Setting your frame of reference right - Part-2

A few days ago a post appeared in my facebook feed in which a friend of mine was asking for investment advice. I was thinking, is he gone mad? How can a sane person can ask for investment advice to whoever sees his Facebook posts? This incidence inspired me to write this second part of my blog post.

In the first part of Setting your frame of reference right, we discussed about how to treat our expenses in a proper perspective.(just like a map.) Now in this part we will discuss about how to look at our investments in proper perspective.

In the last part we saw how a wrong frame of reference can land us into trouble, just like a faulty map (remember those instances when we are finding a place by using Google maps, and because of bad reception our location is shown at wrong point leading us to a wrong way.). We also learnt, how can we compare our expenses to our earnings, here also we are going to do the same thing, that is compare our earnings with our investments.

A simple reference point we can set is how much I earn in a particular time? That is if I am earning Rs. 1000 per 10 hour work day then I am earning Rs. 100 per hour. Then I can think like if I am investing Rs.1000 in one investment which will give me Rs.100 back every year for the rest of my life, then I will have to work 1 hour less every year.

Suppose after cutting for holidays, leaves, vacations etc., you work around 250 days a year, then you must be earning Rs.250,000 per year. Also imagine that you are saving 50% of this income, that is you are saving and investing Rs.125,000 which will give you Rs. 12,500 every year which is twelve and a half days of work.

If you reinvest this passive income from investment and 50% of your job income for 12 years at 10% return on investment, then your passive income for the 13 th year will be Rs.267,000, that is your passive income will exceed your salary. At the same time your investment amount will be Rs.2,673,000. What do you say about it?

Early retirement huh?? ;-) or

FIRE- Financial Independance Retire Early??

I know this calculation is pretty simple, I have not included the inflation rate in this calculation but your job income is also going to increase along with the inflation.

The whole point of this blog post is to provide a proper frame of reference. I am not providing any investment advice. You have to decide it for yourself, no-one else can know your financial condition better than you. And now a days there are pretty easy and cheap investment solutions out there. Making investments has never been so easy. You can make investments by just touching your smart phone screen a couple of times. If your head spins with a thought of how to research stock market, commodities like gold, silver, copper, crude oil, bonds, IPOs, debentures etc., there are mutual funds which can do just that for you, then there are low cost index fund etc.

You just have to stop making excuses, take the responsibility of your finances, think for yourself and start moving.

That's it for today folks.

Have a nice day...

Sumit,

The POWER is when,
You use ODDS,
To get EVEN.

The Big Picture

As I am writing this blog - more than 3.2 million cases of COVID-19 has been reported the world over, more than 228 thousand deaths, and a little more than 1 million recovered from the COVID-19. In India the new case reported in 24hrs curve is yet to flatten.

Governments all over the world are enforcing public lockdowns to contain the spread of SARS CoV-2. In many countries people are already under the lockdown for more than a month.

The future looks bad atleast for the next 2-3 months, some financial pundits are even predicting that it will take more than 6 months for the economy to come to normal. Those tiny little invisible monsters named SARS CoV-2 are infiltrating all over the world. All the global population is experiencing the brunt of this disease. I myself am locked in my house for more than a month because of the lockdown.

But hey haven't you experience such disruptions before in your life?

I mean not just like pandemic but there are always some seemingly insurmountable problems coming our way. Think about it for a while. If I tell you mine, I have been lost in jungle without food or water or direction with friends a couple of times; I have had very high fever (103F) in the night, I didn't woke up my parents as I thought they will cause more trouble, I was feeling dizzy and trying the control the temperature by putting cold water bottle under my shirt, it looked like the night was never ending; during college suddenly I have to present a paper in an auditorium full of 300 people; joined a commando training workshop and came to know that each session was like hell, the couches there never hesitated beating or punishing us if we failed or not did the task/exercise as per instructions; the first time I met the girl I like; the first time I left my house for studies; my pet falling ill, coming home badly wounded; illness followed by death - of my beloved grandfather; death of my beloved pets; death of a good friend; break up from gf; financial losses in stock markets; cheated by trusted friend; financial scam; road accident; went after a business plan leaving everything behind and the investor at the last minute ditched me and started his own business with my plan leaving me high and dry; there are many such incidences where I felt like it's all over. I bet you must have gone through such experiences where it felt like it's over, I'm done, I quit etc.

