FINANCIAL LITERACY- you got to know this

Always try to turn every disaster into an opportunity.

                                                                                   -Rockfeller

This article is based on the conclusions derived from the book Rich dad Poor dad and my own little experiences with the financial world. The author of the book has made it a point, for us to understand that in whichever stage of life, you are in, you need to be financially literate. Be it a student, house wife or a corporate worker. It’s for everyone to understand the basics. 

When asked by some of the potential investor candidates, office goers and retired pensioners, about their take on investment, they said they do invest, but only in SIP or mutual funds. The SIP system involves financial advisers who personally or on contract, handle a person’s investments. The suggestion is to be at least financially aware, even if you are appointing a financial adviser. Even the advisers are not professional investors instead, are professional advisers.

Why don’t most people indulge in investments?

According to most people, the reason they don’t win financially is because the pain of losing money is far greater than the joy of being rich. Getting rich has been made as a sin or something which is quite suspicious or illegal.  What is required is knowledge. Financial knowledge is the most important factor to get rich. It has nothing to do with any sort of bad practices.

Getting rich may not be the appropriate term instead it is, to get financial freedom. Now talking about financial freedom, it is a condition where, even if you don’t earn, you have enough money to live your life without constraints. One more very interesting term that we use in our daily life is wealth. Wealth is the number of days you can survive without physically working. Financial freedom may sound pretty flowery but, it is real.

Why should people be financial literate?

• ·         To get financial freedom
• ·         To get rich
• ·         To be able to manage your expenses
• ·         To convert your liabilities into assets

Skills required which may or may not be inherent: -

• ·         The most important skill is, loving the idea of risk taking.
• ·         Knowledge about cash flow
• ·         Management of system and people
• ·         Knowing a little about a lot
• ·         Knowing about, the game of money, making money.

How to start with financial knowledge?

• To start with, some rules are very useful.
• ·         Pay yourself first and get financially, mentally, and fiscally stronger.
• ·         Take classes, read and attend seminars
• ·         Shop for bargains in all markets
• ·         Look for people who want to buy and then who want to sell.

According to the bank advisers initially investment can be started with SIP. Investment at higher levels can be real estate investment which is going more profitable day by day in developing countries like, India.

Investing in gold and silver is not much advisable these days, because there prices keep on varying.

Talking about assets and liabilities: -

Assets	liabilities
Business Real estate Paper Commodities Earnings	Mortgage Car loans Credit card debt School loans Daily expenses IOU(I owe you)

The concept of asset and liabilities is completely misunderstood. Let’s take an example, a house that you buy and keep is an asset according to you, but actually it is a liability. Buying a house may sound like a good investment but it isn’t. A house bought may reap you some good money after a few years, but the list of loans and their interest will lead you to almost zero net advantage. So, it is suggested that only buying a house is not sufficient, renting as per your choice is required to get good returns. The conclusion is that there is a very thin line between the asset and the liabilities column.

What SEBI has for us?

SEBI is the securities and exchange board of India. According to the SEBI’s preamble, it protects the interest of investor is securities and to promote the development of, and to regulate the securities market and for matters connected to incidents.

Stock market:-

Equity market or share market- it is the aggregation of buyers and sellers of stocks, which represent ownership claims on business.

It includes two things, one is, securities listed on public stock exchange and the second, those which are traded privately. The second can be explained by the example of a share of private companies which are sold to investors through equity, crowd funding platform.

Condition of High Debt:-

Tremendous amount of personal debt is something all of us should be scared of. Credit cards, High interest on house or car loans are few things which should be totally avoided. Get control of your spending habits. Minimize then expand your means. If you got an increment, don’t increase your expenses simultaneously, rather keep it constant. Live within your means, and then expand your means. Find out how much money invested per month, for how many months, at a realistic rate of return it will take to reach your goals of retiring, creating cashflow, and gaining financial freedom.

Duniye mein do nahi chaar tarah ke log hote hain. It is the E,S,B,I category based on their profession or source of income. The E is for employee, S is for small business or self employed like doctors, B is for big business(500 employees), I is for investors. The advisers which we talked about are themselves from the S category and not from the I category. So, before taking their advice we should ourselves have the adequate knowledge.

SIP- simplest way to invest

Starting early is the key to financial planning. Today you don’t necessarily need to inherit wealth from family to get wealthy. SIP or systemic investment plans are an excellent means by which you can start investing small, fixed sums of money at regular intervals,(commonly 1 month) most SIP’s start at minimal Rs. 500 a month, affordable for a beginner. Trivia, the longer you stay invested you attract less taxes. Many people do not do that in the hope of making quick profits.

Investment can lead to tax rebate

Section 80C:-

Rebate up to a limit of 1,00,000 rupees on investments like provident fund, public provident fund, life insurance premium, pension plans, equity linked saving schemes of mutual funds, infrastructure bonds, national saving certificate.

Section 80D:-

Rebate of up to 30,000 and 20,000 for senior citizens. It includes cheques paid by proprietor firms, medical insurance and home loan payments.

This is all for now. I hope this information was something out of school for you. Happy investing.