What does it feel like to become financially independent in a true sense? If more than 80% of your decisions are backed by monitory consideration — or is limited to the extent of your bank account balance, you aren’t truly financially independent.
Just like making money, managing money too is a craft on its own. You cannot become rich until you don’t employ your money to make more money for you. And it’s not rocket science; it is as easy as tracking where your last dime went!
This article explores intricately what we believe the most basic financial knowledge every individual should possess.
Multiple income streams
If I could tell the importance of multiple streams of income is just one statistic, it would be this –
Tom Corley, author of “Rich Habits”, studied the habits of millionaires during a five-year study of the rich and poor. Here’s what he found as it pertains to most self-made millionaires and their income streams:
• 65% of self-made millionaires had three streams of income.
• 45% of self-made millionaires had four streams of income.
• 29% of self-made millionaires had five or more streams of income.
You too need a build a network; or rather a system where you place yourself among revenue streams from multiple sources. If you are an engineer, you can start a blog. If you are a blogger, you can maybe think of writing a book. The point is to establish yourself in such a way so that you are no longer threatened by a death of a single industry.
Diversification is the key.
Successful companies diversify revenue streams. Successful portfolio managers diversify their investments. You too as an individual need to find alternate income channels to support your main income so that you become sufficiently hedged against industrial recessions.
If you are a human being you should know how to run a code, balance your checkbook, design a building, sing a song, ride a horse, plan an invasion, solve equations, give orders, take orders, plant a seed, sell a pen, fight efficiently, live ethically. Specialization is for ants! (idea)
Get rid of debt — or at least make an effort not to pile up more!
This is the common advice you hear most financial advisors talk about. Yet this isn’t quite taken heed of. Americans are piling up on student loan debt and some even fear that this may lead to the next economic crises. Debt levels on student loans have reached 1.16 trillion dollars, and this was supposed to be the most intuitive financial practice.
Having said that, debt is not inherently bad for you. Sometimes it may provide the much needed cushion in your life, but if you let it grow on you — the interest calls will turn into a parasite feeding on your annual bonuses, life savings (if any), side income and leave you with a headache. If you have ever done lawn care, you probably know how weeds can crop up slowly inching and taking more of the square feet of the lawn. The analogy perfectly fits in relation to debt and your financial health.
Instead, a smart individual will postpone present luxuries and focus on clearing his/her debt as soon as possible. Commit to dedicating a part of your income to clear of debt and make the process robust.
Do the math, hire a personal financial adviser and work out ways to reduce your debt and live a more fulfilling life. As such debt is not a bad omen, it’s just the way how you manage it makes all the difference.
In India, a staggering amount of people have no idea how stock markets work. A noticeable amount of people still believe that real estate and gold are the only best assets available for investment. As such people in India liken stock trading to gambling; the fear factor begets market volatility.
But if people only save and NOT invest they will never see true riches and is likely to lose all savings in a single event of mishap — for example: a sudden disease, large education payoff, a big fat wedding.
That’s what we believe in and are hell bent on educating the middle class population of the benefits of investments especially in vehicles like mutual funds and equities.
Only 4.45% of the population in India forms retail investors. And here’s the comparison from some of the major countries in the world:
This deplorable situation calls for an urgent need to accumulate middle class savings and direct them towards the markets so that capital accumulation in the country takes off and people in general uplift themselves to upper middle class.
The ‘mutual funds sahi hai’ campaign is a positive step towards that direction as it has managed to add 32 lakh investors in a single year!
At the same time it is worth noting that the economy must pick up because you don’t want new investors joining when the economy is laggard. But with India, the signs are positive. With an overwhelming large youth population, growth in the business sector can amplify even IMF forecasts India’s growth rate at 7.4% in FY19 retaining its position back as the fastest growing nation in the world!
There has never been a better time to start investing and if you are a youth who has just started earning, it’s time you start educating yourself on personal investments, pursue multiple sources of income and get rid of any debt in your books.
And if you want to start a business someday, this can be a good starting point!