But what do you think about it now?

What you will do about it if it happens again?

In my case I think these were the trivial things, though at that time such incidences seemed like great loss, I now know that they were great life lessons, they gave me confidence, gave me chance to do better, they helped me reach where I am today, they helped me meet people which I am with today, they made me what I am today. It taught me that everything has an end.

All these problems help us grow emotionally, hence the past problems looks trivial. We even forget many such blips in our life.

Coming back to COVID-19, as I said, this will also end. It is not like it will go on till everyone dies. Only 3-4% of the infected people (mostly who are already suffering with other illnesses) die, rest all recover from the disease. And guess what, the recovered people don't transmit the disease or develop the disease again because their immune system now knows the enemy and how to defeat it. Such recovered people will add to the herd immunity of the society and will slow the spread of the disease.

In some countries the total death rate is actually reduced because people are not dying in road accidents or riots or robberies etc. because of the lockdown. Many companies have developed ways for their employees to work from home (WFH) which would not have been done if there was no COVID-19. Companies are finding the WFH culture more cost effective, so they are going to keep it. It will also save a lot of fuel costs, pollution and office space. It is hard to get junk food, cigarettes, hard liquor etc. during lockdown so we like it or not but our body will like it.

 3-4 years in future we all will be busy with our lives and only occasionally we will recall the COVID-19, may be to tell the tales of our survival through the pandemic to our children or grandchildren.

But till now, make the best use of it, like use the free time to learn the things you always wanted, read, write, do whatever gives you happiness (without causing anyone trouble). Invest the money if the market is down in a diversified way in good companies. That will also add to your repertoire of good COVID-19 tales.

So the Big Picture doesn't sound that doom and gloom. It is just a temporary blip in the history of the mankind. I am an eternal optimist, so I see a lot of progress of the mankind in the future. As the years are passing, the rate of progress is increasing. Make good use of current opportunity at your hand.

Take care and have a nice day.

Sumit,

The POWER is when,
You use ODDS,
To get EVEN.

COVID-19 resolution

Coronavirus disease 2019 (COVID-19) is an infectious disease caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2).

-Wikipedia

The world is fighting to contain the spread of COVID-19. To stop the infection from spreading person to person countries have enforced lockdown of population, which is a curfew like condition, everyone is locked in their home, preventing person to person contact and hence arresting the spread of Novel Corona Virus.

I am also confined to my home. But this situation is giving ample time to reflect. So I thought about making a resolution just like the new year resolution. But this time it gave me a lot of time to reflect.

Ladies and gentlemen this time I am thinking about wealth.

I am thinking about this stock market crash. Most global markets have crashed around 30%. What should I do?

To get the answer of what should I do now, I have to compare it with last great stock market crash I have experienced. That was the 2008 market crash, the subprime crisis. I have seen how the market crashed, how it recovered, what I felt at that time, what I did at that time, what was the result of what I did.

It was hell of a roller coaster ride of emotions. First because of the lower circuits, and the commentary on business channels, I was mortified, I was feeling like there is no end to this fall, but my rational mind was telling that market won't go to zero. Some businesses will use this condition to their advantage. Or the business environment will come to normalcy. So I should buy the blue chip companies which were quoting at very low PE multiples (price to earning ratio). There was a battle going on in my head, my rational brain fighting against my feelings. And of course the feelings had the upper hand.

So what I did was, market was falling, so tried to hedge my position by buying the put options of the index, I made a decent profit in it. Actually this profit gave strength to my rational mind. So I bought some good quality stocks quoting at throwaway valuations. But I bought only little.

