Money Wise: Aam Aadmi's Guide to Wealth and Financial Freedom

By Sharath Komarraju

Do you obsess about money and yet not talk about it with parents or friends - and barely enough with the spouse? Do you worry about how much you have, how much you need, what you need to do to get more of it? The world of money is bewildering. The biggest investment you will ever make is towards your financial education - and this easy-to-read guide provides just that. It answers vital questions such as: Where does money come from? Why do prices go up every year? How do I get out of debt? Should I invest in the stock market? What is the value of gold in our financial system? How do I make my investment portfolio shock-proof? Practical, fun and straight to the point, Money Wise will equip you with the tools to manage your money with confidence and competence.

• Language: English
• Publisher: Collins
• Release date: Apr 1, 2015
• ISBN: 9789351770497

Sharath Komarraju

Sharath Komarraju is an author of fiction and non-fiction based in Bangalore, India. He is best known for his Hastinapur series.

Book preview

Also by Sharath Komarraju

Murder in Amaravati, 2012

Banquet on the Dead, 2012

The Winds of Hastinapur, 2013

The Puppeteers of Palem, 2014

Have you checked out the thriving community of readers and writers at sharathkomarraju.com? You will find contests, giveaways, discussions and other fun things happening there every single day. Come and say hello. We don’t bite!

To the rupee note, who has made

marathon runners of us all

Contents

Foreword

Introduction: A Taboo Bigger Than Sex

1. Putting in Perspective

2. Money in Its Various Forms

3. The Financial Script

4. Basics of Personal Finance

5. Investing – A Primer

6. Real Estate – I

7. Real Estate – II

8. Gold – I

9. Gold – II

10. Bonds

11. Stocks – I

12. Stocks – II

13. Cash

14. Portfolio Management

Glossary

About the Author

Copyright

Foreword

Money, money, money

Always sunny

In the rich man’s world

Aha-ahaa

All the things I could do

If I had a little money…

It’s a rich man’s world

—ABBA

I bet you fully and completely identify with the lyrics of this iconic pop song. Whether in Sweden or in Sewri, the fact is that the vast majority of humanity never has ‘enough money’.

Money makes the world go round. It makes us happy, sad, grateful, vengeful. But is it money which is to blame, or is it our attitude to money?

Although modern society gives so much importance to money, we are never formally taught how to handle it. How to invest it. How to use it wisely. That’s why this book is important. It will help you see money in a new light. Like Newton’s laws of physics, there are principles that govern spending, saving and investment. These principles are explained by author Sharath Komarraju in clear and simple language.

Because he is not a jargon-heavy finance expert, but a layman – like you.

I would advise you to not just read this book but apply what you learn here in your day-to-day life. Soon you will ‘have a little money’ and find that money is not your enemy, but your friend.

Rashmi Bansal

February 2015

Introduction

A Taboo Bigger Than Sex

DURING THE ‘ENGINEERING or medicine’ conversation I had with my parents when I was fifteen, my mother had her feet plonked deep into the medicine side, whereas my father (a doctor) rooted for engineering. While Mom’s argument was full of what we would call intangibles, Dad warned me not to get swayed by the romance and the roses. A doctor’s life was thankless, he said, and it was likely to get more so as the years went by. A doctor had to constantly think about where his next cheque was going to come from, whereas an engineer could delegate all money concerns to his company and live life instead.

‘We’re not very good at earning money,’ he told me, the ‘we’ referring to the family. ‘And before you say money is not important, let me tell you that by the time you grow up, money will become the only important thing.’

Conversations of this type were certainly the exception in my family, not the norm. Much is made of the reluctance in our households to speak about sex, but there is a bigger aversion to money, I think. I have an excellent relationship with my parents and my wife; we speak freely with each other on art, culture, politics, sometimes sex too, but when it comes to money, a certain tightness takes over, the air becomes heavier, and we fumble for words.

Yet no one denies its importance. How many of us have not seen families wrenched apart over property division? One of our oldest and grandest stories, the Mahabharata, is a tale of brothers fighting over their rightful claim to wealth and property. Popular culture – and in India that means Bollywood – has always extolled the virtues of money. We all desire it, contemplate on how to increase it, fear losing it, and yet we don’t venture to talk about it with the people who matter most to us.

We do talk about it, though, to neighbours, colleagues and friends. How many people did your father call when you got your first job? How many times does your mother slip the subject of your salary into conversations at social gatherings? At many big offices, it is not uncommon for people to sit in a circle and compare bonuses and promotion packages. But if our parents at home asked the same question, we either wave them away in irritation, or we lie, generally rounding up to the next lakh.

