ANSWER:
One, massively underspend your income. Don’t take credit card debt or any debt. Don’t buy that new car or that new house. Don’t carry credit cards when you go shopping. Don’t become what MasterCard wants you to
become.Cook at home. Buy clothes only when you need them and in a sale. Learn to
cherish frugality instead of being ashamed of it. Look for and emulate rich but frugal people. Read
The Way to Wealth by Ben Franklin and
follow his advice even though most Americans didn’t.You are only entitled to spend on yourself what is left
after you have made an investment. Build a nest egg.When I was poor, I came across an essay by P.T. Barnum in a
book which influenced me deeply. Here is an extract:
“Avoid extravagance; and always live considerably within your income, if you can do so without absolute starvation!
It needs no prophet to tell us that those who live fully up to their means, without any thought of a reverse in life, can never attain to a pecuniary independence.
Men and woman accustomed to gratify every whim and caprice, will find it hard at first to cut down their various unnecessary expenses, and feel it a great self-denial to live in a smaller house than they have been accustomed to, with less expensive furniture, less company, less costly clothing, a less number of balls, parties, theatre-goings, carriage ridings, pleasure excursions, cigar smokings, liquor-drinkings, etc., etc., etc.; but, after all, if they will try the plan of laying by a “nest egg,” or in other words, a small sum of money, after paying all expenses, they will be surprised at the pleasure to be derived from constantly adding to their little “pile,” as well as from all the economical habits which follow in pursuit of their peculiar pleasure.
The old suit of clothes, and the old bonnet and dress, will answer for another season; the Croton or spring water will taste better than champagne; a brisk walk will prove more exhilarating than a ride in the finest coach; a social family chat, an evening’s reading in the family circle, or an hour’s play of “hunt the slipper” and “blind man’s buff,” will be far more pleasant than a fifty or a five hundred dollar party, when the reflection on the difference in cost is indulged in by those who begin to know the pleasures of saving.
Thousands of men are kept poor, and tens of thousands are made so after they have acquired quite sufficient to support them well through life, in consequence of laying their plans of living too expensive a platform. . .
Prosperity is a more severe ordeal than adversity, especially sudden prosperity. “Easy come easy go,” is an old and true proverb. Pride, when permitted full sway, is the great undying cankerworm which gnaws the very vitals of a man’s worldly possessions, let them be small or great, hundreds or millions. Many persons, as they begin to prosper, immediately commence expending for luxuries, until in a short time their expenses swallow up their income, and they become ruined in their ridiculous attempts to keep up appearances, and make a “sensation.””
Reading The Way to Wealth by Ben Franklin was also a wonderful guide. Here are a few quotes I loved in that book:
“What maintains one vice, would bring up two children. You may think perhaps that a little tea, or a little punch now and then, diet a little more costly, clothes a little finer, and a little entertainment now and then, can be no great Matter; but remember what Poor Richard says, many a little makes a mickle, and farther, beware of little expenses; a small leak will sink a great ship, and again, who dainties love, shall beggars prove, and moreover, fools make Feasts, and wise men eat them.”
“It is foolish to lay our money in a purchase of repentance; and yet this folly is practised every day.”
“Silks and satins, scarlet and velvets, as Poor Richard says, put out the kitchen fire.”
“These are not the necessaries of life; they can scarcely be called the conveniences, and yet only because they look pretty, how many want to have them. The artificial wants of mankind thus become more numerous than the natural; and, as Poor Dick says, for one poor person, there are an hundred indigent. By these, and other extravagancies, the genteel are reduced to poverty, and forced to borrow of those whom they formerly despised, but who through industry and frugality have maintained their standing; in which case it appears plainly, that a ploughman on his legs is higher than a gentleman on his knees, as Poor Richard says.”
“When you have bought one fine thing you must buy ten more, that your appearance maybe all of a piece; but Poor Dick says, ’tis easier to suppress the first desire than to satisfy all that follow it. And ’tis as truly folly for the poor to ape the rich, as for the frog to swell, in order to equal the ox.”