After only 3-4 months in to recession, the market started going up quickly, my purchases quickly went up 2-3 times, I was very happy. I booked the profit, thinking the companies are now quoting at expensive valuations. Moved the money in other companies.

But then if I see those companies now, even when down more than 30% from their top, they are still 5-10 times more than my purchase price of 2008-9, some are even shelling out dividends more than my then purchase price every year. Almost every company which I purchased then has eps (earning per share) more than my purchase price in 2008-9. So the bottom line is, I have lost a lot of profit. I wish I had just sat idle with my investments.

Warren Buffett has always advised to purchase only those shares of great companies at great price so that you don't have to worry if the stock market never opens again.

This advice and my experience till now combined are having a great impact on me in current situation.

So the COVID-19 resolution is buy only those businesses which you don't need to sell for atleast 3 years, no profit booking. Sell only if there is some permanent change in the profit making capacity of a business. Otherwise let the profit rise, don't worry if the valuations go expensive.

I don't really know how this will play out.

But I would definitely try.

What is your COVID-19 resolution?

Are you reflecting on your past mistakes?

Do write your thoughts..

Have a nice day..

Sumit,

The POWER is when,
You use ODDS,
To get EVEN.

How should I react to Coronavirus disease 2019 (COVID-19) in samanyabuddhi way???

Coronavirus disease 2019 (COVID-19) is an infectious disease caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2).

-Wikipedia

As I am writing this blog post, more than 6,63,000 people have been confirmed infected world wide, it of which, more than 1,42,000 are now totally recovered and there has been more than 30,000 deaths. We can say that this disease (COVID-19) has become a pandemic. In many countries it has reached stage 3. The stages of the spread of disease are-

Stage 1- Where the authorities know who came from the affected countries and those persons should be quarantined and kept under watch for signs of disease.

Stage 2- Where the people migrating from affected countries come in contact with local people, like family members, friends, relatives or various service people but still the authorities can track those who came in contact with the migrants from affected countries.

Stage 3- Now the local people who came in contact with the migrants from affected countries mingling with other local people. Here because of the large scale of interactions the authorities cannot track the spread of infection and hence everyone is a suspect of infection.

Now let's have some thought about the virus.

What is a virus?

Virus is not actually a living thing. It is just like a computer virus. It only works when conditions are favorable.

A virus on it's own don't shows any signs of life, it doesn't consume food, doesn't make any energy, there is no chemical reaction happening inside, there is no movement, no breathing, nothing.

A virus generally is just an RNA (Ribo Nucleic Acid) which contains the generic codes for reproduction, some enzymes which helps in starting the reproduction process, these two are packed in a protein and lipid envelop. This protein envelop has some special proteins which acts as key to enter the host cell.

If there is a pen drive, which contains a computer virus capable of infecting windows 10 through some weak points of windows 10, and we keep the pen drive in a closet, then nothing will happen until we plug the pen drive in a powered on PC with Windows 10 operating system. If the virus I is plugged to a Windows 10 pc which is powered on then only the virus will get activated and start infecting the PC, then if there is an antivirus installed which recognises the activity of the virus then there are 2 cases 1) the virus may have capacity to overpower the antivirus program, in this case the virus will cause harm, make copies of itself in all connected devises or 2) the antivirus successfully deletes the virus files and there will be the end of the virus.

If we plug the pen drive in some Apple device then there will be no activation of the virus at all.

Similarly natural virus has these particular key proteins in it's envelop which opens the door of the host cell. That is every living organism has different proteins supported by cholesterol in it's cell membranes which only allows the required molecules to enter into the cell. These key proteins in the virus envelop are very particular about the host cell, for example HIV can only infect human lymphocytes, not any other cell or not the lymphocytes of a dog.

