In the annals of Indian television, Sushil Kumar's name shines as a bright star. He emerged victorious in the legendary game show "Kaun Banega Crorepati," walking away with a staggering five crore rupees. However, a poignant twist awaited his fortune. The post-tax amount of three and a half crore rupees he earned was a substantial sum, but mismanagement led him into bankruptcy. This unfortunate tale underscores the significance of mastering financial literacy. In this article, we'll explore ten pivotal financial lessons crucial for anyone belonging to the salaried class.
1. The Erosion of Money's Purchasing Power
Imagine a chart showcasing the depreciation of the US dollar's buying power. Over time, it has lost around 96% of its value. While this might seem distant, it holds a lesson applicable to you, seated in 2022. To emphasize this, let's perform a thought experiment. Estimate the value of one crore rupees fifteen years from now. With an assumed inflation rate of 7%, that one crore will plummet to 36 lakh rupees in 15 years and a mere 25 lakh rupees in 20 years. This lesson: the goal of investing isn't just growth but also protecting your wealth against inflation.
2. Investing to Beat Inflation
Understanding how your money needs to grow is imperative. Drawing insights from Japan's financial history, where stagnant economy and low inflation create a different landscape, reveals that different economies demand varied investment strategies. In growing economies like India, it's vital to invest to outpace inflation, while in stagnant ones like Japan, caution may suffice. Your investment approach must be in sync with your economy's nature.
3. Early Insurance Investment
Medical inflation in India is soaring, and insurance premiums follow suit. Acquiring insurance early not only secures you but also saves money. Medical emergencies can devastate your finances, so safeguard yourself by investing in health insurance. The premiums are lower when you're younger, translating to significant savings over time.
4. The Power of Fixed Deposits
Fixed deposits offer a dual benefit: serving as an emergency fund and providing liquidity for opportunistic investments. While they may not yield high returns, their safety and flexibility make them invaluable. During market downturns, having liquid funds to exploit opportunities can reap substantial rewards.
5. Diversify into Non-Paper Assets
Government policies can impact paper assets, but non-paper assets like real estate and gold offer insulation. While risky, they're crucial for diversification. Physical assets like these can mitigate potential losses from monetary policy shifts and provide stability.
6. The Right Way to Approach Loans
Loans, when used judiciously, can aid financial growth. But not all loans are equal. Discern between productive and unproductive loans. Loans for appreciating assets like property may be viable, but loans for depreciating assets like vehicles are best avoided.
7. Mastering Cash Flow Management
Positive cash flow is vital for financial stability. Overspending, even with substantial income, can lead to negative cash flow and distress during emergencies. Prioritize investments that generate cash flow, maintaining financial stability in the long run.
8. Independent Investment System
Formulate your investment system. Relying on others' advice without understanding entry and exit points can prove detrimental. Develop your knowledge and strategy, empowering you to make informed decisions aligned with your financial goals.
9. Trust the Economy, Not Blindly the Government
Governments change, policies shift, and financial landscapes evolve. Invest based on economic trends rather than blind trust in the government. Diversify investments to hedge against potential policy changes.
10. Visualize Financial Goals
Envision your financial future. Determine how you'll navigate taxes and consider avenues like starting a business for tax optimization. By having a clear vision and adapting as necessary, you can secure your financial future.
In conclusion, learning from Sushil Kumar's financial journey teaches us that managing our finances requires knowledge and foresight. Embrace these critical lessons to shape a secure and prosperous future.