12 Oct 2014

Financial IQ – Not for me, I am an Engineer!?

On a hot and arid afternoon in Delhi, my friend decided to show me around the bustling and exuberant Khan Market. That’s when we entered Bahrisons Booksellers which is one of the oldest book shops in that area. My friend strolled past the other sections and directly went to the section marked in bold - FINANCE.  This took me by surprise. I was tempted to understand how a Mechatronics engineer could be even remotely interested in reading Finance.  On that particular day, a book that he recommended changed my rather traditional perspective on Finance. 

Well, we all thought that hard work at school and straight A+ at graduation were a sure shot way to land up in a high paying job. Or at least our parents said so! This might not be entirely factual, mainly due to two reasons – Firstly, economies grow and crumble and so do companies, so there is no such term as a “steady job” .Secondly, by getting the ‘Employee of the month’ title, you are making your employer richer – NOT YOURSELF.

By stating these certain realities (startling for a few!), I don’t mean to undervalue the benefits of the so called “steady job”. This is to drive the point that Financial Literacy is a must for every person who wants to achieve financial independence. Period.

Alas, the clichéd responses to this:  I am no good at math, I don’t see myself working with a Finance/Accounting firm anytime in the future, Accountancy bores me to death or I am the creative sort of person, not really in to structured stuff! This is a dogma passed on through generations.

The irony is that our education system doesn’t recognise Financial Literacy as a prerequisite for young professionals, who are just beginning to carve their path in the corporate jungle. Working hard (okay! the trend is working smart) will guarantee you promotions and hiked-up pay packages. With that comes an increased tax cut on our income, thereby making our government richer (read overfilled exchequer coffer :P) and at the same time, inching our employer towards fulfilling month-end targets.

We have often read/seen instances where millionaires have gone bankrupt, one of our neighbours losing his/her job, pay cuts due to slump in the economy, and the worst of all – when we ourselves are left with a zero balance, inspite of earning fat pay cheques every month! Those with work experience are sure to agree. This brings me to stress on my earlier point that living a life oblivious of the importance of personal finance is like a frog in a well.

Financial knowledge for many of us is akin to maximising our savings. Few years back, when I was working with an MNC, my parents used to emphasise on the importance of saving a portion of my monthly income. And this portion would lie in my savings bank account where I would earn 4% on my daily balance. Trust me the returns were miniscule! The realisation that occurred to me is that I have missed out on other opportunities to make my money grow. Simply put, I was working for money and not making money work for me.

For a lot of people, including my own family, owning a house or a car is a big investment. My simple question is - if these are assets, then why is the expense column related to the house/car increasing more than the income column (seems more like a liability!). A true asset in your Balance Sheet is an investment which increases the Income side in your Profit & Loss account. And it is this income which flows from our assets that should fund the luxuries we all wish to enjoy in life – maybe a trip to Las Vegas or owning a red Porsche ;)

So how we do we amass this whole concept of Financial knowledge? A simple and basic understanding of the following four aspects is the key:

1. Accounting: the simple difference between a true asset & liability

2. Investing: the various options of making money work for you

3. Understanding markets: demand and supply patterns

4. Tax laws: tax exemptions and deductions available in India

If you are still giving this a second thought, be reminded that once out of academics, it is only one thing that will help you step aside from the proverbial rat race – your chutzpah! (Haider style, I say :D)

Coming to the book which was instrumental in transforming my pattern of thinking with regard to Finance– the best-selling Rich Dad Poor Dad by Robert T. Kiyosaki.

Cheers to my Delhite friend for the incredible recommendation!

This Article is written by Sonika Krishnan (PGDM 2013-15) 


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