Once the virus key proteins opens the lock of the host cell door, a passive entry of the enzymes and RNA in the the host cell is triggered. The enzyme and RNA then quickly starts synthesizing the proteins necessary for making the virus copieas by using the cell machinery. The cell now become a zombie, it doesn't now perform it's intended role but instead starts acting as a virus factory. When the cell becomes full of virus copies, a self destruct mechanism gets triggered, which destroys the host cell, releasing the viruses. The new viruses released, starts infecting more cells, each one of them produce many more viruses. Now the infected person can spread the infection through his body fluids like cough(mucus)/saliva/urine/feces/blood/genital fluids as per the infection. (Cough/saliva in the case of COVID-19, which gets sprayed when the infected person coughs or sneezes. This virus is heavy, so it doesn't float in the air, it falls down and remains on the surfaces in the vicinity of the infected, when a healthy person touches such surface, it picks up the virus and if the person touches it's nose/eyes/mouth with such dirty hands without washing then the virus reaches it's destination and starts infecting.)

Now the virus defence is done by our immune system by various ways like- killing such infected cells and stopping the reproduction of the virus or making antibodies which binds to the virus envelop which prevents the virus from entering any cells i.e. our cells now recognise it as a foreign body and don't allow it to enter the cell.

This particular Novel Corona Virus infects our respiratory tract lining cells which causes dry cough, fever etc.

Now there is some time gap between the entry of the virus in our system and experiencing the symptoms of the disease. This period is called the incubation period. That is the person is infected but doesn't show the symptoms of the disease. To understand this incubation period let's take an example of Terrorists vs Nation-

Suppose a handful of Terrorists enter a nation with an intention of creating a terrorist organization by recruiting the citizens of the same nation, brainwashing them, training them and then using them against the same nation. You can understand that this process will take time before it starts showing it's existence. At first no one will notice the terrorist, the terrorist will then try to recruit, brain wash, train the members; till then some good citizen will notice that something bad is going on, he will raise the alarm, but the security system of the nation will also be sceptical about the alarm so it will just inform a local patrol to check it out, and then when the local patrol will confirm the situation, a countermeasure will be taken, it may involve a limited attack if the situation is not severe, but if it's too late then emergency will be declared in the nation and all the resources of the nation will be used to defend the nation from the terrorist threat. All of the normal public of the nation will only suffer if emergency is declared otherwise it will be a local affair.

In the same way, if things go too out of hand then only our immune system declares an emergency, all the resources of our body are diverted towards our immune response, that is, all energy is diverted towards the immune cells, all other gets less energy, hence we feel weakness, all other processes are slowed down e.g. digestion, hence we feel nausea, nose starts running, more cough is produced to flush out the infection, temperature of the body is raised to help our immune system function more effectively. We call all these, symptoms.

What will happen next?

There are two possible conditions-

1) Positive case- The spread of the disease will soon be contained, the number of the people getting detected COVID-19 positive will start decreasing. And it will end soon.

COVID-19 vaccine trials get successful and we don't have to fear it anymore, all the life returns to normal in a month.

2) Negative case (Worst case)- The disease keeps on spreading rapidly, exponentially. Almost all the population on the Earth will get infected, but is it the end of the mankind? Is it where all ends?

Certainly not.

Law of natural selection / survival of the fittest :

We all have learnt the law of natural selection, the one who is fit to survive in an environment survives, others who can't- die. This is the nature's way of weeding out the weak ones.

There has been many such natural disasters in the past like, ice age, droughts, floods, tornadoes, meteor strike, many epidemics, pandemics etc. But still the life thrive. Because the survivers are stronger and they quickly take up the vacant places.

This period is the live demonstration of natural selection / survival of the fittest.

We are observing a history in the making. We will tell the tales of how we survived the COVID-19 pandemic, the lockdown period etc. to our children and grandchildren.

Not everyone who is infected by Novel Corona Virus dies, many have recovered totally and many will. The mortality rate is much less than 10% globally.

So what we should do?

Preventive measures prescribed by Government of India-

PREVENTION

But on top of that one should try to keep his or her immune system healthy by-

1) Eating healthy food- Eat home cooked natural food, prefer protein rich and low carb food, practice periodic fasting like eating only once in a day and only water otherwise for the rest of the day-once or twice a week (do check what suits you).

