... You understand stack overflow, fails to understand compound interest.
Two interesting things happened in Kaun Banega Crorepati (KBC), last year one guy won 1 crore and lost at the next question. Second, Sushil Kumar won Rs 5 Crore but you can imagine he must be clueless about what to do with this money.
And yeah, you might want to pity on the first guy who lost at the last question, but wait, if you are going unplanned you should pity yourself more. There is tons of opportunity that you have lost already, and the time to act is now. ….. without participating in Bigg Boss or KBC.
Image: Shweta Tiwari won Big Boss 1 crore, had no idea what to do with it – so her interview with a financial planner was shown live on TV.
Here are some acting points for a basic idea of what to do
1. Employee Provident Fund:
EPF is an investment for your retirement, do not cut it. Not only it gets tax exemption, gives a guaranteed return on maturity, is far safe. You can also open a PPF (Public Provident Fund) account – this is best debt investments.
2. Insurance with Term Plan:
Who will cry if you die tonight? Well, may be many tonight! But if you are not insured or under insured may be your dependents will cry for a very long period.
The thing to understand with insurance is, it’s not an investment, it’s a well, insurance. Like a car/bike insurance, if you have paid some money this year as your vehicle insurance and it is not stolen, do you get a return on your insurance money? No. What instead you get is peace of mind, when parking your vehicle.
Same applies to life or medical insurance, term plans, you pay for the insurance for the peace of mind of knowing that even though you would be irreplaceable, your dependents will get sufficient income to continue living the same standard.
It’s also advised now to take Medical and Accidental Insurance and not just term insurance.
3. Don’t Mix Insurance and Investment
Stay far away from ULIP or Endowment Plan, insurance linked investment. They are horrible, you are highly under insured, the return on the investment is terrible and there is no peace.
4. Debt is for short term, Equity is for long term
Debt based investments are for short term, if you have excess money lying in your saving or even worst current accounts, and you foresee a use of it in next few years’ debt is the way to go.
However, if the goal of your excess money is your new born child education, or your retirement, something that got enough time, equity gives a better return for long term.
5. Invest using SIP and STP
It’s highly impossible to time the market, and specially for techies watching the CNBC graphs is just not a nice idea. So the best way of investment in both debt and equity is using Systematic Investment Plans (or SIP), in a layman term, with SIP/STP your money is invested in regular interval and not in lump-sum. Like the Systematic Investment Plan (SIP) will invest in market every month, and hence on an average a profitable return can be measured avoiding the fluctuation of the market.
6. Stop misusing Credit Cards
Loans should be taken to help you in your need, a house loan, loan to launch a business. But most people these days are using the loans for monetary gratifications. As your good investments grows by Compound interest, so does the loans you take. Be careful when taking loans, it need to be repaid. And several times, much more than the principle.
Understand what is expense and what is investment, a land is an investment, a house is an expense. Gold is investment, car is expense.
7. Educate yourself about Finance
“Intelligence solves problems & produces money. Money without financial intelligence is money soon gone.” — Robert T. Kiyosaki
With technology now it’s very easy to learn, and it’s very easy to not learn. So give some better use to your television set, besides watching the reality shows, and listen to the investment programs.
Set Achievable Goal, and Celebrate
While your bankers will know you for the money you keep in your accounts, people will appreciate you only for the path, the right path, you have traveled to reach there. When you will achieve your Million dollar dream, you will realize it was never about the money, it was about seeding and nurturing something, and watching it become a big tree that gives fruit to so many people. And that feeling, is worth fighting for the next goal of making a Billions.
The idea is we celebrate every milestone. I do not believe that celebration should be done only on major achievement. To make a million, you need to make 10000 first, 100000 next, 1000k, 10000 then 100,0,00,000 comes. And enjoy each achievements, congratulate yourself, pat your shoulder and focus on next milestone.
This is a guest post by Zeeshan Alam – he is our Financial Planning Client from Jaipur. He runs Software Company based in India & United States. The views expressed herein are the author’s personal views.