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Hey Manoj, thank you for being here. Hello, everyone today. We have Manoj Aurora with us who is the best-selling author of a number of books and we've been having conversations with him around how to achieve Financial Freedom. Today's conversation is a continuation of the conversation which we started last time around Wealth Management. We covered first four principles in our previous talk which we will summarize here very quickly, and then we will go on to discuss for more principles. If you are planning to build wealth with a very very specific reason why you want to build it over to you Manoj. Let let's summarize first what we discussed last time probably just for our listeners to continue from where we left them. Yeah. Thanks, sir. Thank you very much. Me and so I think let me give you a quick brief maybe a minute on what we discussed last time so that we maintain the continuity the first principle which we talked about to build wealth was identifying a very strong reason why you want to do it. Just Building Wealth or saying I want to Achieve Financial Freedom is not a good enough reason you would have a much deeper and much stronger reason to build wealth that that was the rule. You're not feeding all other principles. So that is the first second was that once we have a reason we go to get started and earlier. We start the more wealth the more opportunities, you will have to build massive elk. So start early was the second principle which we talked about third, which we talked about was a principle which is a very very time-tested principle known as pay yourself first. So before you go out and splurge, Judge before you you know, do all those things you go to ensure that you pay yourself first you go to invest what is required as per the Target and then whatever is remaining you, you know, spend whatever you want to spend on eating out on movies and whatever you want. So paying yourself first was a very very time-tested principle, which we talked about the fourth and The most powerful principles which we talked about was unleashing the power of compounding and this principle, of course Works in combination with the second principle, which is starting early. So starting early and the power of compounding gives a very very deadly combination to achieve massive wealth and these are very very simple principles Italy's have been known for a long time. The only thing which we have been missing is to have probably understand. Ying and appreciating the impact of these principles on our wealth. So that's that's where we ended up last time fantastic fantasy. Thank you so much when I watch for recapping those principles to all the listeners who are tuning in now, you should definitely check out our previous conversation because while these principles are of course Sound easy, but the story is the anecdotes the explanations which go with it makes you remember these makes these make them ingrained in your memory. So do check out our previous talk as well. And now probably will will ask my nose to start off with the remaining principles for us to Achieve Financial Freedom and build wealth. Right? So, I think today we're going to talk about the fifth principle which is and the first for today, which is About sharpening your financial saw so, you know actually be all of us after a certain level start to assume that we know enough right and the day we stop learning and the day stagnation starts and stagnation is nothing nothing different from degeneration. So basically you want to make sure that you are a lifetime student and for that you go to to look around read more understand more listen to people more as when talking more have a good Mentor have faith in the mentor. So these are the things you go to be doing if you go to sharpen your financial so and this is very very vital in this very old story. I don't know if you have had the privilege of reading the book Seven Habits of Highly Effective People by Stephen. Yes. So one of the this is very small story in that book which talks about this is a Woodcutter, you know is busy cutting trees and you know learning is livelihood from that would I don't know whether you heard of that earlier or not. So yes. Yes Magi hand when somebody asks him. Why are you doing this? And why don't you spend some time you're sharpening your saw and that will give you more make you more efficient and remove you'll be more productive and the flat reply, you know that comes from these guys. I'm very busy and that's what happens with all of us. You know, we're all busy doing what we all busy earning money and we have forgotten that We going to do with that money and how we going to make it, you know, work more efficiently and before not that we don't have time to you know, look at all those things. So that's where the challenge is and I think sharpening your financial toys. One of the key attributes in the key principles you go to imbibe in yourself as a lifelong principal. You are always going to be student. You're always going to learn because things are always going to change around here. Right? Right, right. Just submerge. It's an excellent point that you've just always be on the top of what what you're learning in finance. And how do you keep those mirrors? What what is it that somebody who's starting their Journey should keep learning. What is what is that direction? So for example, just to just to explain my question in more detail. So so Finance is a very wide field. Of course you would you would know that but then what is it that you know one should keep in Acquiring knowledge about because reading maybe reading Financial newspapers. Is that enough or knowing what are the latest Financial products? Is that enough or understanding if there are any new Financial regulations which are out so what would you or what would you recommend to our listeners? What could be a good starting point, you know for them to okay, these could be good go to sources and just keep a tab on them or if you are interested in this just keep understanding these things. What would you recommend very