2) Exercise- Exercise 2-3 times a week(more is not needed), exercise is something which pushes you a little(not more, otherwise you would damage something more and never return to exercise) beyond your normal capacity. Exercise should include yoga, cardio and strength.

3) Rest- proper and enough rest is very very important for our immune system. Deep sleep is the best rest. Always take required amount of sleep, listen to your body to determine how much sleep you need, because there are no standards, every body has different needs. For example I need 9 hours of sleep every day, 2-3 hrs less sleep in a week leads to symptoms of infection. Whereas some of my friends need only 5-6 hrs of sleep every day. If you catch any infection and show any symptoms like cough, cold, fever etc. do sleep much more than normal till you get well. When we sleep, almost all of our energy is used to fight the infection and we recover soon. But if we keep working then our immune system gets less energy and you can imagine what will be the results.

This is samanyabuddhi.blogspot.com so how can we not think about wealth and happiness?

What should we do for our wealth in view of the COVID-19 ??

I am an eternal optimist, all global share market indices are down 20-40%. So I think it's a great opportunity to purchase great businesses at discounted prices. Creat a diversified portfolio of great businesses. You can directly buy individual stocks if you understand what you are doing, or can buy index ETF (Exchange Traded Funds), or if you don't understand that much, you can buy a diversified mutual fund of a reputed fund house or an index fund of a reputed fund house. Invest your money in a staggered manner so that if market guess up from here, you have something invested and if it falls further, you will have money to invest. Such opportunity comes only once or twice a decade so don't let it go.

What should we do for our happiness in view of the COVID-19 ?

Many are ordered to work from home (WFH) by their employers, so make the best of it, your travel time is saved, invest this time in the family. Spend quality time with your family. Spend time on your hobbies. Learn something online, cook, paint, sing, dance, do what you like and enjoy. Do remember-

The POWER is when,

You use ODDS,
To get EVEN.

So have a nice day.

Sumit,

The POWER is when,
You use ODDS,
To get EVEN.

Conventional vs unconventional part 2

Suppose you went to a restaurant with your spouse, usually you order a particular favorite dish that you both like. But today your attention goes to an unknown dish in the menu card. You order it, and it turns out to be a little bad. Then everyone must have guessed it right that it would result in a heated argument that why you chose this dish and ruined our date?

But what if you have ordered the regular dish and somehow it was not having the usual taste, rather it tasted bad?

Then your spouse would not have blamed you. So the second option has no downside in this case. And the first one has little upside (there are chances of one of you or both of you like the dish) but huge downside of a heated argument.

But logically speaking, is the second option really that good?

Well it's certainly a safer one, but would you eat the same dish on every date? It will be boaring. But choosing something different each time just for the sake of trying to be different is also a bad strategy, because you will not be able to explore anything deeply, and everything will be just superficial.

What people do conventionally is try to choose the safer option, and what unconventional people do is analyse different options in front of them and choose wisely.

In the above case, if one finds a good dish, one may continue ordering it on every date till it feels good, but once it starts to become boaring, one can try a different one, till one finds another great dish to continue again.

It's that easy.

Now one can apply the same logic to other areas of life, instead of sticking to the conventional safer choice.

If one is not getting desired results then tweak the strategy, till one gets the desired results. Don't just keep blaming the luck. Try what is in your hands.

For example, if you are having huge loans and no savings, try decreasing your expenses, search for cheaper alternative, start saving more, try to increase your income, try creating passive income sources.

Not happy in your relationship with your spouse/girlfriend/boyfriend? Try searching what's going bad, Confront the obvious, don't delay an open talk, try listening more, don't be controlling, reconsider your thoughts, put yourself in the other person's shoes, say sorry if needed, put your ego aside, accept the reality, rather embrace the reality, prioritize what's important to you. It's not that hard. Rather continuing a bad relationship the way it is, is a hard thing to do.

Change is the only constant thing in the world.

The more one gets it, the more content one be.

This one thought have a great potential to make a difference.

Have a nice day..

