When I was 15, my high school teacher said, “I hope you take my place one-day; I hope you teach and only then you’ll know what a pain in the neck you are.” The farthest I got toward her wishes were telling my college friends to save and invest while we are young. I realized if people who cared and loved me weren’t interested one bit, teaching must be really hard. And so I called her to tell that people are really a pain in the neck when we ask them to listen. She said, “Perhaps you just had the wrong audience. Maybe try giving this advice to different people ” That day, I decided to be a pain in the neck to countless unknown people. I became an author!
A few days back there was an interesting conversation in the AIFW (Asan Ideas for Wealth) Facebook group. Like any other day, there were innocent people looking for genuine advice, new bloggers trying to pry attention, half-learned literates professing their gyan and a whole lot of silent-watchers, observing and absorbing the conversations. The reason that this conversation turned heads was because one person wanted to buy an iPhone that blew his budget and in a group of financial literates, you’re going to have fun with the opinions.
While good-natured in its merit, the mind kept returning to “Should a small purchase be so hard in life? Aren’t we allowed some leeway?”
- If making us financially literate was leaving us miserable, what was the point of learning so much in the first place?
- And if the literate person has to suffer so much through life, what are the tribulations that a financially inept person goes through?
In a world where the odds are always tilted toward the person in-the-know, being over-bred on personal finance isn’t all that enticing.
One of my favorite professors at University told that if I memorized the formulas and make clear predictions about earnings into the future, we’d ace the exams, run out with A’s and get the best jobs into travel or real estate consulting firms. She’d often say, ‘smart people finish rich’ by which she subtly meant get an A and you’d be able to buy those Burberry pullovers because you work at CBRE. Well, most of us cleared the subject by the skin of our posterior and still can afford those expensive eye-wear.
Back in school, the answer to anything was ‘Padlo! Baad bada aadmi ban gaya’. I didn’t know what I wanted when I was 15, so I studied. I studied night and day so that I could become rich some day and ape the things my parents had: buy a home, a car with blaring speakers and a special social status among the family. Well, I have most of them already and I’m only 24.
The big difference was: I did not anticipate the ‘experiencing things’ part when I envisioned those dreams. What mattered to me in a car when I was 15 was it should be black, muscular and ‘cool’. What I didn’t care about were the EMI’s, resale value and gas prices. When you look back and see how our tastes have changed over the years and will continue to evolve, the problem seems to beguile us.
When people say, “I can’t believe I dressed like that back when I was 7” they don’t realize we are probably going to say the same a decade later about the man-buns. Oscar Wilde famously quipped on fashion: “a field of ugliness so absolutely unbearable, that we have to change it every six months.” And yet, we adore familiarity. We like familiar routes to office. We like buying from the same company for years and years. Yet, when Steve Jobs said “A lot of times, people don’t know what they want until you show it to them” he was right as well. No one anticipated the revolutionary technology Apple would put in our hands. If people liked familiarity, Apple would never have existed as the giant it is today. When you had the first sip of beer, no one has ever exclaimed “Where has this been all my life!” It probably runs along “Yuck, you guys drink so much of this??” We started having it because, well, we just did. When the Sydney Opera was built, people couldn’t fathom if they ‘disliked’ it or it was just plain ‘ugly’. Fast forward now, architects pronounce ‘why can’t we build like this anymore?’
Our perceptions and priorities over art, life, philosophy, philanthropy, work, money, rich, poor, relationships, social status, men-toys change and evolve as we undergo life. In a fascinating turn of events, you might want to change industries at work, pick up your childhood talents, travel the world, take a sabbatical, volunteer in Africa, teach high school, inspire the next generation, have a mid-life crisis, and retire early.
To do anything that might be cheesy or make a wonderful story-tell to your grandkids, you’d have to be prudent on the money front. Because what-ever you do, the end result is one currency and being savvy about it bodes well.
I was interning at Austin, Texas when an American’s debit card read ‘insufficient funds’ as I swiped it in my system. He nonchalantly lent me his Amex while giddily saying, “I hope to pay the balance on the card at least this month”. With no experience of working in the industry, a top-grade University granted me admit for my MBA. With no interest in learning about what people did with their money, I was soon paid to extract that information. On the flip-side, I got really good at it because people were really bad at it.
