Hello young friends. the title of this post may seem out of sync with your realities and current priorities, but let me have the opportunity to prove otherwise.
Money, as we know, turns the keys and moves the levers - it is important and a necessary tool to get many things that give us pride, joy, comfort and upgrades in life. Money helps us to get education, get best medical attention when we fall sick, enables us to throw parties and have pizzas and watch movies with family and friends. So it is central to almost everything we do. And you know what, it is the prime reason that most of you have chosen a professional course over the more traditional ones. So, lets first make up our minds that it is a necessary thing to have. Like it is famously said that
"it is better to suffer with lots of cash in hand than without it."
At least we get to choose our many of the sufferings!!! :)
I am not a very successful person when it comes to measuring success with the bank balance, but I have learnt the lessons hard way and am inching, slowly and steadily, towards a better tomorrow for my family and I. So here in this post I am only sharing some of the things about money which were handed down to me by my parents and elders, and I take the liberty to add my own twist to it for making it more contemporary.
The reason to start knowing about money is like those for everything which we already do not know about - If we know about it:
Its like knowing about the opposite gender and becoming aware of their basic nature, quirks and peculiarities. But, the major difference is that here we learn about money to MANIPULATE it and there we learn about the other to RESPECT it.
The equation of money is quite simple, but not too simple. It is because of the emotions we attach to it. It has been shown in various researches that the pain of losing Rs. X is far greater than the joy of earning the same amount of money. So the first rule of the Money equation is : Never lose it! Isn't it simple.
But the simplicity of the rule can be deceiving and cause us to actually lose it without even realizing it. For instance, when you order a pizza or a soft-drink, you are not realizing that not only are you spending way too much more than the actual pleasure you derive from having them, but are also digging a grave for your future earnings to bury them into! But "how's that even possible?" you may ask.
When you have pizza or a soft-drink, you get an instant high, resulting in its craving and wanting more of it later. Therefore, if you are like me and most of us, who are tied to our taste-buds, you will go again for the new flavour, for the new pizza-joint, for the unlimited pizza deal and in the process will spend too much on it within a short period of a couple of months. Not only that, you are inflicting on yourself irreparable damage in the form of health problems arising due to unhealthy diet and adding to either lost opportunities (money lost here) or fatter medical bills (and money lost there) or both.
Similarly, when you spend money on some latest gizmo or fancy shoes or a dress you would wear only once in a year, you are throwing away money like you have a tree that bears leaves of Rs. 1000 notes and not some old and boring green thing! So as the wise have said - A penny saved is a penny earned.
The second rule is to identify the things that eat away your money like termites decay the wood. Understand about inflation and taxes. Now you must be laughing at the stupidity of the writer of these lines, but beware that inflation, taxes and death are the three certainties of the modern life and times. We can not avoid any these, but can make the pain of the first two manageable and the third one a worthwhile.
When your parents earn from their jobs/business/profession they pay tax on that- thereby leaving you less money to spend on your vacation or clothes or education. When you recharge your mobile you pay taxes, when you eat put you pay taxes, when you buy a small thing like a pen or a pencil you pay taxes. These are indirect taxes that reduce the purchasing power of your money. Remember how people are comparing the price of crude oil with that of petrol two years ago and now. Its because of taxes that the benefit of over 70% drop in international price for crude is making us feel richer! :(
Inflation (or the famed महंगाई डायन of Peepli Live!) is the second parasite living off your money. If you can recall only about two years ago the lentils (दाल) were affordable to most, but now we are joking how Income Tax people are going to raid our homes if they were to know we are having them for dinner! ;) It simply means that if I were able to buy a particular burger for Rs. 100 a year ago, am I able to buy exactly the same burger for Rs. 100 today or will I be able to do so a year from now. If the answer is yes, then you do not need to read further, as you are already in the state of nirvana! But, for the mere mortals, that we are, the inflation causes everything to become costly overtime and thus to get the same benefit we are forced to spend more.
Therefore, to be able to enjoy the fruits of our hard-work, we must ensure that we are able to sufficiently earn more than what taxes and inflation are going to eat away from our pie.
The third rule is make money work for you! And how on earth and heaven shall I make money - a non-living, passive entity - work for me? By investing it. So, if you want the money to make work for you like it is your servant (or even slave) you should know what it is capable of doing for you. You cannot expect a barber to mend your shoes and nor will you go to a PhD in physics for treatment of your tonsils! You seek the specialist for your specific needs.
To become a manager of your money and for beating taxes and inflation, you MUST know how to put it to task. As a student, you have many more responsibilities than chasing financial experts and reading and filtering plethora of financial information. But as a student you can start small, and start learning the ropes pretty simple and easy, without even bothering yourself with the details.The how part is dealt in the following section.
