Create a system when it comes to investing. One of the simplest systems you can create is to view expenses as what is left is saving.
Income savings should be equal to expenses and not the other way around. The simplest system you can create to harness the power of compounding is to save and start a systematic investment plan in good quality mutual funds or a basket of stocks & Fixed income products. Over long periods of time, this money will compound to a large amount, even without you recognizing it. I personally use a checklist-based approach to investing, and even if 70-75% of my key criteria are met, most often I end up investing. Till now the results have been encouraging.
On a personal level, the following are two things that are a must to make you antifragile.
- Avoid Personal Debt: Debt is like modern-day slavery. Reduce your expectations as your income grows, but never take massive amounts of loans that can impair the balance sheet of your life forever, if a tragedy like losing your job or a health issue strikes due to which you cannot work for a period of time.
- Become a Learning Machine: We live in a world that keeps changing. No wonder Charlie Munger keeps mentioning that there are zero wise people he has met who do not read the times. Learning something new before going to bed is an antifragile habit, as we live in a knowledge economy.
Create a cushion in your personal financial life to deal with uncertainty.
Creating an emergency fund that can help you live through periods of crisis or uncertainty is one of the most underappreciated financial skills. As a rule of thumb, I have personally created an emergency fund for 9-12 months of expenses. This is not investment or inefficient usage of money. This is insurance that can help you survive if uncertainty strikes in your life. Most of the personal financial skills are only appreciated when one experiences a crisis. It’s always better to prepare rather than predict.
As Mr. Buffett says, “Predicting rain doesn’t count, building an ark does.”