Create wealth: Be ready to take plunge

Whatever you have chosen,is based on your understanding of the facts above and such understanding is developed over time with experience of your life events. If you choose the first option,you are of the conservative type – “A bird in hand is better than 2 in a bush”. If you choose the second option,you are of the enterprising type – “You feel that the maximum loss or risk is R 10,000 from fixed salary but the potential gain is R 35,000 over the fixed salary,so let me see if I can pull this one. If I do even better as such there is no upper limit. There is so much opportunity to experiment. The reward can be enormous.” The process working in an enterprising mind is also that of substitution of current or immediate benefit for a potentially larger reward. I love this test and keep running it every now and then. You will be surprised to know that most people,i.e. almost 95 per cent tend to choose the first option. If I further told you that there is a 80 per cent chance of success in the second option,then the percentage of people choosing second option would go up from 5 per cent to 15 per cent but 85 per cent people will still stick to option one.

We are not risk averse if that is what you are thinking. There is heavenly comfort of being into something we are well acquainted with. We do not like to tread into unchartered territory. The fact is that it is easy to see and feel short term benefits while it is almost impossible to imagine long term benefits; given that we define long term as something beyond 5,10 or 20 years. This is precisely why people prefer to invest based on a stock tip which says “earn 4 per cent in one day or earn 20 per cent in one month” versus someone who would prefer to earn say 4 times in 10 years. 4 times in 10 years works out to approximately a return of 15 per cent each year. One can calculate quite easily what a 4 per cent or 20 per cent gain might be but it is quite difficult to estimate what a 15 per cent return each year for 10 years means. One might make 20 per cent in one month or lose it in the same month or in the next month – anyway you look at it,there is just no guarantee. If you had more knowledge,you would realise that there is a high certainty of earning 15 per cent pa and you do not have to boil your blood over it,would you not quite comfortably choose the second option? Most would,I think?

Another example is the difference between being rich and being wealthy. Having R 15,000 in your wallet or R 5 lakh surplus in your bank account to spend,go shopping,buy expensive gadgets,go to clubs and bars and basically party makes you rich and it places you in temporary limelight. All this so long as you have the money. Now imagine the pleasure of owning a private jet or let’s say a Mercedes or a BMW to make the fact more digestible. Being able to spend well is being rich; knowing that you will be able to afford what you want when you want makes you wealthy. That’s the crux. But to create such circumstances,we need to perhaps substitute irrelevant immediate pleasure for everlasting relevant prosperity. That will often take time but can surely happen; sometimes by making the right choice and sometimes by treading into the unknown (with proper knowledge and guidance).

People find solace in being with the known,the simple and the ordinary while never wanting to experiment with the unknown and the extraordinary. I think there is always something to gain and something new to learn if you are ready and willing to take the plunge.

— Author is Director,Transcend Consulting kartik@transcend-india.com