MOMENT OF TRUTH : “The Harder You Need Money, the Dearer it Gets”

On hearing the word Money – a strong word, our body releases a cocktail of hormones and elicits various emotions depending on the circumstances we are in.

People who believe that they have enough money are only few – 5% of the earning population to say! Why is the number so low? Because Money can’t buy happiness, but it sure can buy you things that make you happy. Although there is one saying attached to the world of money, more you need it, harder it is to get it & hardest- to keep it.

They say happiness caps at $75k a year but is it really the case? Again, this depends on how prudently one balances their needs with future needs in mind.

“Money serves the mind that can match it”, said Rand and this will hold good for generations to come. Living pay-check to pay-check is not limited to low wage earners, anyone and everyone can fall trap to mis-managed finances.

We are living in more advanced India. We are world’s 7th largest economy but living standard of an average middle class Indian is pretty much the same. India’s per capita income (nominal) was $ 1570 in 2013, ranked at 120th out of 164 countries by the World Bank while its per capita income on purchasing power parity (PPP) basis was US$ 5,350 and ranked 106th. This is enough to say that Indian middle class is still lacking behind saving enough and creating wealth.

Every other day we get to hear that rich are getting richer and poor are getting poorer in this country. Middle class Indians are busy saving their hard earned money and paying off taxes. They are busy saving, but saving in a wrong way, which will never allow them to grow one more step. Money sure is hard to earn but is not harder to save.

If we take economic criteria of defining a middle class person, then it is anyone who belongs to a household which has a monthly income of between Rs 20,000 and Rs 100,000 a month. According to some expert advisors one should at-least save 20% of his/her income. But is that really happening? Are we really saving 20% of our income? If yes then kudos, if no then there is a serious problem.

We always believe in safe savings. We do not like to invest in risky investment options whereas developed countries believe investing in slightly risky investment options such as equity markets. Probably this is one another reason why our country is still known as the third world leader.

Of whatever we are trying to save, much of the household savings get parked in bank deposits. Slightly riskier investment options like stock markets and mutual funds investments are unpopular categories in India. People are afraid of losing money.

This doesn’t go to say that people should randomly invest in stock market or mutual funds, but there’s definitely a need to understand the requirement of investing wisely.

The most unfortunate scene of our country is that 77% of educated mass especially women don’t know the right way to save. And, no offense meant, but saving isn’t equal to haggling with the vegetable sellers or stashing money under the pillow. Many people still believe that a savings or FD account is enough to save. Almost no one thinks of retirement, half the people do not even believe in charting out any financial plan during their lifetime and these practices are sadly passed on to the next generation too! No thought of emergencies or future plans, random investments, belief in hearsay not data and lack of self-assessment has led to the sorry state of personal finances in the country.

The bigger shock is that there are many people who don’t even have a bank account. They still believe in saving under their pillow. India’s lack of financial inclusion is well known to us. Only slightly more than 50 per cent of the population just has a simple savings bank account. In India where currently economy is booming this sounds highly distressing. Since many people don’t understand the basic terminologies of finance like savings, investing, systematic investment planning etc, they don’t like to get into what they consider a mess. Some on the other hand are de-motivated by false returns or losses they witnessed due to making blind investment decisions.

An individual should understand the value of financial freedom. The need of the growing population today is to go beyond savings and create wealth. Many experts believe that investment is the key to create wealth. In a country where technology and developments are taking the highway, only 18 million population is investing in equity market. But not investing or for that matter investing blindly will never be enough or wise to create wealth. Imagine yourself in an emergency where you require immediate money supply. What is the use of using the money which is not for it was kept in a simple saving account? If this fixed amount of money can barely make enough money that can be used in any emergency, then what is the point? Your simple savings account will only help you earn 4% interest rate on your savings. If you are saving Rs 100 a month, you are just making Rs 4 more every month and Rs 48 yearly. There can be many investment options where you can make more money if you sit and plan carefully. Then is there any solution to invest wisely? Fortunately there is.

The solution is to take wise investment decisions. Sit down and relax. Believe in the power of financial freedom and consider these steps before making any decision on investments. After all when you will require the money most, it will surely be harder for you to get it. In that case why to wait for adversity and not to plan the money for any emergency?

Understand your requirement – You are a 23 year old freshly graduate who have just started earning. You are not planning to get married for 5 years. You don’t have any requirement of money today apart from your basic expenses. This is the present situation. What about tomorrow? Tomorrow time value of Money will grow. If you need 10 Lakh to get married today, tomorrow it can be 25 Lakh. What are you doing about it? Understand the fact that you can’t start saving just before one year from getting married. This is just one case. Understand your requirements. What can be future scenario? Understand the fact that your requirements can be different from your friend who has same profile as yours. Money matters can be never same for two people. Take Money decisions based on your requirements and not of others. Take some time to think and decide.

Plan ahead – Always plan ahead. This is the golden rule. You never know what future can bring you. You have to always be prepared for any money related emergency. Ever person has some idea of what his/ her expenses are and what future emergency/ necessary money situations can arrive. For e.g. if you are 25 this time, you might be having the idea of when you will marry or whether you will have to take care of some family expenses or not. Whatever you earn, save some part of your earnings regularly so that your future goals are met.

Take services from a good financial planner – Financial planning is a different field of study. Individuals take these courses to be able to understand the financial needs of an individual so that they can guide them further for the same. Do not take matters in your own hands if you don’t know how to. Do not follow blind investment advices from your family or friends (however well-intended they may be). Prefer paying some amount of money to your financial planner instead ending up making huge losses on your investments because of blind investment decision. But before choosing your financial advisor, be sure of their track record and credentials.

Start as Early as Possible – You have to start investing as early as possible. As you grow older, things will get tougher. Your financial conditions might change; economic conditions might not remain the same. You cannot sacrifice today’s golden chance just because of fear or lack of information. Take wise investment decisions. There is no right or wrong time. Do your research, make sure the investments meets your goals and stay invested for a long term if you do not have immediate money requirements – that’s the key to better returns.

Always remember, future is yet to arrive but you can make it better investing in the present. Make the best of it. When it comes to investments, keep your ears, eyes and mind open- acquire as much information about yourself and investments and only then invest. Always aim higher so you never have to run behind money when you need it the most. After all, happiness is earned!

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