“These are not the necessaries of life; they can scarcely be called the conveniences, and yet only because they look pretty, how many want to have them. The artificial wants of mankind thus become more numerous than the natural; and, as Poor Dick says, for one poor person, there are an hundred indigent. By these, and other extravagancies, the genteel are reduced to poverty, and forced to borrow of those whom they formerly despised, but who through industry and frugality have maintained their standing; in which case it appears plainly, that a ploughman on his legs is higher than a gentleman on his knees, as Poor Richard says.”
“But what madness must it be to run in debt for these superfluities! We are offered, by the terms of this when due, six months’ credit; and that perhaps has induced some of us to attend it, because we cannot spare the ready money, and hope now to be fine without it. But, ah, think what you do when you run in debt; you give to another power over your liberty. If you cannot pay at the time, you will be ashamed to see your creditor; you will be in fear when you speak to him, you will make poor pitiful sneaking excuses, and by degrees come to lose you veracity, and sink into base downright lying; for, as Poor Richard says, the second vice is lying, the first is running in debt. And again to the same purpose, lying rides upon debt’s back.”
Two, invest wisely. Don’t get into trading in derivatives. Look for good role models and learn how they invest for the long term.
Three, find a new source of income. If you have an old car (you are not allowed to have a new one) and some free time, become an Uber driver. Be creative. The world is offering you a chance to rent your free time like never before.
Four, when you have some confidence about investing, get float. That is, get your friends and family to invest through you for a performance fee.
Five, when you become financially independent (it will happen if you follow the above advice and have reasonable luck) you must still love the idea of frugality. You can live it up a bit, but never forget that you still have to massively underspend your income no matter how rich you become.
Comments 14
Professor Bakshi is a great teacher of sensible value investing in India. I am regular reader of his blogs and have benefited a lot from his teaching. His life story is also very inspiring for me. He is a role model for many of us to emulate. I think through his writings and teachings he is building a tribe of like minded serious value investors in India. People who are utterly focused on doing serious work on stock analysis and stock picking. Internet has made this possible. Hopefully we will all prosper using his investing principles.
Author
It was an honor to interview him.
Thanks Ian.
Arguably, the best investor in India. And without any doubt, the best teacher. Hats off to Professor Sanjay Bakshi, India’s own Warren Buffett!!!
After reading this interview I Am Taken Aback and I just have no words to describe my feeling.Surely I can say what I learn from this interview of your both that Direction is more important than speed. Slowly but consistently you should develop your path toward financial independence to experience the world as it really is.
Thanks Both of you for giving your precious time to all amateurs like me.
Amazing interview!!
thank you Ian.
Great Interview. The questions were really good and met the objectives set out in the start of the article. It covered a lot of things about the professor and about his thought process which I didn’t know. I really liked the question on the Fund portfolio and the last question about a supportive wife. I was planning to ask him the same when I meet him the coming weekend.
A superb human being and a great investor.
I was a student of Prof. Bakshi @ MDI. He is the best teacher I have seen in my life and a huge huge influence.
This interview uncovered lot more things which I, as a student didn’t know.
Thanks Ian for this
those were great questions, thanks for creating this wonderful content
Author
Thanks Fabian, I’m glad you enjoyed it.
I experienced couple of “going out of shower and noting ” moments .. reading this interview . Thank you so much sir and thank you Ian.
Author
Me too. I often get them in the shower, or mowing the lawn (when I did have a lawn), and also when I read books. When I read the creative juices start flowing. I have a digital notepad I use on my iPhone so I can quickly write down thoughts. I’ll be reading and quickly put the book down, grab my cell phone, and write down some thoughts before I lose them. My wife thinks I’m texting or surfing the internet 🙂
Thanks for tweeting this. Very insightful interview, especially Bakshi Sir’s story.