Investing - Chapter 4

In the last 3 chapters you read about two friends life. They had similar IQ but completely different financial success. And one's success at school did not guarantee success in life. To be successful you need street smartness or simply have GUTS! Ram goes to Ashwin's home to discuss further about his trouble and possible solution. He is expecting his friend to give him an tablet which will cure his financial illness. He is in for a big surprise. They have a coffee and talk.

Ram - "Let me come to the point, how could I get out of this financial trouble quickly?"

Ashwin - "Its going to be a slow and steady process.. could take years to get there. But its definitely worth it"

Ram - "Wow, years..?? I thought you will help me get better within days"

Ashwub - "There is no shortcut to success. I don't have any tablet which will cure your illness. But if you want to try, I will give you a solution"

Ram - "I am listening, pls proceed"

Ashwin - "How much is your total debt now?"

Ram - "30 lacs. I have paid back rest after selling the home"

Ashwin - "Ok. How much assets do you have? Car, jewellery, FD's,.. anything that can be sold or has a value?"

Ram - "About 10-15 lacs. If I sell all the jewels and take money out of everything"

Ashwin - "Excellent. Sell everything. And repay as much debt as possible. Do it quick, start from tomorrow."

Ram - "But.. those are my family property. I will never be able to show my face to family. They will think am a looser."

Ashwin - "Ahh ah, Most are trapped here. They believe its good to carry debt and assets in parallel. Thats not a good idea. Trust me, sell everything and close your debt asap"

Ram - "But my bank deposits pay 8% interest.. am I not earning money there?"

Ashwin - "Haha.. What's interest on your debt? 11-12%?"

Ram - "12%, floating rate"

Ashwin - "You earn 8% and pay 12%.. thats not smart?"

Ram - "I never did that maths."

Ashwin - "Now if you repay 10 lacs, quickly. You will save Rs 10,000 per month at 12% interest."

Ram - "Makes sense.. How come I bought this debt is still a mystery."

Ashwin - "We humans like stories. When you see an advertisement with a happy family in a beautiful home. We aspire that story. Markerters are great story tellers. They don't show what happens to someone who takes big debt, most sink in the real life!"

Ram - "True.. they said I am making a good decision taking a big home loan."

Ashwin - "Haha.. well, they made good decision by making you pay them monthly."

Ram - "Correct. Okay, Of 30 lacs debt, I will repay 10 lacs quickly within a 10-15 days. What next?"

Ashwin - "Great, after that you will have an extra cash flow of Rs 10,000 per month. Let discuss further that."

Ram - "I will take one step at a time. Thanks for your insight. I hope that I will get better than before"

Ashwin - "Hope is a good thing probably the best thing to carry with you. And no good things dies forever. You will be better, soon."

They agree to meet in a weeks time after Ram repays his debt partially. He still has a long way to go. Lets see soon what happens to him.

Investing - Chapter 3

We read the story of Ram and Ashwin. Ram had professional education, great career and a loving family. But was in a financial hole. Ashwin had a mediocre beginning and went to do really well in his late 30's. They both meet at a restaurant and discuss their situations after initial pleasantries.

Ram - "Am in deep financial problem. My wife has lost a job, I have lost my home. I think I am losing it in life."
Ashwin - "Ohh, what happened? I thought you were doing just great."
Ram - "Well I made some wrong choices. Should not have gotten into huge debt"
Ashwin - "Ram, debt is game. Its played on everyone. Most get suckered into it not knowing the full impact of it."
Ram - "I dont get you. What do you mean by game? Its looks much bigger than that."
Ashwin - "The consequences of getting into huge debt are high. But it still is a game. Let me explain this in a different way."
Ram - "Interesting. Please proceed"
Ashwin - "Let me ask you this question. Where do you get your money from?"
Ram - "From my monthly salary. My company pays it"
Ashwin - "Yes, most of us get it that way. Your company is in-debt to you every month for the services you provide"
Ram - "Thats correct"
Ashwin - "Whom are you in-debt'd to every month?"
Ram - "My bank, I guess"
Ashwin - "Well.. you are also in-debt'd for telephone, electricity, internet, cable, child school, grocery shop...etc. Most of us will have to pay atleast 20-30 different folks every month"
Ram - "But those are small and most are necessities."
Ashwin - "Exactly, the point here is that we get money from one and pay many!"
Ram -"Hmmm.. true"
Ashwin - "In my case, I have about 300 students. Their parents pay me a monthly fee. And in turn I have to pay to 40 folks. I get from many and pay it to less number of people"
Ram - "You are a business man, so more people will pay you."
Ashwin - "Agreed, if you get money from one source and let it go to many. Most often than not you will run out of money. If you loose the job then it becomes real bad. On the other hand, if you get money from multiple source and have lesser number of outlet then you will have a positive cash flow with less risk."
Ram - "Wow, never thought about that. Oops.. sorry am getting a call from my office! Let me pick it"

Its late in the evening and Ram gets a call from his employer. He has to report to office for an emergency. Ashwin feels pity that his friend has to work at night to fix someone's problem. Ashwin tells Ram to come to home on next weekend and talk more about this. We will see what happens further in a weeks time.

Investing - Chapter 2

In the previous chapter you read about Ram. A young, bright professional who got into financial trouble in his late 30's. On the other hand his childhood friend Ashwin prospered financially in late 30's. Ashwin and Ram were neighbors and had similar childhood. Lets look at Ashwin's life.

At 18 yrs of age, Ashwin joined college. He enrolled in maths major as he did not have enough grades to qualify for professional course. He worked part time in a pizza parlor. What struck him was that the owner of the shop had been a school drop out, but had 10 pizza shops in the city and drove in Benz. He realized quickly that to become financially free he will have to think differently.

At 21, he became a school teacher with a monthly salary of Rs. 5,000. He knew well that it was not enough to support him or raise a family. As a child he learnt a few important lessons from his Parents. First, to live within means. Second, to work hard and take calculated risks.

At 23, he earns his Masters degree while teaching. He also starts giving tuition in his small room. Only two students joined. His monthly salary was Rs 7,500. Income from tuition was very negligible. At 25, he manages to attract 10 students, and move to a bigger home where he could live and teach.

At 27, his tuition has attracted 80 students. He has employed physics and chemistry teachers to have a bigger tuition center. He works at the school for free and school lets him to take tuition without charging him rent. His monthly earnings exceeds Rs 100,000.

At 28, he gets married to Anita, a teacher in the same school. Both were seeing each other for 4 yrs, but decided to wait until Ashwin could get hold of his business. After marriage, Ashwin makes a big shift. He employs a bright young maths teacher to replace him from full time teaching. He works on improving his educational business. With all his earned money and a bank loan of Rs 3000,000 (30 lacs) he buys a small piece of land nearby. Builds a coaching center with 10 rooms to house upto 200 students.

At 30, he becomes dad. He quits the school and moves the tuition center to the new building. He employs 10 permanent staff. The monthly income per student is Rs 300. His income-expense is given below.

At 35, he repays all his debt. He has a small but beautiful home with two kids. He manages his business and teaches only for his satisfaction. His income is increasing every year. He does a lot of charity and educates 10 poor kids for free. He believes that very soon he will build school, colleges and universities in multiple cities.

This is when Ram and Ashwin meet at a hotel. Interesting conversation follows. Ram is very much surprised about Ashwin's growth. Ram initially thinks Ashwin was just purely lucky. Ashwin is deeply concerned about his friend. They sit down and decide to talk.

Lets wait for the next blog to learn more about their discussion and what happens to Ram.