Become Financial Independent & Personal Finance

Hi All,

Referring my previous blog, where I have mentioned how crucial is to so save your hard core earned money and invest it further so that all your life goals can be completed easily. But the big dollar question is how to achieve this 

How to make sure your money is multiplying even when you are sleeping or relaxing or holidaying.

Believe me, this is not as difficult as it seems

It just starts with a amount of money you can save easily every month. Now, there are a number of ways to do that depending on your risk appetite and time horizon. So, the basis principle is just write down on a piece of paper  all your financial goals.

For example, If I am working and 25 years old, I might have some plans to fulfill. e.g. I might need a car , lets say in some three years and I need to plan my investments so that if I invest some particular amount of money every month I should have the corpus ( amount) ready by the time I turn 28 ( as I am doing this planning at the age of 25 and I have good three years to go) and I can fulfill my dreams to own my desired car.😊

There could be long term goals as well. Suppose I am 30 years old and I need to plan for my daughters education  so that once she turns 20 or I turn 50 , I should have the corpus ready with me.

So, like this we all should know our financial goals and the time horizon to complete them as this can help us in doing planning today.

Don't you think this is much better than taking the burden of the loan and paying interest every month in the EMI which you pay.Yes. it is😊 . 

Rather than paying interest in EMI's , we can invest our money work for us and with the effect of compounding, we can achieve our desired goals.

I am not saying loan is bad but when you have an option to plan your finances , it's better to go with the power of finance .

Now, again , there might be few doubts coming across in your mind that I have made my investments already and I am financially secure.

Some of you might have invested in real estate, Bank fixed deposits, gold , land etc.

Well there is nothing wrong in this. But any investment can be valued in terms of inflation and its earning capacity.

So, any investment whether its gold, silver, real estate, bank fixed deposits etc. please take a little time and see whether your investment is outpacing ongoing inflation or not and whether it has some earning capacity in addition to the initial cost you have put in purchasing that asset class.

So, let's start with earning capacity first and then I will explain inflation in my next article.

As the name suggests, earning capacity means the earnings one can drive from the investment one has made.

Suppose I have a house which I own. Well, can we call it a good investment?

It could be or could not be. If I am residing in the same house I own, yes, it's a good investment otherwise I would have to pay rent somewhere to get an accomodation. Since my house is saving my money , I can avoid rent and I can invest this money to live the life I want. Similarly, if I am not living in my house and I have my rent coming in every month with 10 per cent appraisal every year, my house has earning ability which is a again a good sign of investment .

I can invest the rent and I can enjoy the dual benefit from  the investment I have made in buying the house. But this does not mean that people who don't own house and live on rent are not good financial planners.

I know so many financial planners who live on rent because they know the  difference between EMI & rent. If EMI is far more than monthly rent, it is wiser to stay on rent and wait for a good valuation to buy. Because you are saving money ( i.e.  the difference between EMI and rent ) which you can invest further to get returns.

Now, we talk about gold.

Well in my views and most of the investors views, GOLD has no earning capacity because once you buy it, you put it inside a bank lockers ( for which , you again pay fee)and hence your invested value depreciate rather than appreciating.

GOLD could be a good investment for NBFC ( Non Banking Financial Corporations)  who provide loans against gold as they are earning out of it. But at ,our houses we all know we can not do this and this actually does not give us good returns in future.

So, you can just think over what all assets you own and think about their earning capacity before making any buying decision.

I will explain more on this in my next blog. Please share your views and let me know any issues you got in understanding this article. 

Thanks

Hina

hina.gupta19@gmail.com

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