What is financial literacy? It's the possession of certain skills that enables an individual to take proper care of the financial resources and invest in right assets to compound one's wealth. What does financial literacy mean?
Effective management of financial resources
Proper management of debt
Accurately calculating the risk in any investment
Understanding the power of compounding
People who earn less, for instance let it be 10k. They say that they dont have enough money to invest or use their skills to invest it, these excuses take these people to where they blame God for their fate. You can either make excuses or become successful.
Financial management doesn't comes with more money, if you can't manage 10k then don't expect yourself to manage 100k.
You start small in anything you do for the first time, start managing your money and you'll see how much you can save by just making notes of your expenses and then cutting off the unnecessary ones.
A person either disciplines his finances or his finances disciplines him.
- Orrin Woodward
The Power of Investing
Investing properly in anything will give you unexpectedly high returns, let it be investing your time or money. If time is invested in developing a skill and gaining knowledge, you can become a master of it. And if money is invested in assets instead of buying liabilities that seem to be as luxuries then we will be paid the highest returns in terlms of money.
A simple definition of an asset and a liability.
Asset - Anything that puts money in your pocket and appreciates overtime. Eg. real estate, stocks, etc
Liability - Anything that takes out money from your pocket and depreciates overtime . Eg. cars, etc
Albert Einstein reportedly said it. “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.”, well there in no record of him quoting this but the achievements he did in his lifespan were an investment to his personality that we give some incredible quotes to his name, isn't it a return to what he invested? Well that's what an investment is.
Regardless of whether Einstein uttered these exact words, the essence of his statement is still immensely powerful and cannot be disputed. For anyone who wants to build lasting wealth, understanding and harnessing the power of compound interest is essential. So, what is compound interest? Well, it is the exponential increase in the value of an investment. Or, more simply put, it is the interest that you earn on your interest.
"The key requirement for generating compound interest is time – the longer you leave your money to grow, the more pronounced and positive the outcome."
The earlier you start investing and become financially literate there's more chance of you building wealth than those who just work hard and trade time for money, the one who trades time for money by working on a job cannot make wealth, the one who puts money on the job and makes money from money is the one who becomes wealthy.
The more time you have to build wealth, the more potential there is to reach your goals.
As we are talking about investing early let us take some examples.
Example 1
Bill is 25 years old and has 35 years left for retirement. He starts to invest Rs. 1000 per month for 35 years at a return of 12% per annum. The corpus left with Bill at the end of 35 years will be Rs. 64 lakhs. Jack is 30 years old and has only 30 years left for retirement. He also starts to invest Rs. 1000 per month. But as he has started investing late in his career, he can invest this amount only for the next 30 years at 12% per annum.
The corpus left with Jack at the end of 30 years will be Rs. 35 lakhs. This is the difference 5 years of investment has made to the final corpus value. If Jack needs the same Rs. 64 lakhs for his retirement, he will need to shell out Rs.1830 per month instead of Rs. 1000.
Example 2
Both Bill and Jack are 30 years of age and have 30 years left for retirement. Now, Bill invests Rs. 2000 every month for the first 15 years at a return of 12% per annum. He totally invests Rs. 3.6 lakhs. At the end of 15 years of his investment, he does not invest further and also does not withdraw the money. His total corpus at the end of 30 years will be close to Rs. 55 lakhs. Now Jack invests only Rs. 1000 per month at a return of 12% per annum. But he invests for 30 years. Jack's total investment is also Rs. 3.6 lakhs - same as Bill’s total investment. But his corpus after 30 years is only Rs. 35 lakhs. Thus for the same total investment, Bill’s corpus is much higher than Jack’s corpus. This is because Bill had invested more in the initial years and had allowed this money to get compounded for the total period.
As you begin to save early in your career to start investing, you have lesser disposable cash with you. This helps you in being more prudent and brings about a discipline in your spending habits.
Keep hustling and be positive and do share your opinions in the comment box!
It was amazing and very helpful ...great work ..keep it up