Sumit,

The POWER is when,
You use ODDS,
To get EVEN.

Conventional vs unconventional

This blog post is inspired by people around me and my reading habit. Also this blog post is related to all three pillars of life i.e. health, wealth and happiness.

I like reading or listening to the interviews of great achievers, I like reading their autobiographies. So naturally whenever our brain sees 2 things of similar nature, it starts comparing them. Here in this case, extraordinary men (great achievers) in autobiographies or interviews and the common people with common or average achievements.

What I notice is that, world is full of random occurrences. Even if we try to do something good, we take care of every possible glitch, every imaginable problem, but still something unexpected can happen and ruin everything (like we are driving in the road cautiously, obeying traffic rules but a drunk driver comes out of nowhere, breaking all traffic rules and hits us). Or sometimes, we don't do anything but things gets matched on their own and we get a great results(like we see a lottery ticket lying on the street, we pick it up and it turns out to be a winning ticket).

We get following 4 relationships between effort and results-

1) No (or very little) effort -> Poor result

2) No (or very little) effort -> Great result

3) Great effort -> Poor result

4) Great effort -> Great result

 We get fascinated by stories matching with relationship number 2 & 3. That is almost no effort can bring great results and great effort can give poor results. All human beings are suckers for stories. Remember our childhood days when we used to nag our grand parents to tell us stories??

Even grown ups watch TV serials and movie because they tell a story. This fascination about stories brings us to believe that great efforts does not guarantee great results and without any efforts or with very little effort we can get great results. So most of us don't bother putting any efforts even with the things which matters to us and hope that one day everything will align itself and we will get great results. Or some even believe in destiny, they think, if it's in their destiny, they will get it or otherwise no matter how much they try, they won't get it.

Now keep aside the thoughts about the destiny and fascinating stories and think about the following cause and effect relationship in a mathematical, logical way-

1) No (or very little) effort -> Poor result

2) No (or very little) effort -> Great result

3) Great effort -> Poor result

4) Great effort -> Great result

Now logically speaking, here in our world, everything is interlinked, ever heard about butterfly effect?

A thing as small as the flutter of a butterfly can cause a typhoon half way round the world.

In plain English, if conditions favor, a small trigger can cause massive results.

So a cause of devastation caused by a typhoon can be a harmless looking little flutter of the wings of a butterfly.

So no effort resulting in great results and great effort resulting in poor results are bound to happen time to time. 

But what about other conditions? That is, no effort gives poor results and great efforts give great results. Well they are bound to happen when external things don't intervene in negative way.

Probabilistically speaking even if 10% is in our hands and 90% depends on external factors and we put in all our efforts then the possibility of favorable outcome happening will increase by 10%. And generally in my observation, more than 50% of the influence is in our hands and rest are the external factors. But external factors are also 50-50% in nature, that is 50% time they are positive and 50% times they are negative. If we consider only the positive things, that is we are doing our 50% part, and out of the remaining 50% there is 50% chance of positive i.e. 50% of 50% is 25% so, this 25% positive plus 50% by our efforts gives the success rate of 75%.

Isn't it great!! In the contrary if we don't do our part then the success rate is around 25%.

(These are assumptions, but I think I made my point that if we put in our efforts, the possibility of good results increases.)

In real world when such things-

1) No (or very little) effort -> Poor result

2) No (or very little) effort -> Great result

3) Great effort -> Poor result

4) Great effort -> Great result

happens, ordinary people exhibit following attitude-

When I am right I am genius, when I am wrong, it's due to bad luck.

Almost all Ordinary people believe in it, this is the conventional wisdom. Someone have said that,

In financial world people are famous for being right once in a row.

When you read the interviews or autobiographies of unconventional people, you will quickly find out that, they can separate the luck part and effort part of any achievement. If they encounter a failure, they try to analyse the root cause. They don't just blame it on luck, they find it out if they have done their part properly, if they are missing something. In this way they keep on improving themselves, keep evolving. They keep on becoming better version of themselves, day after day, they never stop learning.

