Prof. Bakshi on ‘how to live with financial freedom’. Young people must read this for understanding life in a long term perspective.
QUESTION: I think for many the thought of being financially independent seems like an insurmountable challenge. Part of this is because most new investors overestimate what they can do in the short run but greatly underestimate what they can achieve over the long(er) term. What advice would you give new investors with a goal of financial independence?
One, massively underspend your income. Don’t take credit card debt or any debt. Don’t buy that new car or that new house. Don’t carry credit cards when you go shopping. Don’t become what MasterCard wants you to become.
Cook at home. Buy clothes only when you need them and in a sale. Learn to cherish frugality instead of being ashamed of it. Look for and emulate rich but frugal people. Read The Way to Wealth by Ben Franklin and follow his advice even though most Americans didn’t.
You are only entitled to spend on yourself what is left after you have made an investment. Build a nest egg.
Two, invest wisely. Don’t get into trading in derivatives. Look for good role models and learn how they invest for the long term.
Three, find a new source of income. If you have an old car (you are not allowed to have a new one) and some free time, become an Uber driver. Be creative. The world is offering you a chance to rent your free time like never before.
Four, when you have some confidence about investing, get float. That is, get your friends and family to invest through you for a performance fee.
Five, when you become financially independent (it will happen if you follow the above advice and have reasonable luck) you must still love the idea of frugality. You can live it up a bit, but never forget that you still have to massively underspend your income no matter how rich you become.