10 Thoughts To Deal With Money
Never lose your sleep behind money
We must never let money control your emotions. Over the past ten years, I have understood how volatile equities can be. Hence, as a rule, I make sure that i have enough cash that can last for a few years even if the markets were to go down significantly. That ways, I will not panic or at least try not to when the markets are falling. I have shamelessly adopted this idea from Morgan Housel.
Debt to never exceed 10% of net worth
I do not like Debt. It does not let me sleep well. So I have decided that total outstanding debt should never exceed 10% of my total net worth. This debt could be a consumer loan or a business loan. I am absolutely ok with the kind of debt I take, does not matter. But I will personally not let it go above 10%.
Focus on growing income
I have always been of the frugal mindset. Frugality is great. No doubts about it. Simple life is a better life. But there is an extent to which you can be frugal. If you earn 100 bucks, you can save 100 bucks. YOu cannot save more than that. But you can definitely earn more than 100 bucks. This mindset change has done wonders.
Never withdraw from long term allocations
My equity is a very long term allocation for me. I hope to never withdraw the capital. The will serve two purposes for me. I will learn and enjoy the fruits of compounding. I will be able to create generational wealth that I will be able to pass on to my descendants, if any. Now, the plan to meet expenses is to do it through a mix of active and passive income. Active income will be through the businesses I will run as long as possible and passive income will be through a mix of things like dividend income, income from social media and other sources that I intend to create for the future. Power of compounding can be massive. For example, if i let 10 lakhs compound for 40 years earning me 10% per annum, I will end up with a huge pot of 4.5 crores at the end of 40 years and 7.2 cr at the end of 45 years and 11.8 crs at the end of 50 years and so on.
Don’t play with things you don’t know
Futures and options are not my cup of tea. I will trade with money I can afford to lose. I will not get into leverage unless I understand the methods completely.
Asset Allocation
My asset allocation is simple. Hold enough cash and never withdraw from equity. Now if equity goes up significantly and starts comprising a large part of my overall allocation, then I will not invest fresh money to equity instead invest fresh cash in debt instruments for rebalancing.
Use credit cards wisely
It's stupid to not travel for free. I try to pay my bills on time and not go overboard with my expenses.
Hold enough cash to last 10 plus years
That is my emergency fund. Like I mentioned earlier, my primary focus is on sleeping better. Hence to sleep better, I hold enough cash to go through any unforeseen events in life.
Create more income sources
Have more than one source of income. It reduces risk and dependency.
Pay for things that improve your life
If anything that costs money but improves my life, I am all in for it. It could be an app or a course. It could be paying a small fee for credit cards where I can get outsized benefits, I would pay. Like I said frugality mindset is good but finding more avenues to earn money will allow you to spend money on areas of growth.