Actually we already do this thing, and we have to. Any guesses where??

At our job. We try to stay relevant. We keep on updating our knowledge, updating our skills, we don't say I encountered failure because of bad luck and I can't do anything about it. We find the root cause until we get the success.

Then why not in our personal life?

Have a nice day..

Sumit,

The POWER is when,
You use ODDS,
To get EVEN.

Setting your frame of reference right..

This article is inspired by a friend of mine, who earns a lot, but still don't have a clue why he can't save anything.. I know many people, who are in the same condition.

I suggested him to keep a log of every expense he is doing however minor or obvious it may be. So as to get an idea about where his money is going. Me too did the same when I was in the same situation, and got a headstart in living a frugal, happy, healthy life with lots of investments earning money for me.

Mostly the ideal savings rate is 80% of the income. The more, the better. It has nothing to do with the amount of income. Most people have savings rate of almost 0%.(some also manage to have negative saving rate, that is they spend more than they earn. Obviously they land in to debit trap.)

People give reasons like- my income is small, when it will increase, I will start saving, or this year the expenses are more, once the expenses reduces I will start saving. And savings never happen.

People are not dumb to not understand the benefits of savings and investing. But still they don't save much.

Now why this happens?

The reason lies in our psychology.

Our brains don't have the capacity to judge anything of it's own. We compare anything with something similar, like we judge the temperature of anything with respect to our body temperature, we describe the temperature as hot or cold (with respect to our body temperature), we cannot tell the temperature in degree Celsius or degree Fahrenheit. Or if we see a picture, our brain subconsciously searches for known things and then interprets the unknown things in the picture by comparing with the known things in the picture. For example if we see a picture of a building we can't judge the height of the building (because building can be of any height), but if we see a man standing in the picture then our subconscious knows that a man is generally 5 to 6 feet tall, and we can quickly get an idea about the height of the building with respect to the man.

But what if we have fever? If the man standing in the picture is dwarf (only 3 feet tall)?

Then our judgements will be wrong. If we have fever and our body temperature is 40 degree Celsius instead of 37 degree Celsius. Then we will find things colder by 3 degree Celsius than usual, that's why we feel cold when we catch fever.

Or if the man standing in the picture is only 3 feet tall instead of usual 6 feet tall then we will judge the building twice the size of it's original. But soon we will find other anomalies in our judgement, like we will find something else in the picture which is of normal size and recognize our mistake. That is if we see a Toyota Corolla (a very well known car) in the picture. Then we will quickly think there is something wrong in our judgement, either the car is twice the size of usual (which is quite impossible) or the man may be dwarf (some possibility). So we will come to the conclusion that the man here in the picture is dwarf. And also we will get an idea about the real size of the building.

But if the man in the picture is 5 feet tall instead of 6?

Then there will be a minor error in the judgement of the height of the building. Which will go unnoticed. (around 20% error will go unnoticed.)

Coming back to our topic about savings and expenses. We judge our expenses in a similar way. We compare our expenses with similar expenses of ours or our friends or colleagues. And a 20% increase in the expenses can easily goes unnoticed. And this is how our expenses can easily skyrocket.

But are the reference points right in all above examples?

In engineering drawings it graphical maps or even in the Google maps, a scale is given, that is, this much distance corresponds this much kilometers. This standardized system prevents most of the errors of comprehension.

Now what is the proper reference point to judge our expenses?

I think our expenses must be correlated to our income and not with other expenses, because we just saw how our expenses can skyrocket if we compare with similar expenses but our income has nothing to do with our skyrocketing expenses. It grows with it's own pace.

A simple reference point we can set is how much I earn in a particular time? That is if I am earning Rs. 1000 per 10 hour work day then I am earning Rs. 100 per hour. Then I can think like if I am buying something for Rs. 100 then I would have to work 1 hr. at my job in return. Is the thing I am purchasing worth my spending 1hr at my job?

