Work less and make more as you grow older.

How to work less and make more as you grow older. Intelligent investing & the 80/20 rule.

Almost every person on this planet would welcome the idea of working less and making more. Yet the very idea that this is possible may sound absurd to most people.

In a world where many of us exchange our time for money by clocking in and out of work, it may be challenging to realize that it is possible to work fewer hours and still earn more money. You don’t have to spend the rest of your life feeling drained from work, waiting for the weekend, and struggling to make ends meet every month. Instead, you can make wise decisions now to set yourself up to work less and make more money in the future. Whether you are a full-time employee, a side hustler, or an entrepreneur, these principles can significantly impact your time, happiness, and income.

If making more while working less is something that catches your interest, then read on. Here are 6 principles that I have found helpful.

1. Start early

In investing circles, there’s a saying: ‘ The best time to invest was 20 years ago. The next best time is now.’

With the Sensex crossing 74,000 this week (6th March 2024), we are once again reminded of the power of time and compounding in wealth creation. The Indian bellwether index was at 100 in 1978-79. Since then, it has multiplied an astounding 740 times in about 45 years yielding an annualized return of over 15%. If we assume the same rate of return going forward, your investments will double (2X) in 5 years, triple (3X) in 8 years, quadruple (4X) in 10 years, and multiply 8 times (8X) in 15 years. As you can see, the pace of growth simply hastens as you let money compound.

Smart investors have understood this early in their lives and made serious money as a result. You can do it too. And you don’t need big sums to do so. Even small sums invested for really long periods yield big returns. Know more about starting early here.

The same is true of your work. In their twenties and thirties, most people have a lot more passion and energy than later in life. Plan for that nearly inevitable scenario by working your socks off in the early years so that you set yourself up for less work and more money later. Don’t hesitate to work some weekends or long nights, as this effort will also amplify and compound in later years, resulting in a more successful career.

2. Build new income avenues

One of the most important ways to reduce lifelong dependence on work for money is by developing multiple income streams. The idea is to reduce dependence on one source and build new ones so that it brings you more money & flexibility in the future.

You may be thinking, ‘Will more income streams mean more work than less?’ Yes, that can be, especially in the first 1-2 years. But once the multiple income streams kick in, you will gradually find ways to outsource the day-to-day handling such that the money still comes in without your active involvement.

Start a low-risk business (requiring low or almost no capital & resources) or a side hustle. See this for ideas. You can add coding, urban farming, and becoming a franchisee to the list. But consider starting something.

Remember, as you go along, you will keep saving and building up your passive income (income from existing investments). Over time, this can compound as well, till one day you realise that you’re ready to leave your job, focus on the new thing you’ve started, and enjoy the freedom it gives you.

3. Automate your investments – invest first, spend what is left

Benjamin Graham, in his highly acclaimed book “The Intelligent Investor”, first published in 1949, recommends that the “defensive investor” put a fixed amount into equities at regular intervals (dollar-cost averaging). In India, we call this an SIP, i.e., a Systematic Investment Plan wherein a fixed amount of money gets invested every month automatically, from your bank account, into a chosen investment fund.

The power of this simple method is considerable and is only now being fully understood by Indian investors. Aggregate SIP investments in India have increased to Rs 19K crore per month in Jan 24 from Rs 4K crore in Jan 17 (Source: AMFI). If you aren’t doing this already, consider one of the simplest ways of long-term investing.

Now if you’re wondering how much to invest through SIPs every month, I suggest you first write down your financial goals – with a SEBI-registered Investment Adviser if you want a formal financial plan – and work backward from there. The idea is to save at least what is needed for these goals plus a little more, after which you are free to spend what’s left. The larger point is to invest first and spend later.

Along with automating your investments, it also helps if you can automate your bill payments such that they are clubbed together within a narrow band of days. This will not only give you a clear idea of how much you spend every month but will also prevent expensive rollover of credit card spending.

4. Eliminate 80% of your work, scale up the remaining 20%

In life, you will notice that 20% of your work gets you 80% of the results and vice versa, i.e., 80% of the work gives you 20% of the outcomes. This is called the Pareto principle and demonstrates the lop-sided nature of effort vs results. It is a timeless maxim in life that illustrates the need to focus and applies to almost every walk of life, from your job to your exercise routine to even household expenses. 80% of budget overruns are caused by 20% of expenses. 80% of your success comes from 20% of your ideas. 80% of sales come from 20% of clients. We can go on and on.

Once you understand this principle, you will realise that a lot of your effort is wasteful or less effective, and you could do better by simply maximising what gives you results. You can implement this principle in two simple steps:

• Stop 80% of the hard work that you do. Start being ruthless and drop everything that is not yielding adequate results or is not necessary. You can cut out unnecessary meetings, delegate unimportant tasks, and filter out unwanted emails.
• Focus and scale up the remaining 20%. Now that you know what yields results in your life, job, or business, just do more of it. It could be reading more books, engaging in more client meetings (and fewer internal ones), or spending more time with family. Simply scale up whatever works for you.

5. Acquire a marketable skill

Private Wealth Management is a marketable skill. I was fortunate to acquire this early in my corporate career. Digital Marketing is another which I acquired in the later years of my corporate life. There are several skills you can acquire from your job. Look for one or two and start building on it over time. Creative writing, sales, content editing, SEO, coding, public speaking, film production, UI/UX design, and teaching are all examples of marketable skills that can make you a career in the future. Start from what you already know and expand on it.

6. Spend smartly

I’ve covered this at length already here. But here’s a quick reminder.

The smarter you spend, the more likely it is that you build a meaningful passive income stream for the future. Spending much less money than you bring in is a necessary part of growing rich. When done consistently and for long periods, it becomes a big pool of money which, in turn, gives you the flexibility to work less & less while making more & more.

Keep Pareto’s principle in mind and focus on what matters to you and brings you joy. Spend most of your money on that. Eliminate the rest. Expensive social dinners that you seldom enjoy and overindulgence in expensive clothes just because others are doing so, are a couple of examples of where you can cut spending whilst not compromising on personal happiness.

What next!

From the list above, there will be some ways that stand out to you, more than others. And that’s ok. Look for what you’d like to do and start doing at least one or two things quickly to see what works. Taking action is key. If you don’t try, you just won’t know. But I’m hoping that you will give one of these a go.

Rohin Pagdiwala

Founder – Pagdiwala Investments, Mumbai | AMFI-registered Mutual Fund Distributor | ARN-186203 | APMI-registered PMS Distributor | APRN-00370

info@pagdiwalainvestments.com

Read more about retirement planning here.

Mutual Fund investments are subject to market risks; read all scheme-related documents carefully.

This article is for general information and investor education only and is not investment advice. Pagdiwala Investments is an AMFI-registered Mutual Fund Distributor (ARN-186203) and an APMI-registered PMS Distributor (APRN-00370). We are not a SEBI-registered Investment Adviser. We are paid commission by product providers; see How We Are Paid.