How and Why I Learnt About Money & You can too!
By: Amit Kumar
Tags: Financial Planning, Mutual Funds, Saving Money, Stock Market, Health Insurance

One of the best parts of being born in a middle-class Indian family, is that you get to experience money related stuff almost all the time.

Starting from my childhood to the time, when I was in my college, I could only experience the shortage of finances which my family had. And as a curious kid, I always kept on thinking solutions for this too.

I kept asking myself -

Would getting a good job with a handsome paycheck be enough? Should I think about some business to start earning money?

But I never actually got a satisfactory answer.

Fast forward to 2019, I’m 22 and now I’ve much more financial awareness than what I did 3 years ago.

Here’s how & what I learnt about Money -

1. Why should you save money? Or at least use it judiciously.

My father was in the Hotel & Tourism line, while in the last days of his active career he was earning a handsome 60k INR back in 2009. Which was pretty decent to have a good life. But soon after when he left his job, and left his career after 23 years we realized something.

We barely had less than 5 lakh Rupees in our bank account and a few small FDs. That’s it!

Because all that he ever earned was either spent on his trips, or some fancy not necessary items at our home.

He would have earned so much in those 23 years but saved nearly nothing. He had no plans for his retirement and if any emergency would pass-by he wouldn’t be having enough funds to deal with it.

This was what made me learn — Why To Save Money & Or At least use it Judiciously.

2. What’s the difference between an Asset & a Liability?

In layman’s term, everything that you own is an Asset, while everything that you owe to someone is a Liability.

Well, this is fine up to some extent, but not if you apply this in your life.

My thoughts about an Asset or a Liability changed after a friend recommended me to read — Rich Dad, Poor Dad by Robert T. Kiyosaki.

Soon after reading this book, one our colleague bought a new car. He was too happy with this, and he exclaimed out of joy —

“I’m so happy to buy this car, I finally own an Asset.”

But probably he didn’t get to read that book.

As per Robert T.Kiyosaki’s book — Anything that puts money in your pocket is an Asset, while Anything that takes out money from your pocket is a Liability.

3. Should you own a Credit card? How can you avoid getting into a burden of Credit card debt?

I remember my father panicking at the end of every month —

“I’ve so much of Credit card debts, Credit cards are evil, don’t ever get a one, or you’ll be in debt too.”

However, when I got my first Credit card, I realized, it’s not the Credit Card, that’s evil. The evil is within us, which pushes us to luxuriously overspend and get into debts.

It’s been nearly 13 months since I’ve owned my Credit card, and I’ve never missed a due date, because I never got a Credit card bill being more than what I earned.

Owning A Credit Card

When I got my Credit card I decided upon a few rules -

I would do my regular expenses from my Credit card.

I would never spend more than what I earned from my Credit card.

No matter what, the first thing after getting my salary every month would be to clear off my Credit card bill.

Benefits of having a Credit card & Using it properly -

I got a CIBIL score of 750+. (Having a CIBIL score is a must if you plan on taking any kind of loans ever in future. It basically tells the Bank about your ability to spend, and payback on time without fail.)

My Credit Limit increased 3x. (The bank rewarded me for being a responsible Credit card holder.)

It’s much easier to track my monthly expenses all at one place in my Credit Card Statement.

It’s good to have some readily available Financial support, in the form of Credit card for emergency situations.

4. Should you have Health Insurance? Is it even necessary at all?

Last year I got a call, that my father had a heart attack and he was being hospitalised for immediate treatment.

The very next thing which I did was to check, how much money I had in my savings, it was just 30–40k INR. And I knew, that in 2018, there was no way, this much money could afford a Heart Treatment at any good hospital. I was also sure, that my father would barely have any savings to help him through.

However, I gathered some courage, and without wasting time, headed for my hometown. On the way, my father told me that he had a Health Insurance Policy, which he would be using for his treatment, so I need not worry about the finances.

After I reached the doctor handed me an estimate of around INR 1.7 lakhs, for his treatment. With the savings we had, we would have barely made it out. But I got a call from his Insurance company, the process for which my father asked my friend to initiate at the hospital while getting admitted.

The Insurance company cleared the entire bill in a matter of 4 hours, with just a sign and a document of verification.

On the day of his discharge, while I was in the elevator, I met another guy, whose brother was admitted in the adjacent ward to my father. He was in tears as they had to sell his paternal home in his village for brother’s treatment.

