Book Review : The Richest Engineer

This blog is something more than just a book review. You will know why, as you continue to read ! 

It's been 10 years since I started earning. I joined a software company in 2014 as Graduate Engineer Trainee. Since then, the aim has been to increase my income/take home salary. That is unique to a lower middle class upbringing. We are taught to work hard, very hard and study even harder to earn more. But, what do we do with this money, how do we handle money, is something we always miss out.  

The most common savings that I have seen back home is gold jewellery & taking huge home loans to buy a property. We are told not to spend more. But when there is an occasion or festivity, we spend beyond our means. 

From 2014-2019, I have been with friends & colleagues who had more or less similar upbringing like me, similar households and similar ways of handling money. When I moved to a new city in 2019, working with colleagues from all over the country, there were several things that took me by surprise. 

They had different upbringing, they were courageous & confident over things, I was scared of, during my teens & 20s. They had ample knowledge on handling money, whereas, I hadn't even heard of such terms. I felt I was too naive for my age. Nevertheless, I was so proud & grateful for the humble roots that I come from. Looking back, I wouldn't want my journey to be any different. 

Once I knew that I had a lot to learn, I started interacting with people to internalise their knowledge. I did not mind, if they were younger to me by age & designation. I would stop by, ask them query after query to understand things from scratch. I found people, ready to help and patient with my naiveness. 

Similarly, I kept knocking door after door to know more about handling money, one day, a wide door opened for me. I landed at the doorsteps of my mentor. 

He sat me & my spouse down and did not judge us for our unawareness. Instead, he tried to explain both of us, the areas we need to focus on & spend time to gain the knowledge we were actually looking for. He was never hesitant to share his knowledge that he has gained over the years investing a lot of his time. We got down to the basics that was much needed. 

It was he, who shared this book with me, to begin with the basics. This is how I ended up reading this book "The Richest Engineer" 

This book is for beginners who are looking to have a good start in understanding money. This book is more simple to understand & read than "The Psychology of Money". The author creates two characters, Ajay & Vinay. While Ajay spends his salary as and when it comes and upgrading his lifestyle to match his salary, Vinay has learnt the art of handling money and lives a decent life. Unfortunately, Ajay loses his job and struggles to sustain his lifestyle and EMIs. 

This is when Ajay understands that he hasn't handled money well, though he was earning decently. He goes to his friend Vinay. How Vinay guides him through this hardship and gives life lessons on money is what this book is about. 

While, I have been mentioning about handling money multiple times now, there might be a small streak of thought, "Is it that important ! " The author clarifies that people who don't discuss money or say we should not much importance to money are either those who haven't learnt the art of handling money or those who think, too much planning on money restricts freedom. But, actually, it's the other way around, once you know to manage even the limited amount of money you have, it gives you "freedom". It's not about being rich or poor, it's about the "freedom of choice" that comes with money. 

To make Ajay understand this freedom, Vinay makes him internalise that he has spent most of his income on meeting the interest and principal payments of loans which he has taken to upgrade his lifestyle. This has kept him in a vicious cycle & he has never been able to create surplus with his income, with which he can create assets for himself. 

He asks Ajay, if he knows his net worth. Ajay feels blank! He says without knowing the assets and liabilities that you have and your current net worth, you wouldn't be able to plan where, when & how to put your money. He advises Ajay, to spend enough time every month, to discuss, understand and plan his financials. 

He gives the quote "Pay Yourself First", wherein you set aside the first portion of your income for savings/investments and spend from the rest for your EMI and other expenses. This way, you will be able to live within your means , without increasing expenses and will be able to create asset. 

The author explains about three different baskets Investment, Expense & Indulgence Basket and Good , Bad & Ugly Asset. When you increase your Investment Basket, Good Asset increases. In turn, your net worth increases. 

He explains instead of looking to increase our expense, we should try looking to increase our income streams. There are different income streams like Active, Guaranteed, Passive & Portfolio income. 

He clearly brings out how the weekly expenses like movie, shopping, cafés and dine outs can wipe away our pockets invisibly. He shows how even Rs.130, invested on daily basis for over 30 years makes a huge impact. 

There is a big difference between being rich and wealthy. Being rich is something, the outside world can see i.e Expensive Cars, Houses & Interiors for example gives a hint to the outside world that we are rich. But no one can predict the wealth of a person. A person might have a strong net-worth yet might lead a simple life. I could relate to Ms. Sudha Murthy , while she might not look rich, she is definitely wealthy. 

He talks about income tax and how necessary it is to understand the tax laws of our country to ensure that we don't lose out a lot of money in penalties , delay and save money with deductions available. 

On the whole, at the end of reading the book, it felt like, we take daily decisions like Ajay and we all need someone like Vinay to guide us to save money & create asset. One positive impact the book has had on me is, restricting my self to spend to enjoy the freedom of asset creation & savings. 

I'm adding snapshots from the book which I found helpful. This might give an insight into the book.