Create more income earning assets in your early working years:

Today’s younger generation is desperate, impatient and wants to make a quick buck. No doubt, they are intelligent, street-smart and opportunistic. They are not only capable of making a fast buck but also spend it quickly and impulsively. The latest gadgets – i-phone, i-pod, mp3 player, laptop, LCD – they have it all.  I have observed people buying a car on loan as soon as they start working. First EMI from first monthly salary! Does it sound exciting or scary to you? This is in stark contrast to the fiscal attitude of our older generation. They used to think 10 times before taking a loan and if possible would postpone some of their purchases to accumulate the money rather than borrowing.

So is consumerism bad? Not at all. In fact, the younger generation is fortunate enough to have ample options in terms of anything and everything. My point is inculcating a fiscal discipline right from day one of your working. Adopt an attitude of earn-invest-spend rather than earn-spend-invest.  Even if you adopt this approach stringently in the first 10 working years of your life, the easier it will become to achieve goals at later stages. By investing on a monthly basis, you will be creating a liquid asset kitty and these will be making money for you.

Suppose you invest a certain amount monthly from your salary income from the age of 23 for the next 10 years. As you progress in your career and achieve stability, the amount invested can be higher. For keeping things simple, let us assume an average monthly investment of Rs.8,000 in an equity mutual fund. Suppose, it will yield a conservative 10 per cent return compounded annually for 10 years. So by the age of 33, you would have accumulated a corpus of Rs.39 lakh. The amount can grow to Rs.47 lakh if the investment yields 12 per cent return and to Rs.64 lakh if the return is 15 per cent. That is a lot of money amassed in your early 30s.

I have observed some double-income neutral families who have accumulated a huge income earning asset kitty in their early working years. Many were able to make a big down payment for property purchase and took minimal loan as possible. Buying a car came second on their list and that too by paying the full amount in cash. No personal loans, no car loans and no credit card loans. In stark contrast to this, I have observed many families who have a big house, a car and many such assets which improve their standard of living but do not earn additional income for them. They are neck deep in debt and are not able to save at all even for investing. There is a good chance that their networth may turn negative as liabilities exceed the assets. The situation can become more troublesome if there is a medical emergency situation in a debt-laden family.

Creating more income bearing assets in the early working years thus helps one to comfortably take care of the life goals and gradually also improve the standard of living. So start investing early and let the power of compounding take care of the rest.  Einstein described it as the eighth wonder of the world!