very very very Valid question I would say because most of us know we are two thousand feet high we want to read about okay, which how to run a big corporate how big companies are running and how stocks are going up or down, you know, we won't go at that level my experience with so many people and some of these are best in Independence domain itself. So Marcia grows in Vegas come We will know how to calculate Roi of our investments other returns of our investment and it's very easy to say. Okay, my future fund is giving me 10 prison, but if you ask me, okay, how did you arrive at anything either they would look at the report may be a bitch. The mutual fund house is giving them fine. That's fine. Okay, so you have 10 different mutual funds giving you 10 different. Otherwise, how do you calculate the weighted? Average very simple things. Okay this one which is let's say giving you a 10% on on 10 lakhs, which we've invested. The other fund is giving you 12 percent on three legs, which are so what's the total Roi the weighted Roi on the total 13 lakh the diminutive. It's very simple method, but we have failed to understand the simple things. And you know, that's why we lose control of how to deploy our money because we do not know which one is doing actually better and which one is not doing well and these are these are funds where you still have some reports. What about various other Investments that you keep doing? Whether you're doing it in ppf whether you're doing it in use a fixed deposit. What is the post-tax Ryo getting people don't understand that it is just believe that okay I have invested in. 7% trick to pull it so I'm getting seven percent. No, it's not that there is a tax bracket in which you're lying. So certain amount of that is getting deducted and how much is getting deducted able to calculate that and they know how to calculate a weighted our work your entire portfolio. So these are very simple things which people do not know how to calculate. Right? Right and that is not so into you before we go into the high level stuff of how to run big corporates and Or the our progress in terms of economy and all those things. Let's understand basic things about personal finance first. Okay, and you can obviously go through various blogs and books in which can give you those, you know, basic things. Once you are aware of that once you get strong at that then obviously if you are inquisitive your mind will obviously ask the next question. Okay, how can I get better at some of the things which I am doing and then obviously lead you to a path. Right, right, right. I think that's a fantastic point. So what and given that specially we are so busy in our day-to-day work. We just don't even be keep losing in touch with our the fundamentals of calculating these returns or even understanding that everything has a tax implication that no returns free of that and to that I would of course the person himself or the investor himself is to be aware of these but the same time all these marketing campaigns, you know. Around okay bonds are good now or stocks are good. Now you could either go down. They also don't help in this, you know a person investor and not invested keeps getting distracted so much and peels lost in this whole I think to that to that your point is excellent where you know, one should sharpen their own Financial acts. So understand what is best keep reading keep learning be a lifelong learner and keep becoming better and better financial management. I'm your fan dancers. Yeah, and it's you know day to day increments in terms of your learning and control that matter rather than you doing a particular course for six months and you know getting a degree or a certificate. It doesn't that it doesn't impact your financial life that much vis-a-vis day-to-day learnings in terms of okay. This is where I am. I have no full control on what I have invested where I have invested how much returns and getting somewhere now. How can Mm through which is the better investment option for me again. There are no good or bad options. You know, it's very very person dependent a fixed deposit may be an excellent option for for someone who needs immediate 20 after one month and it could be a very bad option for somebody who is a long-term investor. So there is no good or bad option. These are all very very specific to a person and that's why you go to keep learning, you know about yourself and about where you are today. Absolutely manage. Absolutely. True. Okay good. I think so. Shall we move on to the next? Yeah. Absolutely. Okay, let's do that the next principle which I talk want to talk about and you you won't you really find it in most most books or blogs or you know articles which you need. I call it as four levels of wealth creation. okay, and I typically most of us understand the first three levels and it's the fourth level which we you know, really do not pay too much attention on and that's why it's one of the very important principles German talk about so when I say four levels of wealth creation typically, how do you generate wealth 1 Yuan, okay, that's income part of So you on income and that helps you in generating wealth second, you do some expenses every month with some of them are mandatory expenses. Some are your lifestyle expenses. So expenses also decide how much will he didn't read Because ultimately income minus expenses that that's what's going to get invested third understanding taxes because other than your income and expenses if you are smarter in you know, managing your Texas you Obviously invest more and then build more wealth, but the fourth lever which people most often ignore or spend. The least time least amount of time is the ROI that you get from your portfolio. Okay. Now most of the time we are spending on the first level which is how to generate more income. That's where most people are focused on whether it's today's generation or even people who are older than us. They spending most of their time running after the fact that how can I generate more income while the fact is more income doesn't lead to more wealth. Okay. It's