That’s when I realised, why it’s necessary for all of us to cover ourselves and our family with a Health Insurance, to avoid such financial burdens in times of emergency.

Get Health Insurance!

5. Is Fixed Deposit the best place to park your Savings?

Fixed Deposits used to give 9–10% per annum when I was a kid. Now they give a just 7–8% on average.

With such a small return, you surely would not be motivated to make an FDs as our parents did.

While in college, I did a summer internship at a Stock Broking firm as I wanted to understand Stock Market better. (Something which I feard and found too confusing as a kid.)

After the initial basics, in my free time there, I used to calculate the return of some imaginary investment in some common stocks in our Indian Stock Market, like Tata Motors, Maruti, Reliance etc.

And the results were something like this — If you invested Rs. 1 lakh in Maruti in 2002, you would’ve got 44 lakhs today (in a matter of 17 years).

In a world where some LIC policies claimed to double up your investment in 8–10 years, a 44x return in 17 years left me totally amazed.

I wanted to benefit from it, but I was just as afraid as anyone of us from the Stock Market. I wasn’t a sound investor with lots of experience.

So I decided to build some capital to play with stocks after I gained some experience. For this, when I got into my job, I started a habit of saving 10k/month in Mutual Funds in the form of SIPs.

Mutual Funds are subject to market risks, read the scheme document carefully before investing. (Ring a bell!)

Mutual Funds are basically a pool of funds from small investors like you & me who put in Rs.500–20k/month in them. And then a Financially Smart guy a.k.a. Fund Manager decides, which stocks should be bought from that pooled money.

If you go for good Asset Management Companies (AMCs) like — Reliance, Mirae Asset, HDFC and others, they have several options of mutual funds for you to invest.

Mutual Funds have a wide variety of returns (ranging from 8% p.a. to 24% p.a.) which they could offer you, based upon the amount of risk you are willing to take.

I decided to invest monthly in some aggressive Mutual Funds from HDFC, Mirae Asset and L&T.

I decided to save in Mutual Funds until I was 25, and meanwhile, learn about Stocks. And then when I would be 25, I would have a bigger capital to invest and benefit from Stocks.

6. Do you know how to cycle? Did you learn it without even falling for once?

Last year I saw a video from GaryVee -

So, earlier where I decided to wait until I was 25. I changed my mind and decided to enter into Stocks right now. As it’s better to fail now & today and learn from my failures, than 5 years later.

Then, I read The Dhandho Investor: The Low-Risk Value Method to High Returns by Mohnish Pabrai

If you want to just learn the basics about Investing (anywhere, not just stocks) then, this book is a must read for you!

After this, I went onto YouTube and viewed every free resource for Technical Analysis of Stocks. It took me around 2–3 months. But after that, when I used those complex methods to analyse any stock, it was so depressing and tiring.

I wasn’t able to find out good stocks to invest in with high potential returns.

Few more days passed by, then I came across a video by Mohnish Pabrai on YouTube, where he said -

Technical Analysis of Stocks is fine up to an extent, but too much Technical Analysis just ruins it all. Keep your Stock selection as simple and based on the basics of investment as you can.

After watching this, the next thing I did, was that I started on a fresh page. Modified those Techincal Analysis Calculations to much simpler versions.

And added Two basics questions of Choosing any company, they were so simple that even a Layman could answer them —

Did this company exist at the time of your grandparents? Is this company having the reputation even today? Will this have the same reputation in the market 10 years from now? Does this company offer something which is liked very much by the Middle-Class people?

That’s it.

I was very easily able to find stocks with a 15–30% p.a. potential return.

After this, I moved all of my money from Mutual Funds to stocks, because I’m willing to lose money, trying out now & learning from it. Rather than losing it 5 years later and regretting, not to have tried earlier.

(Fun fact — As of May 2019, Warren Buffet, the greatest investor of all time has Net Worth of ‎US$89.9 billion, which took him around 50 years of investing in stocks with a Per Annum return of 21%.)

And with that, I got the answer to my Financial Freedom, not from a Job or a Business but Stock Market.

Even if you decide to stay away from the Stock Market, don’t hold yourself from learning about Money.

Being Financially Aware should be the goal!

Thanks for reading.

This is my first article on Medium.

I’d appreciate a comment/feedback if you’ve read this far.