily his love for the bike for which he had been raising money, secondly he wants himself to be identified by 'HD wala' in his colony. Now, people have started judging him saying he wants to show off. Another uncle commenting 'Agar yahi paisa FD me daal deta to...'.
  • First thing first, it was his hard-earned legally acquired wealth which he used to fulfill his passion. Isn't it wrong to judge him for doing something unusual?
  • There are people who suggest to invest heavily for retirement by suppressing our desires, simply called delayed gratification citing example like 'Marsh mellow experiment'.Well, what if you don't reach that age itself given death is so uncertain? Why not enjoy wealth while you can, before your body starts experiencing the whole lot of old age issues. What wisdom is in living poor and dying rich?
  • I have come across several articles on personal finance discussing how foolish it is to own a car in the age of ola/uber/lyft or terming house loan as contract of slavery and advising to use that money in mutual funds. MF houses are only worried about increasing their AUM rather than making you rich. My argument for this is why lower your standard of living for the sake of saving & investment for an uncertain future. Why not think about increasing your income to afford that car/house? Robert Kiyosaki, the author of famous personal finance book 'Rich Dad, Poor Dad' said that Savers are Losers. Find out why he said so?
  • You must have come across articles on how someone would have made huge money by investing in Eicher Motors rather than buying Royal Enfield or how a man made his fortune by investing in WIPRO. These are just marketing gimmick by Fund houses/Advisors to make your believe you can make your fortune by investing in their schemes. In practical, it is very very hard to spot multi-baggers. Multi-baggers are known in hindsight. There were many contemporaries of WIPRO who vanished in the oblivion (delisted from exchange) which used to be darlings of those era. Be wary of Survivor-ship bias. Coming back to Eicher, well even Eicher did not know that RE will be their hit product and many ace investors have accepted in their interviews that they had invested in Eicher looking at future prospects of their trucks & buses. RE was a fluke.
  • Another point is if everyone turns investor and there were no consumer, then economy will collapse. Consumption is the engine of economy. America is number one economy because it is the biggest consumer. If it weren't for America, Indian IT would not have the feat it enjoys today. What would be impact on share price of Eicher if everyone just bought the shares and no one bought the bike?
Final thoughts, I am not against saving or investing per se but just want to convey that you cannot become rich by saving. The magic of compounding will be able to charm you only when you have a sizable capital to compound, of course time horizon is another important factor. Never imagine financial independence by just saving unless you are full time into it. The only way to become incredibly wealthy is to start your own business, one capable of scaling to a significant size. And for that you need to work your ass off, to acquire the necessary skills and resources. Your expectation from investing should be reasonable. You can’t make more than the company’s earnings growth over long term. Of all the listed companies on the two exchanges, only a minority make >15% on capital. So for common investors, expecting a CAGR of more than 15% is foolish (pro stock-pickers are excluded from this generalization though).
And please strike a balance between your savings and expenses. Do not suppress/postpone your desires just for the sake of saving/investing because you just live once and you don't know till when. So, if you can afford it from your own pocket; just go and spend on that dream trip with your loved one, buy that expensive car you have been longing for, buy that latest iPhone you always desired to own (if you can afford and not by selling your kidney.
In personal finance, the word Personal comes before the Finance.
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Location: Kolkata, West Bengal, India

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