the Investments is ultimately what you save. That one will lead to more wealth just Was your on more doesn't mean even though I have more wealth and there are many examples of that if people have seen people who on in let's say 7 to 10 lakhs of month and it still bankrupt. Okay. So income the first lever is just has a medium impact on your well. It does have obviously you have a better chance of building more wealth. If you are require more in common that just has a medium impact expensive on the other hand has a very high impact in terms of your wealth generation. So people who quote disciplined and can control their expenses have a much higher probability of building massive. And I say that because income is not going to stay with you for your entire life. Okay at some stage you go to stop earning active in but expenses are going to stay with your entire life. They're going to be inflation adjusted and they going to keep increasing every year. So if you have if you can even control a bit on your expenses, it's going to have a massive impact in terms of wealth generation for your life. Okay, that's something which people don't really appreciate but that's even a very very small impact has a man has a very very small change in your expenses can lead to a massive impact in the long run taxes this so many mistakes. We do in terms of Taxation to the third lever just to save some taxes we get into certain investment which we should not and insurance is very very typical example of that. And so that's the third level which is a very low impact. The biggest impact is from the fourth river, which is principal dogs gold, which is the ROI on your investment. Now, if you are able to improve the ROI or the Returns on your portfolio from let's say today, if you're getting five to send returns to something like say 7% return just because you're more focal just because you trying to understand and learn more then it's it has a much much bigger impact vis-a-vis. Any of the other levels whether you are earning more spending less or saving on taxes. So guys, we got to understand that we got to spend time in earning money. We go to have control on expenses and understand that we need to be smarter in taxation, but we go to focus much more on the fourth level which has the highest impact on your wealth generation, which is the ROI on your Investments. But it's fantastic point. In fact for me. He the the best line of of this principle was that earnings is going to stay only for a certain period of your life. Whereas expenses are with you every throughout your life and that to always increasing with inflation. So I think that's apps that so true and I had never thought of expensive in this format. So if one percent Improvement in expenses can give you Has returned throughout your lifetime true while at the same time. Yeah, good. Good. Please continue also while at the same time and we calculate the Financial Freedom, you know Wonderful tools for various Freedom Seekers. We see that a person who tries to you know, tweak in terms of income. Okay? Let's see what happens if my income goes up, but then send it hardly has any impact on his freedom. You put it somewhere. One tries to reduce the expenses with 20% 10% It has a massive massive impact on the freedom here because understand that what Freedom here is calculated on the basis that your wealth is going to feed you for the rest of your life. So expenses are the second most importantly were after our Y and then comes in common then comes taxation. Right? Right, right. Absolutely. No Chand. The whole Roi point was very very interesting. Because one because there are so many friends even at our age who are well educated who are who've done their higher education than post grads, but for them also savings or investment just means putting the money in FP. So it's a secure place where it's growing decently. Well, it's not bad of course depends on everybody's risk profile. But just that, you know, just making money work for you. That's also a skill in itself while yeah neatly and as it had the impact of this Is much more than the back of the skill with which you're earning money. So true, you know a very small example, let's say somebody has over a period of 10 years or 15 years accumulated. Let's say 1 to 2 crore rupees over working for 15 years or 20 years now if this person and this is a typical case, we which comes to me in terms of people seeking Financial Freedom. They are at a stage of life and let's say they're 35 40 years of age and they really want to you know, they've tried and tested all kind of corporate jobs and now they want to seek Freedom. So this is Kris kind of people if they can let's say improve their Roi by 2% just for 2% by investing smartly over the next couple of years. Do we know how much 2% of two crosses? If you calculated on a monthly basis, this comes to around 35,000 rupees a month. Roughly now what it means is to get an increment of 35,000 rupees a month. You can keep slogging for the entire year or maybe many years and with that increased even if the income increases it's going to come with its additional stress and it's going to lie there only till you work that hard. Again, even then there's no guarantee that it will come. But if you're able to improve the ROI with 2% it's lifelong. Okay, and the more your Corpus has to move the increment is because it's on percentages. It's 2% of your Corpus. Right, so get some relief and dance or for is just that again. It's a very simple thing everybody knows that but then unless you realize how deep it is you not want to focus on that. Her absolutely. No chance fact the example that you took I think I think Violet understood the point but you know it the example drove it home. You know that getting a 35 this very well K increment every month is is absolutely impossible. But you know, unless you're really running well and all but you can make your Investments work for you. You can make your Investments on for you. I mean, that's a extremely good example that you took their yeah. Okay, great. So, I think let's move on to the third principle for today, which