t the start of his career, Virender Sehwag was asked on completing a blazing century: "What distinguishes you from Sachin Tendulkar?"
He simply smiled and retorted smartly: "Our bank balance!"
His play and popularity have ensured that, today, his bank balance has considerably gained. But he is not alone in this league.
A number of cricketers, film stars and pop singers hit the million mark before the age of 25. So have many young entrepreneurs, software programmers, stockbrokers and even fitness instructors.
What makes these people even more remarkable is that they did not receive a sizeable inheritance or have a famous lineage to fall back on.
They had a dream, believed in it and worked hard at it.
But while Azim Premji-style mega wealth may be elusive, becoming a millionaire is well within the reach of those who start young and develop the right habits.
There's a huge difference between the gains (and losses) you can make by investing in the stock market compared to your returns from bank fixed deposits.
In stocks, you can make unbelievable money -- it is not uncommon for people to have doubled their money in the last one year.
Compare this with an FD which will only fetch you around 5% to 7% per annum.
When you put your money in a bank deposit, you loan the money to a bank for a fixed return (rate of interest) and a fixed tenure (number of months or years). At the end, you get back your original amount and you are paid interest on the same.
When you invest in stocks, you do not invest in the market (despite what you think). You invest in the equity shares of a company. That makes you a shareholder or part-owner in the company.
The good news is that since you own part of the assets of the company, you are entitled to a share in the profits those assets generate.
On the flip side, you could lose heavily. You may have to sell your shares when the market is very low or you may have invested in a company that is incurring losses and whose share price keeps falling.
You can avoid this in a number of ways.
i. Invest smartly (easier said than done). Invest in companies that are solid and respected and here to stay. Don't just invest in a company because your best friends' girlfriend's father did so.
ii. Invest in a diversified equity mutual fund (these funds invest in shares of various companies of different industries), that has consistently been providing returns.
iii. Invest with a time frame of three to five years. Because even if the markets dip, you don't have to sell your shares. You can stay invested and sell when the market picks up.
Also, over time, prices of shares rise as the company performs. Hence, you need a long term view.
iv. Though money begets money, refrain from any sort of gambling. The odds and the initial money made may lure you, but bear in mind: at the end of the day, the house always wins.
If you know zilch about the stock markets, or think your knowledge base does not warrant any sort of investment, start saving.
Got a bonus? Got a gift? Social life dipped and you have surplus cash? Don't spend it. Open a fixed deposit with your bank.
This advice is not restricted to sudden windfalls. Make savings a habit. View it like a bill that has to be paid. This way, a recurring deposit helps. Open one with your bank or post office.
Money, much like people, enjoys company and can grow rapidly in numbers.
Let's say you have Rs 10,000 which you put in a recurring deposit. That means every month you agree to put in Rs 1,000. If you are getting a return of 7% per annum, at the end of one year, you will have Rs 23,080.
And the Rs 1,000 would not have made a huge dent in your lifestyle, right?
You can even do so with your mutual fund. Every month, invest a small amount in your fund.
Don't fret. It need not be an equity fund. It could be a balanced fund or a debt fund. The latter invests in fixed return instruments and balanced funds are a mixture of equity and fixed returns. They are both safer than equity funds.
For those of you studying in college, don't let the fact that you are not earning stop you from saving. Open a recurring deposit scheme with the post office. The post office asks for an amount as low as Rs 10 every month. Surely you can spare that much from your pocket money, if not more?
3. Shun debt
Nobody becomes a millionaire by being in debt. In fact, being in debt is a surefire way to dry your savings, but can get you into further debt.
The best example is if you are revolving credit in your card. In such a case, you only pay a fixed amount of your credit card bill every month and carry forward the balance amount to be paid the following month. You then end up paying interest not only on what you initially owed the bank, but if you spend on your card now, you are charged interest on that as well.
The interest hovers around 20% on an average.
So here is what you should do:
i. Stop borrowing from friends.
ii. Stop borrowing from your parents or siblings.
iii. Don't use your card to buy stuff you can't afford. If you cannot pay for it in your coming bill, don't buy it.
iv. If you cannot afford a lifestyle, curb it. Can't afford to buy something? Learn to do without it.
v. If you are revolving on your credit card, stop using it till you pay all the bills.
vi. If you splurge when you go out, stop. Leave your credit card at home.
4. Chase your dreams
i. Don't view investments as just money. You can even invest in an idea.
Sabeer Bhatia, the founder of Hotmail, thought it would be nice if people could access free e-mail. That is what got him started: a whim.
Doesn't it seem that anyone of us could have come up with such a basic idea?
American investment guru Warren Buffet, while in college, had saved a small sum of money. Rather than save the money in a bank account, he purchased a pinball machine.
He had noticed that people in hair cutting salons sit idle, getting bored. With the permission of the salon owner, he installed the machine in the salon and started making a handsome profit on it.
So, you see, there is no fixed pattern or the right way to earn money. There are times you go with your gut instinct.
ii. Don't dismiss your ideas as ridiculous outright.
iii. Don't just sit on smart plan. Chalk out how you would want to execute it. Work out the details.
iv. Don't let future constraints, like finances and feasibility, curtail you. One step at a time.
v. If you have it all figured out, ask around for investors. Tap your family circle, acquaintances and friends. Chances are, you will have an investor eager to pool in capital to realise your dream.
In fact, you may just be able to sell your idea to a venture capitalist.
vi. Do not get fixated about coming up with a 'never before thought of, original idea'.
Most times, people build on an already existing concept or commodity and improve it. The important part is that your idea should add value to the product and make it better.
Illustration: Dominic Xavier
