Please read the Part 1, before reading the Part 2.
Rule no. 3: Don’t be emotional
Don’t be emotional when you make money decisions. It never makes any sense to me and I am sure it is same for you also. In the initial days of investing in stock market I made stupid mistakes. These mistakes were due to the fact that I was using my heart and not my brains. I use to have loads of emotions while buying and selling stocks. At times I used to blindly believe that some stock will go up and some will go down. These were terrible mistakes. I have burnt my fingers in that. But the fact remains that it is the same with you as well. Don’t do that.
Just look into the figures and then decide. Keep your emotions aside. Use your brain and then decide whether a particular investment will be beneficial for you or not. If you know that it won’t make any good for you in the time interval you have decided then don’t go for that investment. This analysis is very important and make sure you do it correctly. Take your own time when doing the analysis and try to learn from various resources as to how to do the analysis. It is worth your time.
Rule no. 4: Don’t spend the principal
It is an important rule for you. Never ever spend the principal amount. Keep the principal amount just like that and then use the interest or the gains from the principal for your spending. It is always a better proposition. Don’t let your needs and luxuries gobble up the principal amount. The inflation as I said earlier is not a flat one, it keeps varying so it is not a good sign to spend off and be in trouble later.
Principal amount can be safely parked in less riskier financial instruments. It makes sense as well. This money can be used later for various purposes in need.
Rule no. 5: Don’t borrow money for buying depreciating assets
When you borrow money to buy assets just ensure you use it to buy appreciating assets. Assets like land is appreciating where as a built house are depreciating. When you borrow money to buy the assets, the possibilities are there that you can land up in not able to pay back the loan when such a situation arises it is better to have a appreciating asset which you can sell and clear the loan as the worst possible situation.
When you buy a brand new car, the price of the car is say Rs. 5 Lakh, the moment you get that from showroom on to road the value of the car decreases. It will not cost again Rs. 5 Lakh in the future. If such a model becomes a collector’s piece then the story is different. These days the cars are mass manufactured so there is no way it will become collector’s piece. If you buy the car in EMI then you are actually paying more for the depreciating asset and it does not make sense for an investor to buy such an asset.
Engineer's Finance 