To keep things simple, I would suggest a three fold strategy for students and young earners. I assume that you are able to make a cut in your impulsive and most unnecessary expenses and are able to save between Rs. 1000 and Rs. 2000 per month. If you are able to save more than that, good for you, as you have more slaves (more money) to serve you, and of by chance you are able to save less than that, then still you can start with one strategy and later add other weapons to your arsenal.
But before making the money to work for you, you need to have some basic facilities in place - its like having a properly stocked and well-lit library to study or an Internet connection to watch YouTube videos. These are:
Moving ahead, the four step strategy for learning the real and practical money lessons is to do it. It is not necessary that you follow all the steps given here and in the given order. But, assuming you know as much about money as I used to when I was your age, that is practically nothing, these would serve as the basic template Here we go:Money, as we know, turns the keys and moves the levers - it is important and a necessary tool to get many things that give us pride, joy, comfort and upgrades in life. Money helps us to get education, get best medical attention when we fall sick, enables us to throw parties and have pizzas and watch movies with family and friends. So it is central to almost everything we do. And you know what, it is the prime reason that most of you have chosen a professional course over the more traditional ones. So, lets first make up our minds that it is a necessary thing to have. Like it is famously said that
"it is better to suffer with lots of cash in hand than without it."
At least we get to choose our many of the sufferings!!! :)
I am not a very successful person when it comes to measuring success with the bank balance, but I have learnt the lessons hard way and am inching, slowly and steadily, towards a better tomorrow for my family and I. So here in this post I am only sharing some of the things about money which were handed down to me by my parents and elders, and I take the liberty to add my own twist to it for making it more contemporary.
What is THE NEED to Learn About IT?
The reason to start knowing about money is like those for everything which we already do not know about - If we know about it:
- we will become comfortable in its presence, or its absence;
- we will neither run from it nor run after it;
- we will not get intimidated by someone who has more of it;
- we will find better ways to use it, earn it, and spend it to the best of our use and satisfaction; and finally
- we will MAKE IT WORK FOR US and not the other way round.
The Golden Rules of Money Management
The equation of money is quite simple, but not too simple. It is because of the emotions we attach to it. It has been shown in various researches that the pain of losing Rs. X is far greater than the joy of earning the same amount of money. So the first rule of the Money equation is : Never lose it! Isn't it simple.
But the simplicity of the rule can be deceiving and cause us to actually lose it without even realizing it. For instance, when you order a pizza or a soft-drink, you are not realizing that not only are you spending way too much more than the actual pleasure you derive from having them, but are also digging a grave for your future earnings to bury them into! But "how's that even possible?" you may ask.
When you have pizza or a soft-drink, you get an instant high, resulting in its craving and wanting more of it later. Therefore, if you are like me and most of us, who are tied to our taste-buds, you will go again for the new flavour, for the new pizza-joint, for the unlimited pizza deal and in the process will spend too much on it within a short period of a couple of months. Not only that, you are inflicting on yourself irreparable damage in the form of health problems arising due to unhealthy diet and adding to either lost opportunities (money lost here) or fatter medical bills (and money lost there) or both.
Similarly, when you spend money on some latest gizmo or fancy shoes or a dress you would wear only once in a year, you are throwing away money like you have a tree that bears leaves of Rs. 1000 notes and not some old and boring green thing! So as the wise have said - A penny saved is a penny earned.
The second rule is to identify the things that eat away your money like termites decay the wood. Understand about inflation and taxes. Now you must be laughing at the stupidity of the writer of these lines, but beware that inflation, taxes and death are the three certainties of the modern life and times. We can not avoid any these, but can make the pain of the first two manageable and the third one a worthwhile.
When your parents earn from their jobs/business/profession they pay tax on that- thereby leaving you less money to spend on your vacation or clothes or education. When you recharge your mobile you pay taxes, when you eat put you pay taxes, when you buy a small thing like a pen or a pencil you pay taxes. These are indirect taxes that reduce the purchasing power of your money. Remember how people are comparing the price of crude oil with that of petrol two years ago and now. Its because of taxes that the benefit of over 70% drop in international price for crude is making us feel richer! :(
Inflation (or the famed महंगाई डायन of Peepli Live!) is the second parasite living off your money. If you can recall only about two years ago the lentils (दाल) were affordable to most, but now we are joking how Income Tax people are going to raid our homes if they were to know we are having them for dinner! ;) It simply means that if I were able to buy a particular burger for Rs. 100 a year ago, am I able to buy exactly the same burger for Rs. 100 today or will I be able to do so a year from now. If the answer is yes, then you do not need to read further, as you are already in the state of nirvana! But, for the mere mortals, that we are, the inflation causes everything to become costly overtime and thus to get the same benefit we are forced to spend more.