Suppose I am going to change the engine oil of my bike and the mechanic there is asking for a Rs.100 as service charges for just 15 minutes of work then is it ok for me to spend an hour at my work to change the oil of my motorbike? Of course not... The mechanic is earning Rs.400 an hour, you should rather quit your white collared job and become a mechanic instead. :P

But practically it is very easy to change the engine oil of a motorbike or a car, instead of paying huge service charges and waiting for them to finish the work, you can do it yourself with the satisfaction that I did the right thing, saved money, time, expenses to travel to garage, avoided the headache of taking an appointment, I did it with love and care for my machine, I did it properly.

And trust me the tools and spanners needed are one time expense and you will recover the money in the first time itself. And they mostly last more than a decade.

It is just an example of setting the frame of reference right. It will align your expenses with your income. You have to practice this for 2-3 months and then it will become automatic. Afterwards you will automatically think about any expenses with respect to how much time you have to spend at your job to earn that much money.

So incorporate this habit and start saving your own money. That's the homework..

In the second part of this blog post we will learn about setting the frame of reference right in investing.

See you soon.. Till then have a nice day..

Sumit,

The POWER is when,
You use ODDS,
To get EVEN.

Doing the right thing & Prioritizing the work..

There are two rules to achieve great results in our life-

1) Doing the right thing is doing the thing which is necessary to get required results.

2) Prioritizing the work is giving the highest priority to the work which produces the most important results.

Both these rules sounds like pretty basic, trivial, anyone will understand, everyone knows, every human being must be following it.

Yet in our day today life I see most, including me ignoring these basic rules.

Mostly we are doing what we feel like doing instead of doing what is necessary. For example many of my colleagues have home loans on their head, they feel the pressure, the burden of the loan plus interest costs on their head, they hate paying the monthly EMI of the loan but still they feel I must have a car (in Indian metro City motorcycle is the best way to commute to the workplace because of traffic congestion, and car is only used for some once in a month family outings, using a car everyday is not at all practical even if you have extra money) and they get one (on the loan of course) though they know that the value of the car starts decreasing, the moment it leaves the car showroom. Just because they feel buying a car is the right thing to do.

I have seen even high ranking officers in various organizations doing the same, I have found them concentrating more on the results, trying the tweak the results instead of working on the system which is giving the results. 

Investment legend Warren Buffet have described this condition as fixing all your attention on the scoreboard, when you should be concentrating on your game, which is actually producing the score.

When it comes to prioritizing the work, people also don't give much deliberation and arrange the things in proper order. People just start doing the things which they like to do first or which appears in front of them first.

For example, as most of the people are not doing the right thing, they are not getting the required results, and as they are not getting the required results they are working still harder, resulting in working overtime, bringing office work to home, not having enough time for lunch break, so skipping lunch altogether. But we join a job to ensure enough food for us and our families, what if the job is consuming so much time that you are not even getting time to eat or for your family. Anyone in this situation needs to pause and think about it, whether you are doing job for you and your family or your existence is for the job?

And when an high level managerial person does it, his/her subordinates also have to follow for obvious reasons. Resulting in too much of an indirect damage to many families because of the bad decisions of a single person.

All this can be avoided with doing the right thing and prioritizing the work.

It is not only related to offices or organizations, it is also related to our daily lives, we have to take decisions like, what to purchase, when to marry, whom to marry, which job to join, when to change the job, purchasing a house, making investments, family get togethers etc.

If one is only chasing his/her career and ignoring the family aspect of life i.e. getting married and having children then there remains a void in the life of that person, even if he/she becomes really successful in the career.

Remember this blog is to strengthen the three pillars of life- health, wealth and happiness.

So we have to learn to do the right thing and prioritizing the work. So as to achieve the maximum output in minimum input. (Improving the efficiency of our life.)

Find out what you want and which system is producing those results, sort out the bottlenecks, don't be afraid of failures, change the system if you are not getting the required results, think which is the most important thing to be done, also what is to be avoided. 

That's your homework.

See you soon. Till then, have a nice day.

Sumit,

The POWER is when,
You use ODDS,
To get EVEN.