is building the right portfolio mix. You know that's very important. Most people I interact with and the first time and I interact with them. They only want to know how to you know, how do you just get a better returns from my portfolio which is important technically but Roi or returns is not the only criteria for your Investments get there. You need to know to build the right portfolio. Roi is one of the criterias but not the only guy Yeah, and if you if you know, if you go just with one criteria guy want to improve my turns. I want to improve my returns. It's like, you know you want to run fast, but you're running on a road which is you know, which paper you could be full of potholes, you know, and you go to First find the right Road, you know we go to First find what's the right balance for me is 7% good for me is 8% good for me is 10% good to me. And what kind of Oops, I should have to get those seven or eight or ten percent go to find that balance and they are various factors, you know, which decide your balance and of course. You also talked about your risk capacity your risk tolerance. These are some of the factors your age. What are why you gettin today? What are why do you want to Target? Because it all depends on how fast you want to Achieve Financial Freedom. And again that will depend on what your reason is for achieving. Plus there is another very important factor for the liquidity. I in terms of I mean in order to get high Roi if I invest in something which is illiquid, let's say for example, I have had some very bad experiences in terms of real estate. So not that bad in terms of returns very good in terms of return, but when I went to liquid, it's very difficult to liquidate a real estate and there's so many people in my own. I mean people who my coach they are stuck their Roi stuck at a certain percentage inaudible to improve Beyond a certain point because they have huge real estate in their portfolio and it's all dragging the our way down and they can't sell it this no buyers. Plus there are other issues with real estate. So the point is liquidity is another important factor. That one should keep in mind. So all these factors together your age your risk capacity. Your Roi requirement to liquidity. So all these factors come together to Define your right portfolio. Mix. Okay, and once you know your right foot will you mix that's when you should decide after that is when you should decide. Okay now I want to invest ABCD because I know my portfolio makes I know the direction in which I want to move now. I will start moving you should not start moving your vehicle before, you know the direction in which you go to go. Go. Right, right, right. This is this is I think I think to this point this is where things are things try to get a bit complicated, you know, so till this point all the principles that we talked about were very very at least straightforward to understand now here here what we are saying is that there are these factors that somebody anybody has to consider before even deciding to start the process start as you said start the journey just describe your what goal you want to reach to recite water liquidity preferences. So I think merge this gets a bit tricky or this becomes the part where people I think they lose that site or Vision if they don't have a mentor with room so I can see how then minute how can somebody who's not who's is not yet gone ahead and reached out to a mentor. How can he are there some at least some broader guidelines, which they can aspire to so that they can at least get started. It or you know, there's some basic guidelines which somebody should which somebody can follow and then while they've started already like you said start now or start as soon as you can get us while they can start in kinky getting more and more information of information. They become more knowledgeable than they can align their portfolio as the idea of it real that point are they would you say there are some guidelines they can get started on. Well, there are certain term rules in the market. For example So one of the very very basic some rule is go by hundred minus H formula, which means that if you are, let's say 35, let's say you're 40 years old. Then you should have hundred minus 40 which is around 60 percent of your investments in equity. That's a very very basic thumb Bruins will be but then again as you said, this is good to get started. Right? Right, right. Then as you go along you go to understand that just age doesn't decide your, you know investment Horizon. Plus if I'm 40 years old, I get started with 60 percent equity but then the challenges that Equity if you getting into you you need to understand that you go to stay invested for a certain period of time to make it risk-free or to make it at least amount of risk. Now if I need that money after two years, I cannot just go and invest 60 cousin iniquity because let's say my child has to go for higher education. I need that money. So everything gets customized depending on various factors which again as you said you would need an advice of a financial advisor or Mentor but years to get started that's a basic thumb rule that you know, people use fantastic - yeah exactly. This was exactly my point that like the thumb rule that you mentioned, you know, so so maybe this is for all the listeners maybe while this may seem a complex thing to to at first to start off with figure out figure out. It's basic thumb rule so that you can at least get started as soon as you can. You know, once you get started then while you're in in the investment mode while you're understanding this, then you can improvise and then you can reallocate your financial assets but start with some of these guiding principles, of course, these are not for a investor who knows things a financial person who's more knowledgeable. These are for somebody who's just starting so don't make them your yardstick use them as a as a just a start. Otter just a starter tool or guideline pre great. Great, right? Okay. So I think let's touch upon the last principle which is keep balancing versus keep