Therefore, to be able to enjoy the fruits of our hard-work, we must ensure that we are able to sufficiently earn more than what taxes and inflation are going to eat away from our pie.
The third rule is make money work for you! And how on earth and heaven shall I make money - a non-living, passive entity - work for me? By investing it. So, if you want the money to make work for you like it is your servant (or even slave) you should know what it is capable of doing for you. You cannot expect a barber to mend your shoes and nor will you go to a PhD in physics for treatment of your tonsils! You seek the specialist for your specific needs.
To become a manager of your money and for beating taxes and inflation, you MUST know how to put it to task. As a student, you have many more responsibilities than chasing financial experts and reading and filtering plethora of financial information. But as a student you can start small, and start learning the ropes pretty simple and easy, without even bothering yourself with the details.The how part is dealt in the following section.
The BIG Question - How to do it?
To keep things simple, I would suggest a three fold strategy for students and young earners. I assume that you are able to make a cut in your impulsive and most unnecessary expenses and are able to save between Rs. 1000 and Rs. 2000 per month. If you are able to save more than that, good for you, as you have more slaves (more money) to serve you, and of by chance you are able to save less than that, then still you can start with one strategy and later add other weapons to your arsenal.
But before making the money to work for you, you need to have some basic facilities in place - its like having a properly stocked and well-lit library to study or an Internet connection to watch YouTube videos. These are:
- Have a Bank Account with Cheque Book - Not a plain vanilla student account or the Jan-Dhan Account, but a proper bank account with cheque facility and if possible, and your parents allow, with net banking facility. If you already don't have one, for new accounts, I would suggest going for SBI, SBI associates, PNB or BoB as their minimum account balance requirements are less than private banks like ICICI, HDFC or Axis. Final decision must weigh your ease of use and comfort level of your parents.
- Get a PAN card - Getting an Income Tax Permanent Account Number or PAN card is very simple and necessary. It is required for most financial/ monetary transactions these days, so why wait till the employer asks us to do so. Go and search Google for "Online PAM Application" and follow the URL: https://tin.tin.nsdl.com/pan/form49A.html. It will take not more than 30 minutes and the PAN card will reach you in less than 15 days.
- Get AADHAR No. - Yes, as per the latest set of requirements many processes become easier if you give your AADHAR number to verify your identity.
- Learn about the MAGIC - Yes absolutely! But the magic here I refer to is the eighth wonder, as Albert Einstein used to call it, known by the name of Compounding. Just search for the story of the "Wheat and chessboard" on Google and amaze yourself.
- Cash is KING - Mark your bank account as Untouchable! Do not use the money in this account, save only for three purposes - to hold your cash, to make investments and in absolute emergency. Transfer from your regular bank account to this one each moth a at least Rs. 500 so that it starts to build up. If you are going to follow the second and third tools listed below, transfer the additional sum for those as well. ONLY use your regular account to meet your regular expenses. DO NOT TOUCH THIS ONE.
- Start a PPF Account - Just because its TAX-FREE. Don't we love all things free, and to top it it is absolutely tax-free - your parents/you get to deduct it from your income when you invest, you don't pay any tax on income on it and neither when you finally withdraw from it. The only catch - it is for 15 years - Really Long-term. But the magic of compounding will make it worth the wait. Invest Rs. 500 per month in it, through your investment bank account.
- Start a RD - I am not talking about a music album of late legend R. D. Burman, though it is also advisable for sound mental health! I am talking about Recurring Deposits or RD of banks. Start this to earn a little income, small but assured, to meet some future goals - paying for an expensive training, or taking the parent s for a trip. Start with Rs. 500 per month in it as well, for 12 months. If you have more money later, start another RD and so on.
- Invest in a Business - You must have seen the most phenomenal monetary growth comes from business, although it has its own risks also. A business can give you a pot of gold if invested rightly and at right price. I am not saying START a business here, though that is more desirable and obviously much more arduous. you can become partners in booming businesses of India by indirectly investing in them through Equity Mutual Funds (MFs). These are like your banks, but instead of lending your money they invest in some businesses which they believe to be doing great with better future prospects. Again, you can start as low as Rs. 500 per month by way of SIP or Systematic Investment Plans. I would suggest simplest and most trusted MFs from some of the most well known MF companies - HDFC Top 200, Birla Sunlife Frontline Equity, DSP BlackRock Top 100 Equity funds. And for the more adventurous ones - Quantum Long Term Equity or PPFAS Long Term Value funds.
In the end, I would thank you for your patience in going through such a long post and wish you luck in a fruitful and prosperous monetary life ahead.
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