How Bad Debts Sabotage Your Plans to Achieve Financial Freedom

Your daily choices have a direct impact on your finances. If your daily choices lead to more bad debts, you are letting your goal of financial freedom slip away. If your choice is to buy and grow your assets, you will get closer to your goal every day.

Big Financial Decisions
Getting into big bad debt often is the result of poor financial choices. Buying a house in an affluent, keep up with Joneses neighborhood can lead you mounting bad debt. So is buying a car that is several models above your financial capability. Those are big financial decisions leading to constant struggles of bad debt.

Everyday Financial Decisions with Big Impacts
Then there are smaller financial decisions that also lead you the same way. Any unplanned purchase is a bad financial decision. It doesn't look like much when you pick a shiny toy just because it looked nice. It may also seem insignificant that you pick a few packets of potato chips while waiting in line at the cash counter. Those small financial decisions can add up.

Every time you go to the local super market, you buy more items than you planned. The super markets are designed in such a way to entice you to pick items that you have no plans to buy.

Similarly, when you visit ecommerce sites, you will find items that you don't need and will buy anyway.

You purchase items you don't need and won't probably use for a long time.

Such purchases satisfy you at the time of the purchase, but will come back to haunt you later. Why did I buy that? You ask yourself and find no convincing answer.

Practice Conscious Purchase Decisions
Write down the list of every item you want to buy at least two days before the actual purchase. Keep the list visible to you by placing it somewhere your eyes reach very often. You will be able to strike off items once the initial attraction is gone. Then buy the items left in the list.

If in the store you find a new item that you want to purchase, repeat the drill. Put the item in a list, see the list many times over two days, and purchase it if you still want it.

Even if you can't stop all your impulsive purchases, this is a surefire way to minimise them.

Practice Saving and Investment Habits
If you spend all the money you earn and have nothing left as savings or investments, you are a bad debt magnet. Bad debts will find their way and will ruin your finances.

The one biggest rule of financially successful people is the one rule to live by: Pay Yourself First.

Every time you have a paycheck, send at least 15-20% of the amount to a savings account.

If the rest of the money is not enough to pay your bills, you still are in financial struggle. You need to increase your income.

Saving is not investing. Saving means you keep money aside so that you can support yourself manage unplanned expenses.

Once your savings grow enough to support you through at least three months of joblessness, start investing your money.

Investments give you returns on your money. Start with debt funds and stocks. Do your own research. You only need to invest in less than 0.01% of the stocks listed in the market.

That is, you can safely ignore thousands of companies and start with the 30 stocks in index funds. Those companies are picked for index benchmark because they are large, has huge potential and have a history of retaining a healthy balance sheet.

Picking the stocks and funds that don't lose your money is as easy as looking at the 30 companies that form the market index. Start with the index companies that have the highest dividend yields.

Spend Money to Increase Your Net Worth
Buying every item you see in the supermarket has negative effect on your net worth. Buying the shares of the companies that sell those items will grow your net worth.

Your journey to responsible financial decisions in three steps:

1. Start with conscious purchase decisions
2. Pay yourself first – send 15-20% of your paycheck towards saving
3. Invest in funds and stocks that won't lose you money

Rich Thought, Poor Thought: Why the Rich Gets Richer and Poor Stay Poor

There is one resource the rich have in abundance, but the poor don't. Even with a mega lottery winning, the poor don't get a chance to utilize this resource. When the rich people lose access to this unique resource, they won't stay rich for long.

What is that special resource that keeps some rich and others poor? One clue. You can't buy it.

Before we go further, we need to put the word poor in perspective. In this article, poor means people who struggle to make ends meet, have less money than they need, and can't increase their net worth.

The poor are also hardworking people, often working more than 10 hours a day. If hardworking alone makes one rich, these people would become rich a long time ago. While hardworking is a good quality, that quality is not a big friend of the poor.

They work in the days. They wake up in the middle of the night, feeling horrible about their financial situation. They worry about the future of their kids. The loans they have to pay. The food they have to buy.

Rich Thought, Poor Thought

Simply put, they spend all their mental energy worrying about their existence. Something the rich don't have to do and there starts all the difference between the rich and the poor.

The lack of financial worries is one advantage the rich have over the poor. How does the lack of financial worries help rich become richer? Let's find out.

The rich can think about ways of growing their net worth. Instead of worrying about paying electricity bill, they can think about the assets to purchase. They can scrutinise the various investment opportunities coming their way. They have time to seek new passive income opportunities. And, they discover new business ideas.

At the same time, the poor are worrying about paying bills, feeding themselves and sending their kids to school.

The rich have the luxury of thinking about improving their net worth. The poor have their mental resources exhausted by constant worries.

Both the rich and the poor are spending the same mental energy. When they think about money, the rich have positive thoughts and the poor have negative thoughts.

Now think about this for a moment. Do the difference in thought has an influence on their financial conditions?


The poor don't have time to think about investing their money. They tell you they have no money to invest. They tell you they can't make any progress in life.

They utter sentences like: I can't invest. I can't put aside a percentage of my money. I can't pay my bills on time. I can't send my kids to good school.

Can they make a difference by stopping negative self talk? What do you think will happen if they back themselves up, learn to put aside a portion of their earnings towards savings, and make some income-generating investments?

Even if they don't become rich in a year or two, they surely can become financially independent in five to ten years.

If they can't put aside at least a tiny percentage of their money towards savings and investments every single month, they can't support themselves in the long run. A single jobless month can make them bankrupt, homeless and sick.

For most people it is a big leap. If you are committed enough, you can utilise your mental resources to change your financial situation for the better. Once you commit to it, you will discover ways of becoming financial independent. You will then worry little about keeping a roof over your head, feeding your family or giving your children the best education they can get.

Image credit: Bill Brooks

Freedom 251 Lessons on Dominating Free Publicity

It is not everyday that an unknown company appears in the horizon, create shock waves and dominate media attention.

Ringing Bells, a company that 'plans' to manufactur smart phones did exactly that. They announced a smart phone, for the cost that doesn't even buy one lunch for a family.

The Freedom 251 Smart Phone, which costs just Rs.251, and Ringing Bells claims to start shipping in four months, is the news of the town.

If not for the price, Ringing Bells would never get 1/1000th of the media attention. Otherwise, they'd need to burn a good fortune on advertising, which is beyond the scope of a startup.

In short, with a price tag of Rs. 251, Ringing Bells got publicity worth several crores.

The claim of Ashok Chadha, President, Ringing Bells, that Freedom 251 recoups cost and become profitable simply by scale and volume, doesn't hold much water. If they can prove otherwise, fine. But, until they prove the economies of scale works at these levels, I hold my judgment.

What Ringing Bells can however do is this: Sell 100,000 or 1,000,000 units of Freedom 251 for this price, next batch of same numbers for Rs. 1000, and then for regular prices of Rs.2000 to Rs.4000.

By the time of first and second batches, Ringing Bells can establish themselves as a reliable brand.

The price tag has given them the headstart they desired. Now the onus is on the company to prove themselves right.

Until the theory of scale is proven right (or wrong), I won't put my money in.