Personal Finance is an essential part of the life skills a person must learn while he is young. The proper management of your money makes all the difference in how your future is going to look like.
What is Personal Financing?
In the simplest definitions, personal financing is the right or appropriate management of your personal wealth/money and creation of wealth which as a consequence will help you grow wealthy and rich faster.
Who is Ranveer Allahbadia?
Ranveer Allahbadia is a YouTuber, motivational speaker, leadership coach, and famous social media entrepreneur.
He owns and manages various YouTube channels which include BeerBiceps, Ranveer Allahbadia, TRS Clips, and many more.
He is also the Co-Founder of Monk Entertainment.
4 Basics of Personal Finance by Ranveer Allahbadia:
1. Savings Accounts are Bad
In almost all Indian schools the students are taught the basics of finance (Simple Interest, Compound Interest, etc.) but unfortunately in a Mathematical way where they are only given exposure to calculate numbers or some answers using formulas.
Out of the pie, only a handful number of students can possibly realize what they're learning if they can implement it in their real life with their wealth, the same basic formulae can create wonders for their financial life.
In the end, when a student has finally crossed 18 years of age he is given some 'Tips' for his financial life.
The 1 common thing that is a part of every financial advice a student of Generation Z has to listen to from his predecessors is to put all his money in a bank account, possibly a Fixed Deposit and that's it!
But unfortunately, this method of investing has proven to be obsolete and cause more harm than gain.
A clear example is the interest rate provided by the bank per annum barely manages to meet the ever-growing inflation rate of markets of the world.
(Inflation is the increase in the price of goods or things that you buy which also means a Fall in the value of your money)
An average bank in India has an interest rate of 5% to 6% per annum. And according to Bussiness Standard, the inflation rate in India as of March 2021 was about 5% to 5.52%.
This gives anyone a clear idea of why investing in your own bank accounts is no more a sensible option.
2. Generating Passive Income Sources
Robert Kiyosaki, an American Businessman and New York Times best-selling author, popular for his world-famous book on basics of finance 'Rich Dad Poor Dad' has always stated: "Savers are Losers" since he got to know about Financial Literacy and passive income.
There are two types of income:
1. Active Income
If you are in a job, you complete your working hours of 9-5 and return. Here you are exchanging your time for money. An earning that is done by exchanging time is termed as an Active Income Source.
2. Passive Income
An income source where you earn money while you are in your home with doing very little-no work is termed as a Passive Income Source.
99% of all Millionaires/Billionaires have at least 1 source of passive income.
A huge benefit of passive income is that you save a lot of time for yourself.
3. The Science of Investments
According to The College Investor, 90% of the world's millionaires have been created by investing in just Real Estate. But this type of investment is completely different compared to what a common man thinks about it.
Ankur Warikoo, an Indian internet entrepreneur, motivational speaker, and angel investor, has given the 5 Best ways to invest in your 20s and get wealthy early in India. You can check it out here.
Investing is unfortunately just the dumping of money into the savings account of banks for most people. But in reality, true investing is the science of making money.
Investing isn't just confined to real estate. In fact, it is a vast ocean of opportunities to make money.
Investing just requires the right knowledge and a little bit of risk-taking appetite of the individual.
4. Assets vs Liabilities
Anything that you buy or own is divided into two categories based on how will it affect your wealth:
1. Assets
2. Liabilities
Robert Kiyosaki gave the definition of an asset in this way: "Anything that puts money in your pocket is an Asset", and "A liability takes money from your pocket".
These definitions chalk out a clear understanding of what should be considered a liability and an asset.
One of his famous quotes says: "Your House is not an Asset", where he means even though there may be a slight increase in the property worth but all of it is in vain when it comes to monthly expenses for the maintenance of the house.
Assets too are not confined to property/real estate.
For example, there are even paper assets in the form of Bonds, Stocks, etc. which can yield better profits compared to some heavy investments in real estate.
How to achieve Financial Freedom?
Ranveer Allahbadia has insisted in his video to aim for Financial Freedom at least by your Mid-30s.
One of the best possible ways to achieve financial freedom is by generating sources of passive income.
Initially, your passive income may not be able to meet your monthly expenses, so it is advised to keep growing it until it does so.
This way you don't have to depend upon your job/active income source and achieve financial freedom.
While the Mid-30s may be the point of financial freedom for many, the best advice is to achieve financial freedom at the earliest.
Time is more important than money.
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