Hello readers, my name is Arpit. In this blog, we are going to talk about three things.
1) What is personal finance?
2)Why personal finance is so important?
3) Is personal finance really complicated?
What is Personal finance?
Personal Finance is all about decisions related to your finances, including budgeting and investment. Sounds complicated. Okay, let me try to explain it with an example. Let's say you earn a monthly salary of rupees 50,000 out of this salary, you have a monthly expense of rupees 30,000, which leaves you with a saving of rupees 20,000 per month. Now, personal finance is about identifying the best options of investment for your 20,000 savings to get maximum return. This money can be utilized to fulfill your goals and future which could be buying a house buying a car, or vacation or retirement planning. Personal Finance is about optimization of your 30,000 per month expenses to make sure that you get maximum value out of your expenses. It is also about how to increase your monthly income from 50,000 per month to let's say 70,000 per month.
Why Personal finance is important?
Personal Finance is also about handling those unexpected expenses. For example, you might fall sick, and that results in the additional expense of hospitalization, and medicine. In short, personal finance is all about decisions related to your money to make sure you utilize it efficiently. To explain this, let me introduce you to a guy. His name is Shivam. He retired from duty as a forest officer in a village near Udaipur. After retirement, he received a lumpsum amount. But right after that, he was duped into buying a high insurance premium policy, they had repeatedly convinced me that I was investing in a better plan than a fixed deposit. Later, I found they had issued me an insurance policy worth rupees two lakh without informing me of the details the agent falsely presented in the policy documents that I'm a class 12 Pass and have basic computer knowledge. Hence mentioning some email IDs. While in reality, I'll just class eight pass and don't know how to operate a computer. Even the contact number mentioned in the policy on which the call for police verification is usually sent was not my own. Do you think he got duped because he's not educated? Well, I did my internship in an insurance company. And my market research resulted in the conclusion that most people are illiterate when it comes to insurance. Right from the age of 2022. When the Son starts earning, the parents would say it is better to take an insurance policy. Nobody really knows which insurance policy to buy. Nobody really knows the return that you get from your insurance. What is the calculation behind the return? Nobody really knows the difference between a term planner and a dormant plan. Very few people understand that insurance is not an investment. Very few people understand that. Now you don't need an agent to buy those policies, you can buy them online. Very few people read those terms and conditions before signing for the policy. Every year millions of people are duped by these insurance companies. Many families in India are trapped in these endowment plants where they're paying a yearly fortune. This is just one of the reasons why personal finance is important so that nobody makes a fool out of you. There are many other reasons, just think about it. If you work so hard to earn money, don't you think you should know how to manage it?
Is Personal Finance Really Complicated?
To explain this, let me recall a scene from the movie three idiots. In the movie, the professor asked for the definition of a machine. And when the student tests the definition in simple language, the professor asked for a real definition. Now, in this case, the real definition is the bookish definition. He finally encourages the student who provides the bookish definition. So this is the problem in our education system. Our education system is completely rotten. We are encouraged to learn and just pass the exams. We are not encouraged to learn anything useful. Now if you are if you don't know ABCD you will think that English is a complicated language. And even if you know English, if someone tried to explain it in a complicated way, you will think that English is complicated. So the fundamental problem is first, nobody teaches us about the basics of investing, which is to read a balance sheet, and a profit and loss statement.
Importance of Personal Finance
We are not encouraged to learn things simply. Rather, we are encouraged to mock the definition, which might result in passing the exam, but not in real life. Moreover, there are forces that do not want you to learn about personal finance, because if you know about it, you will be of no use to them. If you ask a marketer, Should schools teach about personal finance? The reply would be no, if everyone understands about the value of money and investing, who is going to buy my product, which cost me rupees 10, but I sell for rupees 100. If everyone understands the value of money, who is going to fall into discount traps? If you ask a banker? Should schools teach personal finance? The reply would be no. If everyone understood about power of compounding, and the EMI traps, our banks would shut down. Who would buy our personal loan? If you ask an insurance company? Should schools teach about personal finance? The reply would be no. If everyone understands that insurance is not an investment, who is going to buy our endowment plan? If you ask a credit card company, should schools teach about personal finance? The reply would be no. If everyone knew how to use a credit card and take maximum benefit out of it, like free airport lounge access, everyone would end up paying on time. And our biggest source of revenue, which is to charge 30 to 40% annual rent interest would become zero, and we'd have to close our shop. If you ask a stockbroker or a mutual fund agent, why don't you teach students about investing? The reply would be if we teach about investing, who take our advice, we prefer to take a good margin on our advice. Hence, we don't want to teach them. Moreover, if we teach them, we might get some money. But if we don't teach them, they will depend on us for the rest of their lives. Hence, a recurring source of income.
Peter Lynch ( American investor)
Let me introduce you to this person. His name is Peter Lynch. He's a famous American investor, mutual fund manager, and philanthropist. He's the author of a very famous book called one up on Wall Street. Let's see what he has to say about investing- Average investors can become experts in their own field, and can pick winning stocks as effectively as Wall Street professionals. By doing just amateur research. Everyone has the power to follow the stock market. If you have made it to the fifth-grade math, you can do it. Stop listening to professionals. 20 years in this business convinces me that any normal person using the customary 3% of the brain can pick stocks just as well, if not better than the average Wall Street expert.
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