It's interesting article by Yogesh Chhabria. --------------------------------------------------------- LATELY, I have been thinking a lot about the Lehman crisis . Spending money that they didn't have and going beyond their means is one of the main reasons for their situation today. In fact that is the cause for the current economic crisis in the US. When I see all this happening, I can only remember the good old days. Then, karz was bad. People looked down upon those who took loans. Parents would not give their daughter's hand in marriage to a man with loans. But of course, the times have changed now. Everyone I know has a loan. The buzz word is EMI (equated monthly installment). Today, you can buy everything on EMI - a house, a television, an i-Pod. In fact I know of someone who just bought a fancy BMW 3 series on EMI, instead of buying a cheaper car outright with cash. I mostly prefer to take public transport, but then I am an old man with old thoughts! Anyway, coming back to what caused the crisis. Imagine having Rs 2 lakh in your bank account, no regular income, yet buying a house worth Rs 65 lakh, in the hope of selling it for a higher price. Even if the price of the house fell by just 5 per cent (that is Rs 3 lakh), you will go bankrupt. This is what Lehman Brothers did; with around USD 20 billion they went and bought assets worth over USD 600 billion. Isn't it suicidal and simply foolish? I am sure things would have been different, had I been the head of Lehman brothers. But who wants an old conservative man like me to head a complex financial institution. ............................................................................................. But there are a few lessons that we can learn: 1. Live a balanced life and avoid overspending. Tip: As soon as you get your monthly salary, set aside a fixed amount, usually 35 per cent, for insurance, savings and investments. You can then spend the rest. 2. Not all loans are bad. Loans that are 'need based' (home loans, education loans) can always find a place in your finances against those that are largely 'want based' (personal loans, car loans). 3. Borrow only if repayment is financially comfortable. A thumb rule: Keep EMIs within 30 per cent of your monthly income. In that respect, there is one American who I really respect - Warren Buffet. He has lived in the same ordinary house for over three decades, drives his own medium sized car and leads an extremely regular 'middle class' life. If that's all it takes for the richest person on earth to be happy, why do all of us need to take extra stress just so that we can get things which aren't even essential? India still has a lot of growth ahead and the future holds immense opportunities for us. Let us make the most of it and save and invest it wisely instead of wasting our precious little on things we don't need.
Hello friend, These lessons are good but for the people who just want to fulfill their basic needs but not for the people who want to rise high in their life. This is very simple rule of commerce "maximum risk=maximum profit or maximum loss. if you want to do something in your life you will have to take the risk or you may remain behind the curtain. iF you take maximum risk there is possibilty for both. It may be huge profit or loss. Lehman bros. was not an ordinary bank, it was very old established and the head of this could never be an ordinary man. But if you were the founder fo leman bros., it could never have reached to the point from where it fall.Everything vanishes with the passage of time. Whosoever goes high will have to come on the ground. You say 'I am sure things would have been different, had I been the head of Lehman brothers. But who wants an old conservative man like me to head a complex financial institution." With your conservative thinking you could never take it to the level which it had been. The lessons or rules which you have mentioned here can be beneficial just to run a simple house and not to any company or bank.Whatsoever i reacted to read your message i wrote here. Don't mind plz if something hurt you. Thanks.
Thanks for the post. In here the advices are for some simple life and there is nowhere mention that don't take any risk.
I think SVK.netbuild is right in saying that 35% should be used for invstment insurance etc. and you can do quite a lot with that investment amount. Though it is also true that unless you take some risk there will be not much useful gain.