Money EdgeReal Life Money Skills

Who’s wealthy ?• One who spends a lot of money ?

• People who spend less than what they earn are likely to become wealthy

• Wealth of a person is determined by something called ----------------- ?

Ex. 1: make B/S of Mr.Amitabh given his financial details

Rent received 2.00 lakhs

Mutual funds 3.00 lakhs

Shares 1.00 lakhs

dividend 0.20 lakhs

LIC premium 0.20 lakhs

House 50.00 lakhs

Car loan 3.00 lakhs

Credit card due 0.50 lakhs

Other Loans 5.00 lakhs

SB A/c balance 1.50 lakhs

Ex 2: Now for Mr.Bachan

Housing loan 30.00 lakhs

Mutual funds 2.00 lakhs

Personal Loan 3.00 lakhs

Car 5.00 lakhs

LIC SV 0.50 lakhs

House 40.00 lakhs

Car loan 4.00 lakhs

Loans to friends 3.00 lakhs

Bank OD 23.00 lakhs

Receivables 0.50 lakhs

So….• The magic word to be rich is :

High net worth

And negative net worth would lead to

Bankruptcy

What prevents you ? • Are these goals clearly defined ?

• The goals seem to be vague

• They need to be clearly defined

• Convert them in to SMART goals

*

• Specific I want to go somewhere with my friends during the summer vacation.

• I want to go to Goa with my friends during the summer vacation.

• Measurable I need to save some money for the trip to Goa.

• I need to save Rs.10000 for my trip to Goa

• Attainable I will arrange all the money myself.

• I will request my parents to give me Rs.5000 and I will save up rest of it.

• Realistic I will save Rs. 100 and buy lottery tickets.

• I will save Rs. 1000 per Month for the next five months.

• Time-bound I want to save the money sometime soon.

• I want to save the money by first week of March.

Session (2)Now that we have learnt to make Smart Goals

Let’s learn how to plan and work towards achieving them.

Budgeting : Prioritizing the needs!

Budgeting: Let’s first learn few terms about Budgeting

Cash-flow Statement: A record of your income and expenses.

Budget: A plan for balancing of income and expenditures or a projection of one’s income and expenditure.

Necessity of Budget: Optimize savings Traffic signal for vehicle called ‘Spending’. Save accurately for a particular short/long term goal. Effec tively allot funds to various are areas of expenditure in advance.

Budget Surplus or Deficit: Projected income > Projected Expenditure = Budget surplus Projected income < Projected Expenditure = Budget deficit

Delayed Gratification: Let go something now for something better/bigger in the future. Eg: giving up the idea to buy video game now to purchase a bicycle in the future.

Instant gratification: Instantly buy something when you want it. Eg: Purchase a video game instantly

when you want it.

Opportunity Cost: At a point of time, when you give up something to achieve something else, the

forgone opportunity is known as ‘Opportunity Cost’. Eg. You have an option to either buy a video game or a bicycle and you opt for the bicycle, then the video game is the opportunity cost for purchasing bicycle.

Knowledge of budgeting is an advantage for children: Art of budgeting helps a person develop economic

way of thinking and problem solving

When Should I start ?Sachin Tendulkar asks :I m quiet young ,

when do you think I should start Investing ?

Immediately !

Who will have more Money ?

• Sunny Deol

• Starts investing Rs. 1 lakh /year from the age of 15

• At the age of 30, he stops investing

• He does NOT withdraw a single penny from this money

• Bobby Deol

• Starts investing Rs. 4 lakhs/year from the time he is 30 years and continues to invest the same amount till the age of 60

• He does NOT withdraw a single penny from this money.

• Given: Both earn 12% return on their investment

• Who do you think will have more money at 60 ?

Investment mantra 1 • At age of 60 years Sunny will

have11.16 crores !

• While bobby will have 9.65 crores only

So….

Earlier the better !

Sole bread earner • Q :Zaheer Khan : I am

able to make only small contribution because of my other responsibilities. Also I do not save regularly

• A : Small is ok but you need to invest regularly . Let’s check out why ?

The Tale of Twins !• Abe & Jabe, twins, decide to invest Rs.

3000 every year when they are 25 years old. Jabe just gave up at the age of 30 whereas Abe continued to invest regularly.

• A few years later, Jabe decided to make up for all those years so he invested a lump sum of Rs.20,000 when he turned 35 and again invested Rs.25,000 at the age of 42. Thus by the age of 45, both Abe & Jabe had invested Rs. 60000 each.

• Assuming a growth rate of 15%,How much would both have at 45 ?

Investment Mantra 2• Abe will have 4 lakhs

• Jabe ….3.8 lakhs

• So…..second rule is

Invest continuously !

3 rd Mantra : Check Mate !

Once upon a time there lived a wealthy king. One day a man brought to him a new board game that the man, had invented. He called the game ‘chess’.

The king played the game with the man and he was so impressed that he asked him to choose a reward for himself.

The man asked for one ashrafi for the first square of the chess board, 2 ashrafis for the second, 4 for the third & so on…

Chek - mate The king found it a very easy reward. And ordered

to give the award to the man …..

• But till the 64th square ….the man had managed to gather 18,446,744,073,709,551,615 ashrafis!!!!

The king had given the man his word so he had to stick to it. So even after having emptied his entire treasury, he could not pay the man’s full reward.

. Third mantra of investment is reap the benefits of compounding.

• Einstein called Compounding …………… ?

Long Term

Q : Vinod Kambli asks.. We always hear one should invest for long term …don’t you think in the Long term every one dies ?

A : On the contrary I would say if you don’t invest for Long term then you would surely have to face difficult times .Let’s see how 100 rupees grows in the Long run….

5% 10% 15% 20%

5 years 128 161 201 249

10 years 163 259 405 619

15 years 208 418 814 1541

25 years 339 1083 3292 9540

What if……?• Lamba : And if something happens

unfortunately to a person in the short term…then what about his family and long term goals?

• A : well …………… Planning is the solution

Needing insurance is like needing a parachute. If it isn't there the first time, chances are you won't need it again!

Insurance is protection for the person and his family

Why Insurance Planning ?

Doubling money• I want to keep my money safe & till it

doubles ?

• Invest in --------

• Any one can purchase denominations of 100 to 50000.No ceiling

• It doubles money in 8 years 7 months

• Effective rate works out to be ------ ?

Salsa with 72 !

Divide 72 by given rate of return to arrive at the number of years in which one can double the money

Conversely divide 72 by number of years to get the return you got to double your money.

What did we learn….?• Smart goals

• Net worth reflects Wealth

• Cash flows & Budgeting

• Bank loans & credit cards

• Investment Banking

• Personal Financial planning