Wealth Creation Mantra - Learn to Differentiate between your needs and desires

For those of us (including me) who are not born with a silver spoon, wealth creation for leading a happy, peaceful and secured life after retirement is a life long struggle. In good old days of my father, he used to feel secure because of his secured government job, and because of his assured pension.

Thanks to the government of India and its reservation policies, very few people are in a pensionable job these days. Moreover, the pension amount is not sufficient to maintain the same lifestyle for the two old people after retirement. The perquisites of the government job are no longer there post retirement and with old age people generally keep that well.

It is important to save from your earnings as much as possible and invest the savings intelligently to achieve independence from financial worries for life.

One important technique is to differentiate between your needs and desires and though needs need to be fulfilled, control your expenses on desires. Money thus saved can be used to provide that critical additional thrust towards achieving your financial targets.

While working for my earlier employers, who used to be nominating me for one training or the other, I came across a facilitator (Yes, he used to say, "I am not a teacher, I just facilitate your thinking") who gave me this gurumantra.

The participants asked him, "How to differentiate between your needs and desire?" He gave a very simple example to help us differentiate - "You drink water to satisfy the need of thirst, but you drink Pepsi to satisfy a desire, you actually do not need it".

I will not advise you to totally stop fulfilling your desires, lest you start feeling that life is worthless, but try to restrain them and achieve a substantial cut in fulfilling them. The money thus saved can be effectively invested to contribute to your retirement kitty.

I hope you are not wondering that how much such small amounts make any significant contribution. Let us take the example of my friend Deepak who consumes 10 cigarettes a day since he was 21. He is now 38, meaning he has spent Rs. 300 a month for the last 17 years. Suppose, he had invested this amount and not fallen for this useless habit, and earned a modest 15% a year on this investment, he would have accumulated Rs. 2,34,000 and if he continues with this till his retirement he would accumulate Rs. 42 lakhs, besides the cost of any health hazard caused due to smoking. Twenty years from now, Rs. 42 lakhs will be equivalent to Rs. 9 lakhs of today (considering an inflation rate of 8%).

Now just do a quick calculation - Just imagine that you are retired today, and there is no one in your home but just the two of you (husband and wife), your children are settled, your house is free of loan, you are free of any old age disease. How much money will you need per month to live a decent living - My guess is Rs. 20,000 per month. How long will this Rs. 9 lakhs support you? - The answer is 45 months or approximately 4 years.

Just imagine - Just letting go of your desire has the potential to support you for 45 months and you are less prone to all the diseases which come along with it.

I am signing off as I need to do some serious thinking about my smoking. Happy Investing !!