mind your own business

We find a number of stories around how to get rich quick. If it was that simple, everyone would be a millionaire. The fact is that no one can predict future, not even those morons called economists. If they could, they wouldn't be calling future, but made truckloads of money instead. 

If anyone thinks that the road to riches is easy, it's a flawed thinking. There are many ways to riches; operating a good business is one. I am not considering only the luck factor here: inheritance, lottery, gambling and so forth. Let's consider the more legitimate ones. So running a successful business is one; however, not many have the qualities of a good operating officer to deal with the customers, suppliers, regulators and society. It is easier said than done, for many. The next best alternative that I find is, investing in a good business. It is like, hiring good managers to run not one, but several of your businesses. It is more interesting and less cumbersome for my personality. Just as a sensible business owner does not require periodic quotes for his business, I find ignoring stock market quotes for my businesses is terrific for my well-being.

There are very few rules that we should follow when it comes to marching towards wealth creation. I reckon, it is more to do with doing less wrongs than doing more rights. It is simple and profound, yet, difficult to implement for humans that we are. 

Spend less than what you earn is the first rule. What it means is that you should pay yourself first, and then look to pay others from what is left. It teaches many things; the best is this: when you sell your time and efforts in earning cash, it is your moral obligation to be compensated first. No surprises here. When you pay yourself, it is called your savings.

The next rule is to invest what you have saved. Investing has different meanings to different individuals. It could be government treasuries, banks accounts, corporate bonds, common stocks, real estate or farms. For some, even precious metals and collectibles are investments. For many, buying insurance is investing. It will be good to understand the concept of investing first before actually investing. 

Then you have to give time for your investments to grow. Wealth creation is always in slow motion, especially during initial years. It is like developing your private business. The growth comes only after the business is sort of stabilized from the start-up stage. You don't close your business just after it starts giving you initial profits. The expectation is to grow it so that profits are much higher in subsequent years. Investing is similar. It is a rewarding game, if played long enough. 

Many don't understand what it means to pay taxes. For them, tax deductions mean god sent. Their aim is to decrease tax payments; many find ways to even evade taxes. It is imperative that you understand how to play the tax game. There are two types of taxes: one is explicit and the other is implicit. 

Let's start with the explicit tax. It is the share that you have to pay to your partner, that is the government. You cannot avoid it. However, your aim should be to increase your after-tax cash flows rather than to decrease your current taxes. What it means is to pay current taxes such that your long term after-tax cash flows are higher. One idea is to invest in tax-deferred investments. I like to invest in common stocks where dividends received and long-term capital gains have an edge over short term alternatives. 

Then there is the implicit tax called inflation. Playing this game is linked to how you invest your cash. Investing in fixed-currency instruments can give you a feeling of security, but the reality is that they can barely beat inflation. In the long run, you will only find that you have not moved much; you have run long enough, yet you are not far from where you were. It is unfortunate, but that is what it is. The solution is to find areas where you can earn more than the long term inflation rate. In fact, that is the essence of investing. 

For many, the game is difficult to understand; for many others, it is the lack of time and interest. Never mind, they will still be able to lead a fruitful life if they invest in a diversified index fund for a long period of time. After all, starting with a dollar invested each month and increasing investment by 10% each year, and letting it grow at 12% annually, should become $8,257 in about 30 years. You can do your own math with: how much you can afford to put in each month over the next 30 years, and check the total cash available at various rates of return. You will get a sense of the power of compounding. You will also realize that higher investments and longer time make a significant difference in the wealth created.

Getting the market return is more meaningful than looking for that false safety in fixed-rate instruments. Remember that implicit tax every time you consider a fixed rate of return.

For those who have time and interest in picking stocks, no other game can be more rewarding. Just keep an eye on value and price, and voila!

Now you know why I don't like to deal with people who deal with other people's money. You can easily be your own money manager.