There is an oft repeated saying "Prevention is better than cure." Yet we find that whenever it comes to personal finance people have this habit of first burning their fingers and then trying to heal it after it is too late. In my daily life I hear people saying things like "This friend of mine suggested me to buy shares of XYZ company. He said he knows the management of the company. It should double in 3 months. It is a future multibagger." I often wonder had this been true, people would have stopped going to the Casinos and tried their luck at the bourses instead.
There are a lot of such stories which I get to hear everyday. It is for this reason that I have designed a set of points for each and every individual:-
1) Say bye-bye to Instant Gratification- The world will know you for the assets that you have created and not for whether you have IPad 2 or the latest version of the Blackberry phone that you have purchased. Instead that money could be used to invest in a great company as a long term investment which will provide dividends and will offer you the advantage of capital appreciation. Buy Now, Pay Later is a virus that is attacking the youth of the country like never before.
2) Realistic Expectations - The best thing about India which people often forget is that this country offers one of the best risk free returns in the world. However no one wants to settle for anything less than 30-35% year on year. 10% risk free is nothing short of an abuse. Safety of capital is as essential as capital appreciation. An imbalanced asset allocation is one of the primary causes of unhappiness among the people. Hence it is important to understand that the portfolio should be a healthy mix of debt and equity. There are only 3 objectives behind investing and all 3 objectives should be fulfilled at all times:- a) Safety of capital b) Capital Appreciation c) Life and health cover. It has to be a healthy combination of Equity, Real Estate, Fixed Deposits, Recurring Deposits, Insurance and PPF.
3) Buying products from close ones - There are a lot of people who just do not know how to say a NO. A lot of times I hear some say "Mere Bhaiya is field mein bahut din se hai. Woh galat nahi ho sakte." On further investigation, it is found that he is a 3rd cousin with whom this guy has probably just met once. Please note that "The business of business is to do business."
4) Do not buy Liabilities thinking that they are assets- The biggest reason for stress is not because the boss makes an employee work overtime, it is the dreaded four letter word DEBT. Many people have sleepless nights not because of the work pressure, but due to the credit card bills and the EMI's that are due next month (car, gizmos, gadgets, bigger house than required). What is the point of earning 1 lakh a month if the real income turns to be 20000 a month.
5) Herd Mentality- God has given us a brilliant brain but some people keep it absolutely intact and fragile. They handle it with so much care that they forget to use it. Instead they rely on rumours, get-rich-quick schemes and imaginary rags to riches stories of non-existent people (so called cousin chacha of an acquaintance). Henry Ford had once said "Thinking is the hardest work there is, which is the probable reason why so few engage in it."
These are the basic points which people should keep in mind if they want to make their financial journey happy and smooth.
Hope you find this article useful.
Your Friend,
Vivek
There are a lot of such stories which I get to hear everyday. It is for this reason that I have designed a set of points for each and every individual:-
1) Say bye-bye to Instant Gratification- The world will know you for the assets that you have created and not for whether you have IPad 2 or the latest version of the Blackberry phone that you have purchased. Instead that money could be used to invest in a great company as a long term investment which will provide dividends and will offer you the advantage of capital appreciation. Buy Now, Pay Later is a virus that is attacking the youth of the country like never before.
2) Realistic Expectations - The best thing about India which people often forget is that this country offers one of the best risk free returns in the world. However no one wants to settle for anything less than 30-35% year on year. 10% risk free is nothing short of an abuse. Safety of capital is as essential as capital appreciation. An imbalanced asset allocation is one of the primary causes of unhappiness among the people. Hence it is important to understand that the portfolio should be a healthy mix of debt and equity. There are only 3 objectives behind investing and all 3 objectives should be fulfilled at all times:- a) Safety of capital b) Capital Appreciation c) Life and health cover. It has to be a healthy combination of Equity, Real Estate, Fixed Deposits, Recurring Deposits, Insurance and PPF.
3) Buying products from close ones - There are a lot of people who just do not know how to say a NO. A lot of times I hear some say "Mere Bhaiya is field mein bahut din se hai. Woh galat nahi ho sakte." On further investigation, it is found that he is a 3rd cousin with whom this guy has probably just met once. Please note that "The business of business is to do business."
4) Do not buy Liabilities thinking that they are assets- The biggest reason for stress is not because the boss makes an employee work overtime, it is the dreaded four letter word DEBT. Many people have sleepless nights not because of the work pressure, but due to the credit card bills and the EMI's that are due next month (car, gizmos, gadgets, bigger house than required). What is the point of earning 1 lakh a month if the real income turns to be 20000 a month.
5) Herd Mentality- God has given us a brilliant brain but some people keep it absolutely intact and fragile. They handle it with so much care that they forget to use it. Instead they rely on rumours, get-rich-quick schemes and imaginary rags to riches stories of non-existent people (so called cousin chacha of an acquaintance). Henry Ford had once said "Thinking is the hardest work there is, which is the probable reason why so few engage in it."
These are the basic points which people should keep in mind if they want to make their financial journey happy and smooth.
Hope you find this article useful.
Your Friend,
Vivek
I really like this article ! keep it up..
ReplyDeleteCan you consider the following topics for one or some of your future articles:
1> you just started earning money or made a saving..whats the best suggested route to make a living out of it in the future..first person to go to? FD's like everyone says?
2> which accounts can be opened multiple times and which ones can you have only 1 account !
advantages/disadvantages of opening multiple accounts, with same or different 3rd parties !
3> common illegal/ legal mistakes made by people just starting to think about their financial future.. how to deal with them?
4> If i want to differentiate between stock brokers..what are some of the key aspects/points I want to consider?
Surely I will be covering these points. I am conducting a course on financial planning at iLead from the 1st of August. You can enrol for it if you want. Contact @ 9830015201/02 for details.
ReplyDeleteHi Vedant,
ReplyDelete1) 1st investment should be into insurance in a country like India. Where human life is hardly taken care of, LIC is the only institution which is guaranteed by the president of India. Your focus should be to have a life cover of at least 10 times of your annual income (ie sum assured should be 10 times of your annual income). This is so that in case of the unfortunate death of the earning member, the dependants can earn a risk free return of an equal income. That is assuming FD rate to be 10%.This should be followed by Equity, Real estate(not self occupied), and then FD, RD and PPF in no particular order.
2)PPF can have only one account, rest can have multiple accounts.
3) Quick money and instant gratification... Splurging money is the biggest mistake which people make. Using a credit card is the biggest mistake you can make because untimely payment attracts interest @36%. Similarly in the markets, people treat it like a casino. Had that been the case Goa, Macau, Las Vegas etc would have shut down. Warren Buffett is investing since the age of 8!!!
4) Whether he is generating profits for you or not. A lot of people go to brokers and command that they want the lowest of brokerages. The brokers are not sitting there for social service. Any business can run ethically only if it provides a win-win situation for both the parties.