In marriage, too, salary plays a major role. I found myself in an ‘arranged marriage’ setting a few years back. The girl’s side of the family sat along one edge of the room, and we sat on the other. Snacks and water had already been served. While all of us were trying our best to think of things to say while smiling awkwardly, the elder brother of the girl piped up and asked me, ‘Where do you work?’ I told him. His next question was, ‘What is your salary?’ I looked around the room and realized that none of the people present thought it to be an inappropriate question. They seemed quite eager to hear what I had to say.

In my answer, of course, I rounded up to the next lakh.

So there is a queer little dynamic here, don’t you think? On the one hand, we acknowledge to the whole world that money is essential, and in all practical situations we admit its seminal importance. Yet in our families, within our most intimate relationships, there is hardly a mention of it. Could it be that as much as money gives us status among our peers, we acknowledge, deep down, that it could also undress us, make us vulnerable, and somehow shame us?

There is no doubt that money is at the root of most family discords. For those of us who have not known our grandmothers, a common saying among them goes something like this:

Money, money, what have you done?

You’ve split up a family that lived as one.

Between husband and wife, too, money wedges itself and wags its tongue. The number one cause of all marital discord, across all cultures all over the world, is not sex or love or romance or empathy – but money.

In 1992, the National Survey of Families and Households in the United States of America asked 2800 couples across the country to rank all the common reasons for domestic dispute in the order of how often they occur and how deeply they affect their relationships. Of all the common items on the list – chores, in-laws, spending time together, sex and money – money came out at number one.

A more recent example: in 2012, a study titled ‘Examining the Relationship between Financial Issues and Divorce’ was published in the journal Family Relations (vol. 61). It looked at longitudinal data from over 4500 couples across North America, and concluded that the top predictor of divorce was not children or sex, but money.

Yes, the studies belong to the United States, so the actual numbers in India – if and when such research becomes common – will be different. But considering the wide prevalence of arranged marriages here, it will not be incorrect to assume that money features as number one on the agenda in marital unions across the country.

Think of your own marriage, of your relationships with your parents and siblings. How many of them have that undercurrent of discomfort? Does your younger brother earn more than you do? Has your father left more wealth to your sister than he did to you? Does your cousin’s son earn more than your son, and do you dread the moment when she will corner you and demand a comparison of salaries? How many times in our adult lives do we wish we could go back to the innocent times of our childhood when we could play and fight and love without a thought given to things such as status and money?

Perhaps the first step we all ought to take, if that has to happen, is to look inward and ask what money means to us. The key here is to stay unflinching when faced with contradictions. You may remember the rich uncle who scrimps on every penny and proclaims to the world that ‘Money doesn’t buy you happiness’. We’re all a mess of contradictions like that, and we’re all trying to balance our greed with our generosity, our envy with our humility, our anger with our calm. So as you make a list of emotions that money invokes in you, you may find that strange combinations appear, like fear and pleasure, the need for acceptance and the need to stand out from the crowd. That is perfectly natural.

And while we’re at it, maybe we can all make an attempt to be more communicative with our family members about money matters. If we’re drowning in debt, if our investments are not compounding as well as we’d hoped, if our high-paying job is not giving us happiness, the best thing we can do is sit down and have a chat with our significant others. Who knows, we may just find that they value us more than the money we bring in.

The Lure of the Material

In an argument between a spiritualist and a materialist, the former says with venom in his eyes: ‘With money you cannot buy love!’ To this the latter calmly replies, ‘With love you cannot buy anything.’

We’re all part-materialists, part-spiritualists. Even a sage who has renounced worldly pleasures has to eat, bathe, shave and find a place to sleep. Hunger is the great argument for materialism. On the other hand, deep within the heart of even the most ruthless materialist lies a corner reserved for those intangibles: love, contentment, peace, art. We must not resist being a bit of both, because that would be akin to rebelling against being human. But to have a satisfying relationship with money, we must know which side of the fence we lean towards. There is no universally right or wrong answer to this as only your answer applies to you.

In the previous section we spoke about spending some time thinking of what money means to us. After some thought, most of us recognize that our lust for money is not really for money per se, but for the things that it can buy. So the lust for money can, and should, be broadened to mean the lust for ‘objects’, little and big. Across the last few generations, with capitalist markets expanding their tentacles, we have seen a rush towards acquiring more and more material goods. We seem to have gotten it into our heads that possessing more ‘things’ will make us happier, and since money is the only way such things can be bought, we reason that money ought to increase our happiness quotient.

So it’s not so much that money buys happiness. It doesn’t. We all know that. It’s just that money buys the things that we think will make us happy. It perhaps is not the same thing. It perhaps is.

The Rise of the Consumer

Today, we’re all consumers. We are exposed to thousands of advertisements on television screens, on billboards, on our laptops and mobile phones. Our children, born as they will be in the ‘Information Age’, will belong to the companies whose goods they consume before they belong to their family, country or race.

