How to become rich from nothing
Understanding
Savings and Budgeting
Traditionally, savings are
calculated as Income - Expenditure = Savings, but a more effective
approach is Income - Savings = Expenditure. This means prioritizing
savings before spending. By setting aside a portion of income as savings first,
individuals can better manage their financial health.
A popular financial rule that can
help is the 50-30-20 Rule:
- 50%:
Necessities (food, rent, bills, etc.)
- 30%:
Luxuries (entertainment, travel, shopping)
- 20%:
Savings (investments, emergency funds)
To maintain financial discipline,
individuals must track their spending habits. Many claim they have no
money to save but fail to realize their unnecessary expenses. A real-life
example from a village in Maharashtra illustrates this. A man earning low wages
claimed he couldn’t save, yet he smoked seven cigarettes a day, spending INR
2,100 per month (INR 25,000 annually). Cutting such expenses can create
opportunities for investment.
Using
Technology for Financial Discipline
There are several money management
apps like Money Manager, Monefy, Wallet, and Daily Expense Tracker,
which categorize and track expenses automatically. These apps help users
maintain a clear record of their expenditures and savings.
Trading
and Demat Accounts
A Demat Account is like a
storage place for shares, similar to a bank storing money or a cupboard storing
clothes. However, a Demat Account only holds shares, it does not allow
transactions.
For buying and selling shares, a Trading
Account is necessary. Both accounts must be linked for seamless transactions.
While some banks offer a 3-in-1 account (Demat + Trading + Savings Account),
they often charge high brokerage fees. Instead, it is better to use brokers
that offer both Demat and Trading services together at lower costs.
Choosing
the Right Broker: Full-Service vs. Discount Brokers
- Full-Service Brokers
(e.g., ICICI Securities, Motilal Oswal, Share Khan) charge higher
brokerage fees, typically around 0.4% - 0.5% per transaction.
- Discount Brokers
(e.g., Zerodha) offer low-cost brokerage and are ideal for regular
traders.
Many investors, including the
author, initially used full-service brokers but later switched to discount
brokers for better cost efficiency. Zerodha, for example, offers low
brokerage rates, INR 300 for account opening, and INR 300 annual
maintenance.
Multiple
Demat and Trading Accounts
Investors can hold multiple Demat
and Trading Accounts with different brokers. However, each account has annual
maintenance charges, so it's essential to consider the costs before opening
multiple accounts.
Conclusion
Investing in the stock market is not
just about having money; it is about financial discipline and proper
budgeting. By prioritizing savings, cutting unnecessary expenses, and using
cost-efficient brokers, anyone can start investing, regardless of their income
level. Knowledge and planning are key to financial success.
DISCLAIMER
Airfinac.com, its author/writer and associates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction