This is the basic question including me all of us need to ask when we think about our finance. Let us analyze the reasons behind this. The inspiration for this post is the book “The Millionaire Next Door” written by Tom Stanley and William Danko. Even though I have not fully read this book but few points forced me to share those wonderful ideas with you all.

1) Live well below our means-This is somewhat we all need to follow seriously, especially the younger generation. We tend to be more expensive than our earnings. We buy the products which will give us satisfaction only for few hours or days. But we buy them to show to the society that we also can afford (but not easily 🙂 ). Buying expensive mobiles, unwanted weekend shoppings and there by buying useless items which we neither need them nor they actually add value to our life. We all work hard to earn money and at the same time we “WORK HARD” to spend all that earned money. Strange but the reality. When we look for our current financial status, we find that we can’t survive even for a month without salary. But still we are so crazy to spend whatever we earn. Buying is necessary but we first need to analyze whether this buying is actually our need or for the status symbol. So economical buying will be the secret behind successful financial life.

2) Allocating more time and money efficiently in building  wealth-This is missing in young generation these days. They work hard and spend also but they invest some part of their earnings may be due to parents compulsions or for tax saving purpose. But they never do the homework required before investing. We are all working for around 60-70 hours a week to earn money but we forget to work out on where to invest that money. So there is no short cut to success until we learn how and where to invest.

3) Financial independence is more important than displaying high social status-Yes these days we want to show to our friends, neighbors and relatives more than what we are actually. But in return we are ruining our financial life. It is like rat race to show that we can afford the costly gadgets, costly family meal, costly international tour or costly lifestyle.

4) Not accepting parents financial support-This is somewhat we follow when have huge crunch of cash. But this again makes us weak planner of our finance. The only motive behind this is making us to be independent instead of depending on our ancestor’s property.

5) Teaching your children about importance of money– When we are thinking about our kid’s future we plan in such a way that our kids may not suffer like what we suffered in past. But in directly we are providing the ready-made cushion to our kids to financially depend on us. We take admission to costly “International Schools” which only guarantee us the costly lifestyle but not the quality education. I have a question to parents who take admission in such brand schools-Will the school guarantee all children whom it admitted to make them intelligent, self reliance and leader of tomorrow? If not then why we need to run behind the status symbol race to make our kids to study in such schools?

Make your kids aware about the value of money. Provide them good education but at the same time let them understand some hard facts of life also about money. Otherwise they think that money will only come from ATM but not with hard work 🙂

6) Proefficient in timing market opportunities-This is somewhat one need to apply once you understand the above points fully and start to work on your finances. There will be always opportunities but finding them will again require knowledge and research and these will not come until you spend time on your money matters.

7) Choosing right profession-Choosing your interest and hobby as a profession is different than choosing the profession which gives you money. You look around the successful people and you notice that they are just mad about the profession they are in. Reason for such madness is they love so much so that “They eat, drink and sleep with what they are doing and took as a profession“. Whereas a normal guy forced to do the Engineering or MBA only to satisfy his parents or to get a decent job so that he get live the non-risky life.

Hope above points are actually an eye opener to all 🙂


9 Responses

  1. LIC traditional plans are not providing even 6% IRR. Why LIC policies are poplular is because 2 reasons, one that agents are paying commision to buyer (note that agent is getting 35% commission from your first year premium, 15% from 2nd year premium and 5% from next year onwards till the end) Even he is willing to pay first whole year premium then also he is in benefitted. Second reason is people are paying premium regularly, in other word its disciplinary investment. If you follow the same strategy in any diversified mutual fund SIP for 10 year, I bet you will get more than 12% IRR.
    For tax savinf purpose you can invest in PPF and can get tax exemption, for risk cover as rightly said by basu, go for online term insurance.

  2. First of all consider whether she needs insurance or not? What is the purpose of taking insurance policy i.e. risk cover, regular and compulsory savings, retirement planning etc. Have you at least taken basic information about various types of policies to match your purpose? Have you at least taken basic information about various investment avenues available for you? Would you buy any other policy if other agent is ready to pay you 4 or 6 months’ premium? There are contradictory statements, may be not very serious, but to say that “I need sound investment as my wife is not covered”. Selection of LIC policy might have stemmed from the perception of safety and security of Govt. organisation. Please take some more information about various things and then you decide yourself what category of product is correct to by and then take professional help to buy the exact product.

      1. Hi Basu,

        Thanks for your advise. She was recently employed as a Staff Nurse at Govt. Hospital and hence the need for insurance, both for life cover as well as tax saving. This is not to suggest that she (or I) did not want to take life insurance cover, but because of financial and personal issues, I was unable to buy an insurance for her. Now that she is employed herself, it has become kind of compulsory to buy insurance policy primarily for tax saving. All the time, I was trying to convince her to buy TERM PLAN FIRST. Accordingly, can you please advise on which term plan to buy. Also, if possible kindly enlighten on other investment options. I am very confused on it myself.

        Thanks in advance,

        1. Aaron-Then she must first have life insurance (term insurance). My suggestion will be HDFC Click2Protect or ICICI’s iterm. Both the companies have a higher claim settlement ratio then other private players. You can also think of the LIC’s offline term plan but it is costliest term plan than other available options. If she is not that much more comfortable to go with private insurer then suggest her to diversify the Sum Assured among LIC and other private players.

        2. Dear Aaron,

          As Mr. Desai rightly pointed out do assess your wife’s needs before you decide on the cover amount. You can use our online calculator to access the ideal life cover:

          As Mr. Tonagatti has suggested, she may consider ICICI Pru iCare, our online term plan which can easily be purchased online and allows you to get a cover of upto Rs. 1 crore without any medical tests. To know more visit:

          Regarding claims, we are committed to honor all claims quickly and fairly. In its annual report for FY12 by the industry regulator IRDA, ICICI Prudential has a healthy claims acceptance ratio of 96.5%. You can access the report by clicking

          Please understand that we only offer suggestions based on your requirements, however choosing a policy most appropriate for you remains at your discretion.

          Warm Regards,
          Life Insurance Help
          ICICI Prudential Life Insurance

  3. Hi Basu, My wife, who is 34 years old, is planning to invest in Jeevan Anand policy for 23 years, premium of which is coming to about Rs. 48k annually. The agent is willing to pay the premium for first 3 months, one of the reason my wife is attracted to this policy. She does not have any other policy like term plan. Please advise if its a good idea to invest such a huge sum in one policy or go for term plan and invest in other instruments like, PPF, MF, or any other instrument that you would like to advise. I am actually also looking for sound advise on proper investment for my wife, who is not covered at all. Thanks in advance.

    1. Aaron-Ask your wife below questions.
      1) Why agent is willing to share his commission with you? Either the product is sub-standard or he is mis-selling.
      2) When returns are around 6-7% and inflation around 6% will it be wise to invest where real return is ZERO (Actual Return from policy-Inflation rate=Real return)?
      My suggestion will be first have a term insurance in your kitty to protect your life risk. Then think investing based on your financial goals. Simply follow the rule-Short term of less than 5 years then invest in debt product. Long term goals-Invest in combo of Equity+Debt. This will work out better than any of such plans. Insurance is required if your wife is earning and someone is dependent on her. If yes then go ahead with buying term insurance. Else insurance on her name not required.

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