If there is one right that the ‘aam aadmi’ of India unanimously feels entitled to, it is the right to consume. But the magic of advertising is not just to give you the desire to possess things, but to make you keep wanting them. How will Nike make money if you’re happy to wear the same pair of shoes for two or three years? How will Apple survive if you’re content with iPhone 4? Will Microsoft keep making profits if the majority of us were happy with Windows 98?

The marketing departments of these companies know the fears and weaknesses of the human mind. We fear the disapproval of our fellow men, we fear ‘not belonging’ to our peer group, we look at people wealthier than us and secretly covet what they have.

The car you wish to buy is not just a car, the brochure says, it is the car ‘successful people drive’. The house you go to see on the weekend with the intention of purchasing it is not just any other house, it symbolizes a certain ‘lifestyle’. Advertisements play in tune to these intangibles.

To gain mastery over money, we must first conquer the inner consumer. This could at times be a lonely battle, because you’re pitted against giant corporations that spend billions of dollars every year to keep you on the treadmill. Do we, the little guys, have any hope?

It turns out that we do. As much as we’re creatures of instinct, like Pavlov’s dogs or Darwin’s finches, we’re also creatures of habit, and we’re more self-aware than any other animal species that we know of. The first notion we have to accept is that though we rail against the sellers of these products that we’re lured into buying, the seed of exploitation lies within us. No one can exploit us without our consent. It may be that in this case the consent is implicit, but we’re giving it nonetheless. If we choose not to do so, we can free ourselves.

The simplest solution is to avoid all advertising, of course. Too often we overestimate our ability to ‘see through’ advertisements and not get affected by them, and too often we find that we’re helpless to their charms.

But advertisement are everywhere, aren’t they? How does one refrain from looking at billboards, watching TV or turning on the Internet? To attempt that is to attempt the impossible. So what do we do instead? The best and only solution is to dissect the messages thrown at us and look at them from the other side, from the company’s point of view. Why is it that they are trying to sell this particular item? What in us responds to these ads? Why are the images so seductive? If you take out a few minutes to stop and think, nine times out of ten you will find the initial excitement dying down. And you are able to take a more detached view.

So the next time you see on a travel brochure the image of a happy couple walking hand-in-hand on a beach in Mauritius, ask yourself some questions before you rush to book your tickets. Do you really like the beach? If you do, is it necessary to spend all that money on going to Mauritius, or will a beach in Goa work as well? Is it the apparent love between the couple that you crave? Or is it the sense of freedom and leisure? In which case, would it perhaps be a better idea to just examine your life and bring back that love and freedom in your everyday experience? After you have thought it through, Mauritius may not seem like the gateway to heaven after all.

Of course, in asking these questions you may decide that you would indeed like to travel to Mauritius, to show your kids a new place, to take a break from the monotony of office, and then you can book those tickets.

In most cases, if we take a good, deep look at ourselves, we will find that these scenarios – where the product truly satisfies a need – come along extremely rarely.

The First Steps Towards Frugality

Let me start by saying that I do not think a frugal life is necessarily the ideal way to live. It is your life, so it is your choice as to what lifestyle you would like to follow. My only point is that if financial independence is one of your goals, if you aim to one day be capable of living without having to work, you must train yourself to be thrifty.

Many of us think of frugality and thrift as miserliness. Perhaps it is. Perhaps we all lie somewhere on that line that stretches from extravagance to stinginess, and perhaps we’re forever doomed to look up at the person on the rung above us with mixed feelings of derision and envy.

I would allege that people who are frugal have merely different goals. For them, thriftiness is the path to financial security in the future, sometimes at the cost of sacrifices in the present. He or she understands the limitations of the pleasures of the moment and would rather err on the side of caution. People born in more difficult times of historical transitions tend to save more, while those living in prosperous eras are easier with their spending. But broadly, however much or little you earn, it is only intelligent to save for a bad day. You cannot predict events like future medical emergencies or natural calamities, and there will come a time in your life when you will be too old to work. So it’s best to have a bankable amount of money in your account to insure yourself from having to borrow or beg when disaster strikes. Consuming is not unhealthy – as long as you know your financial limits.

Also, throughout our lives it has been drummed into our heads that more is better, more is happier, more is grander, so that we always think of less as worse, as sadder, as inferior. But in reality, more is better only up to a point, and once we reach that point, we derive happiness from intangibles, like freedom and self-worth, which cannot be measured in percentage points, and are therefore often ignored.

So perhaps we can take our first steps towards frugality by resolving to question this basic creed by which we all live today: that more is better. Perhaps if we begin to challenge our own assumptions about life and what makes us happy, the truths that we find within ourselves will guide us on the path towards change.

1

Putting in Perspective

EVIDENCE IS SKETCHY, but it is likely that ever since human beings began to