The world around me was running amok with credit card debt while I tried to comprehend what I was seeing. In turn, when I tried to inject some sense into their brains, my futile attempts were lost as ‘goodwill tax’ on the listener’s ears and they continued to spend like Arab princes, minus the dress. After working with and understanding customer’s money habits across 3 continents and 4 countries, the folklore that youngsters are mad with their money, seemed justified.
Most Personal Finance books and blogs, document wide-ranging ideas that cater to a greater swath of people from the diseased to the self-employed. A lot of this generic advice renders little scope for action. In a nation clamoring for solved examples, wouldn’t it be great, if someone could show the exact steps to follow?
Very much around the time that Facebook popularized ‘Done is better than perfect’, I came across this 20th century economist, Vilfredo Pareto. He was an Italian engineer, sociologist, economist, philosopher and so much more. Like the modern Indian he was an engineer first and later moved into management and economics. He taught at Lausanne University and was the one who found that 80% of the wealth was held by 20% of the people. He applied this principle to various fronts which won him accolades that would fill any 3BHK flat in sub-urban Mumbai. But his most notable theory according to me was:
- 80% of the results can be obtained through 20% of effort
- 20% of effort brings 80% results and in some cases up to 90 – 95%
In the digital age, Tim Ferriss outcries that 80-20 means:
- For SME sales people the 20% is in making your existing customers – lifelong fans instead of long-hours cold call outreach.
- With your work, this will be the 20% time you allocate for output your boss has a tangible measure on – not the time spent on email, trello or slack correspondence.
But with your personal finance, 80-20 means that you:
- Identify your big goals (money-wise) in life
- Understand Compound Interest
- Consistency (done is better than perfect)
In a week, usually, a salaried employee spends 60-70 hours commuting, discussing or at their work. About 50-60 hours are spent at sleep and menial activities. In a total of 168 hours, the waking hours spent for leisure are 58. When you spend about 90% of your salary on purchases and expenses, it means money always goes out faster than it comes in. A rough estimate of a new graduate IT recruit shows that earning is at the rate of 73.4 Re per hour while spending is at the rate of 73 Re per hour. In such a scenario, when the reader gets married and has additions to the family, money will always fall short.
Compare two people trying to make their mark in life:
Krishna, 24, earns 64,000 after tax as a Senior Software Engineer at Cognizant. He used to have 3 lakhs in college debt and 50,000 from credit card debt due to overspending. He has been paying it down over the last 3 years and has 24,000 consolidated debt now. How? He followed the conventional advice: he set-up an excel budget tracker, tried to cut back on dinner expenditure with friends and gave up the little pleasures of life. Yet, last week, when he took a long look at his life, over street-food dinner with some friends, he realized he was treading thin ice. Despite paying off big loans, he had no investments, no real savings and something always came up that made him guilt over his budgeting practice.
Pratik, 23, earns approximately 40,000 after tax as a data analyst at Flipkart. Pratik had joined Flipkart right out of graduation and racked up 60,000 in credit card debt within 6 months. Most days, he’d barely get-by in the high expense Bangalore environment and would eat the free snacks at the office. Yet in hindsight, within 18 months, Pratik settled his debt, bought a new bike for 89k without EMI, invests 10k monthly in mutual funds for his dream home, lavish spends on his girlfriend, saves for his MBA and enjoys 5k as guilt-free money to spend on anything that comes up. To do this, he prioritized what he wanted and was decisive as a fox over expenses that he didn’t feel fancy about. He automated the system of repaying debts, negotiated a lower rate with the Bank and turned automation on its head by allocating clear streams for specific purposes.
The difference between the two people?
Krishna focused on the small, minutiae aspects of his life and appeared breathless as the month drew to a close. He did what the experts told him he should do. Pratik decided he doesn’t need fancy advice or elaborate systems and took a decision to focus on the big goals. He focused on the Big Wins and realized the tiny details fall into place anyway.
If you had to use willpower to cut back on 100 ₹ small diners and networking coffees, versus hunting-down the customer care to re-negotiate a recurring ₹1000 per month subscription, which one would you choose?
Detail-focused people try to focus on everything, rarely prioritizing. Goal-focussed people look at the bigger picture and make small-work of the process.