investing, you know, a lot of people make that mistake I will not say mistake. But you know, that's the initial stage when they get started they continue to invest which is the keep investing strategy, which means let's say typically when you're investing in equity, let's image. Funds those folks a little bit. Then your typical investment strategy is let's say si b or a systematic investment plan in which one which is good, which is very good. I get started, you know regular monthly contributions average out your risk and ultimately what you want is a good decent return over the long term long. The long run. This is a keep investing strategy, but the real you know, when When it comes to improving your Roi there are one of the real challenges is to buy when the market is low and sell when the market is high. Now the challenge in this is you don't know when the market is low and when it is high so the strategy which we adopt typically is known as key balancing rather than keep investing. So for example in the last principle, let's say we arrived at let's say every could be It should be less than 60% Okay, if I'm 40 years old then I disagree design a band. Okay from 55 to 65. That's where we go to stay in terms of equity and the movement our equally positive shoots Beyond 60 65 to sin then we start to sell Equity. We don't even if it's mutual. We don't Bucky buying. Okay, we start key start selling because that's when the market has gone up and we go to sell and similarly when When it falls below 50% we buy more. Okay, rather than the regular investment we buy more than what is required. So that's one strategy which we use a balancing versus keep investing which helps us to make optimal returns of them are out of the markets and not trying to really tie in the market but going by a set range that we have for ourselves. So keep balancing is what's going to give you much more returns. Then keep investing. Right, right, right. And when you say minute keep balancing, is there is there an underlying is there an underlying would you say a parameter or so, for example, what is it that we are? What is it that an investor should look to balance. Is it the overall risk profile? Is it the overall return profile? What would you say? What is that? What do you optimize for men? We are balancing our portfolio. Typically you balance things which are Volatile, you know and mostly the equity portion in your portfolio is more volatile. Okay, and as we discussed let's say our investing strategies. If I'm 40 years old. I am going to have 60 percent equity. Then I go to keep balancing keep looking at where my equity percentage is going and if it's going Beyond 60, then I go to sell if it's falling much below 60 then I want to buy so that's the only way we can buy low and sell High. Understood understood - just one question here. I think maybe you will address that in one of your subsequent tasks. Is there is there also a framework to analyze an investment opportunity when I say investment opportunity could be a type of financial asset. It could be so for example any alternative investment, of course talks and or FDR DS are something which are which are very very usually very Ali used but if there's an alternative investment opportunity which is available to any investor or any listener, would you also have to do later on discuss way of analyzing that when you say alternate investing strategy investment decision when you say is it using in terms of some private Equity or you asking me maybe I stand the pain cream native investment. So is there a framework that you would recommend people to go out and research or go out and understand to make to for them to analyze opportunities at? Okay. No this C does not seem to be a great asset class to invest in or this is a different as plus that I should not this does not fit my risk return profile. So yeah, so I think these so this is what are you talking about? Actually, it's a part of the third principle. We talked about which is building a right portfolio mix. So there we decide on which asset classes. Somebody should be investing and how much somebody should be investing in which has its place but we didn't go into a lot of detail because of the time constraint but probably we can separate the you know, an entire separate talk on that particular thing. Absolutely. Yeah, absolutely because because I'm sure that as the Indian market evolves as the Indian as in your financial markets evolve, there will be a number of new products which Investors will be c will witness so it'll be great. If we can you just do a primer on a quick primer on some of the generic Financial assets or asset classes which people can invest in. Sure sure. But again, we must remember that no asset class is good or bad or hit Ramen for everyone. It's a different story. Every family is different your future expenses are different your current lifestyle is different your habits are different. So Everything is good or bad. You know what nothing is good or bad? It will all depend on which investment fits you. Okay. So the question that which investment is good is not not a valid question according to me. The question should be which investment is good for me. That's the the differences. Absolutely Minaj. I think that's very well said that it does not depend on what are the financial instruments which are available. It depends more on. What is the best instrument or asset classes which work for my risk return profile? Great. So thank you so much Manoj for being with us being with us today and helping us understand wealth management principles for all the listeners. Manoj is on open Talk Menage profile. Is there on open talk if you want to reach out to him his email address his website. Is there feel free to reach out to him or share any questions any queries that you have with him. We will continue our show on Financial Freedom bringing you more know. Unser's off investing and wealth management Financial Freedom do stay tuned in and thank you again Manoj for being with us. Thank you for all listeners for tuning in and listening to this amazing conversation. Thank you.