Financial freedom: Why Zerodha’s Nithin Kamath thinks it’s all about skill development and not just money management

In the week leading up to India’s 74^th Independence Day, Moneycontrol spoke to industry leaders and money managers on what financial freedom means to them. Zerodha’s founder and chief executive officer, Nithin Kamath, says that he was fascinated by money in his early years. But as he grew up, he realised that luxuries should not become necessities. Upgrade your skills, and money will follow eventually, he adds.

Why being financially is free important

My father was clear: he would sponsor me till I finished my education. But after that, he said I would need to be on my own. I first started trading in equities at the age of 17. At that time, I had big materialistic dreams: a large house with a swimming pool, a Rolex watch, a poster of a Porsche car and so on. That was my idea of financial freedom, at that age.

But, over time, I’ve changed. Yes, I went through that phase a few years ago. But then I realised there was no need for it at all. Today, one buys a private jet. Tomorrow, one might want to buy a Boeing.  Your luxuries become your necessities. So, you can never achieve financial freedom. These are money traps.

Make yourself skilled first, money will follow

That is what I want to tell my six-year-old son. Many people make a big mistake of focussing too much on money. Don’t just focus on investing in equities and mutual funds. Instead, focus on skill development. Invest in yourself. Learning the right skills is absolutely necessary. If you’re good at something, money will come eventually. Financial freedom is not just about money management – it’s as much about skill development also. I’ve seen many people earn a lot of money without any real skills. But if you get into wrong habits, you end up losing much more.

Make your money work for you.  

Never keep your money lying in bank accounts for too long. Invest. I believe that India is a growing country and therefore investing in stocks is a no-brainer. Equity investing is one of the few ways in this country to beat inflation.

Essentially, you’ve got to make your money work for you. More often than not, we are constantly working to make money. That is what I try to teach my son.

Avoid borrowing as far as possible

In early 2000, I borrowed money to invest in the stock markets. When markets fell in 2000 following the Information Technology sector crash (Y2K), I lost all my money. To repay my dues, I worked at a call centre between 2001 and 2005. In the meantime, I had this inkling to go abroad for studies. So, I took the Graduate Management Admission Test (GMAT). To pay the GMAT fees, I took a credit card, just so that I could swipe and pay my fees. I think I paid about Rs 13,000, but didn’t go abroad. So, obviously, I lost that money too.

It took me close to four years after that to repay my debts. It was extremely painful to live through those times. Ever since, I have never ever borrowed. I have followed the same principles in my business. We could have grown exponentially on borrowed money, but we didn’t do that.

At Zerodha, we have a facility where our employees can borrow money at cheaper rates. I have seen many of my employees come to me to seek advice on borrowing. I always tell them that if it helps them upskill or become better at what they do, then fine they could borrow. If you want to buy a house because you don’t have one, then that is fine. If you wish to enrol for a course so that you could learn some new skills, then borrowing money is fine. But if you want to buy a large holiday home where you are not going to live for long periods and it’s unnecessary, then perhaps you should avoid borrowing.