There are a few Big Wins in Life, where, if you get them done, you almost never have to debate over the minutiae.
Most of us have no fixed ideas on what to do after graduation and it certainly is true when it comes to money. The people I went to school with, upon getting an IT job after graduation, but didn’t have the slightest conviction they were worthy of a job offer, were all suddenly sure of what their future entailed in relation to money. This wasn’t because they read something and synthesized it. This was because they had parents whispering ideas in their minds.
When bad money habits creep-in, they’re tough to get rid. If parents wanted us to believe that buying a house with EMI’s are the right thing to do, we’re going to do so. Once committed to a home purchase, getting out of it is nigh impossible. Half-way through the loan period, we turn back, learn about other avenues of investing and curse bad-luck. If educated baby boomers were this bad, then the minimal attention millennials are doomed.
But the mid-20’s guy, perfect in finance is in-fact a couple of desks away at your work. In-fact more and more engineers have started showing interest at managing their finances. The bright recruit for Flipkart from IIT-M knows more about his money than my mate who works at ICICI and who has an MBA. You know how he changed it around: he kept reading.
As you keep accumulating knowledge, your mind starts forming opinions. Opinions change into ideas. Ideas make characters. Characters make habits. Habits ingrain knowledge into the mainstream. Only then you have discipline in action.
If only the world wasn’t this tough to conquer
The reason that Alibaba conquered the world, because in the early-days they replicated the Zhejiang wholesale market on their website. With competitors being inspired by Google’s clear design approach, many others tried the clear homepage option on their e-commerce site. This didn’t resonate with the Chinese consumers who were used to seeing things muddled up on one-another in the physical-market. Slowly, the competitors faded into oblivion and Alibaba’s tremendous work-ethic paid off. They fended big competition from eBay and Yahoo and weathered several storms along the way.
From the consumer’s point of view, what made Alibaba attractive is that they understood what consumers wanted and acted accordingly. Keeping in mind the traditions and their playful nature, Alibaba made shopping a fun experience. The website was set-up like a game that people would return often, instead of a plaid business-centric approach. This formula has tasted success till-date in the Chinese market. When WeChat introduced the red-envelope system where people gifted small pockets of money (usually 0.15 yuan) as a well-wishing token to their friends and family, it took the market by storm. Soon, Alipay cloned the idea and the interest from the Chinese population was palpable. Consumer usage of the red envelope rose 550% YOY and the amount of Yuan enclosed increased 6000% over festival days.
While being functional at it’s core, a customer centric approach (fun modelled) paid rich dividends in grabbing customer loyalty for both companies.
With a similar outlook, I approached Prof. Pattu (blogs at freefincal and has already co-written a bestseller) in writing a book that was functional in it’s personal finance advice and fun in terms of showing the ways to enjoy life.
The book Gamechanger will be functional when analyzing personal-finance. It illustrates how to do everything with a step by step process like how Google Maps takes you to your destination. Instead of saying ‘choose the best bank to park your money for short term’, Gamechanger identifies which option is the best and points to the specific URL for the reader. With an emphasis on why you need to be smart with money, closely followed by how to set-up the cash-flow and automate the process, you’ll have a ball reading the conversational tone throughout. Pattu over-delivers on simplifying the investment process and gives you simple action steps that is sure to bound you to guilt if you don’t take action.
The fun portions that will make you loyal fans will include insider knowledge on:
- The cheapest ways to travel
- How to find Cheap Flights
- How to find cheap accommodations during vacations
- How to fund your vacations even if you can’t save a single penny right now
- 2. How to properly utilize credit cards
- When Credit cards can be a secret sauce to paying less on your home loans
- How to get the most out of them in-terms of cashbacks, rewards and miles
Functional. Fun. Customer Centric. To the point. Insider Knowledge. 80-20. Compound Interest. Cheap Flights. Cool accommodations. Cashflow. Early retirement. Automation. Big wins. Equity. Real Estate. Mutual Funds. Narrative. Racy. Action steps. God-damn truth.
Now, that’s one hell of a promise to keep and a roller-coaster of a book to write!
After reading the book, I’m not sure if my mate will still buy the iPhone but he’s definitely going to make a decision and forgo the guilt. KUDOS!
Gamechanger is coming out on Amazon by May 25th!