‘I want to get started on my investing game, but I don’t know where to start?’
Whenever someone has asked me this question I’ve pointed them to one book all the time. No it’s not ‘Psychology of Money’, nor is it ‘Rich Dad Poor Dad’. The book is called ‘Financial Freedom’ by Grant Sabatier.
Psychology of Money helps you understand how people think about money, and Rich Dad Poor Dad superficially talks about investing. These books fail to answer a simple question which all of us have ‘What should I do with my money right now?’ Financial Freedom is the answer to that question. In the book, author Grant Sabatier will take your hand and walk you through all the actions that you can take right now and gives his reasoning for them as well, so you can take well informed decisions.
I went through this book again after a long time (probably 9 months) and here are my most important takeaways:
1️⃣ Long term investment or short term investment?
Let’s say you are planning to go on a vacation in under one year. Where to keep the money? Keeping them in stocks can be risky. What if the market goes down? Then you will have less money to splurge on your trip. If you keep it in a bank account, inflation will eat it away.
Sabatier suggests that you keep the money in government bonds (think of them as government taking debt from you to build roads). They are safe and offer a higher rate of interest than banks. In India new and young banks are also a good alternative, as they provide good interest rates.
Long term investment is just keeping the money and letting it compound.
Decide if you are doing long-term or short-term investment and invest accordingly.
2️⃣ Calculators
You don’t need to open your excel anymore! Sabatier has provided many calculators to plan your financial journey.
Expense Calculator – How much money do you spend? Plan your monthly/annual expenses.
FIRE Calculator – How much money do you need for the rest of your life? Keeping in mind the annual expenses and future one-time expenses.
Years to FI Calculator – What is the impact of your savings rate on financial independence?
Though these calculators take dollar as input, assume it is rupees and enter values to get your desired results. You can access all of them here.
3️⃣ Freedom Calculator
If there is one thing that you would take away from this book, it has to be this:
If you invest ₹X today it will buy you Y days of freedom in future.
Using this calculator you can find a number for you that will say something like that. For example: If I invest ₹1000 today, it will buy me 1 day of freedom in future.
The point is not that you don’t spend your money at all but save yourself from unnecessarily wasting money. If you are buying something let’s say worth ₹3000, you might be trading 3 days of freedom in future. If you are okay with the trade off go ahead!
4️⃣ Thumb rules
There are thumb rules that are going to make your life easier. Two of them I find pretty useful:
Never spend more than 2 to 3 percent of your total net worth on any single purchase like a vacation or a car.
Keep the mutual fund expense ratio < 0.3%. Expense ratio is the cut that mutual fund houses take from you to manage the fund (i.e. decide which stocks to keep, sell, or buy).
5️⃣ Why financial freedom at all?
It seems to be a very easy question, but it is not. If you had asked me this question before I read this book, I would have said ‘I will just sit at home and watch Netflix.’ But while reading this book I realized that humans have innate quality to find purpose. We can’t lead purpose-less lives. Sabatier came up with an interesting perspective here:
Today feels free, like those days when you were a kid with nothing but time to exist, explore, and be curious.
Now that I think of it, I will probably be working even after financial freedom. But I won’t have to work for money. I can explore some other field. Maybe take a less paying job that interests me.
You may also want to do something that you are unable to do right now, maybe social service, travel or have more time with family. You can do all that if you have freedom from money.
That were my key takeaways! But don’t just stop here. I would highly recommend you to go through the book. It will be worth your time!
Quote of the week
Grant Sabatier on what is money:
Happiness and freedom are the keys to life, and money is nothing more than the means to get there.
Get 1% better ❤
Do you want to be financially free? If yes, why? Let me know in the comments.
Until next week, ✌
Jainuine
Heyy there!
I hope you liked this edition as much as I did writing it. If you did, consider sharing it with a friend who would love to get all this info. This will not only help your friend but also me to reach a bigger audience.
Happy Reading.