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Personal Finance is a “threatening” concept and most people phase out when money/ savings/ investing/ tax/ stocks/ insurance/ funds are discussed. After tackling them over the last one year on my blog and website , I hope to construct an easy-to-digest, friendly e-book that people want to read and understand!

This e-book is only 21 pages and will not take more than an hour to go through. No matter who you are and what you earn, my feeling is that this one hour can help you understand money and change a lot of things for you, for the better!

Personal Finance is about managing your own money. There are scores of books and courses to manage the finance of your business or a Company. Then there are books on finances of the Government (Monetary, Fiscal Economics).

But are there enough for managing your own finances? Which is equally, if not more, important for all of us. And moreover it’s simple and not rocket science!

Download the eBook

If you want to manage something, you must be able to measure it. In other words, if you can’t measure it, you really can’t manage it well.

Your personal finances also falls within the above concept. How do you know whether you are doing well with your personal finances or not?

So there are tools and calculators available which can help you with a self analysis and provide a road map for your finance decisions.

The following spreadsheets which I have done on Zoho , which has a suite of online web applications offering easy collaboration.

• Monthly Budgeting Worksheet
• Financial Freedom Calculator
• Networth Template
• Benefit of starting early

Zoho is really amazing and I found this excerpt about them:This is the only real “little guy” on the list. I’ve written about the fact that Zoho already has an online office suite that is better than anything from Microsoft or Google. While the product is really good, what has been equally important for Zoho is that it has proven that it knows how to execute. Microsoft got to where it is today because it was faster and more effective at executing than any of its competitors

The advantage of these sheets is that while you can toggle with your own case figures in the sheet online and they will return with the figures for your case in a jiffy. And you can also download them for free if you really like them! We’ll be happier if you spread the word to your friends.

I need to go through a financial literacy programme and I am making that effort. So do you, dude.

I’ve hated finance. Maybe because I was not able to understand the jargons and the maths. But I guess ignoring personal finance worsens the situation. And the only way to get maximum out of your personal finance is to look it into its eye and grapple with it. You will come out stronger.

If you think it’s too early for you to bother, let me tell you that the first principle of investing is to start early and see the magic of compounding. College grads, fresh MBAs and guys under 25, the smart thing to do is to start now.

Do you think that you have mastered the basics but are not able to use it to your advantage, it’s time to put your thinking cap on and review your strategies. Learn from your failures. Often we tend to get stricken by some deadly internal enemies which Kartik Jhaveri details here.

Some of you guys would be rich enough not to be bothered about these mundane things. But have you ever given a thought that you are in a position to contribute to the nation’s economy by being more efficient about your finances. Wealth has the unique ability to create more wealth. Are you using that power?

Before I move on, let me articulate the background to this financial literacy programme that I am so smitten about. The following facts and questions keep on humming in my mind:

1. Equities give the best returns and you are putting your money in a professionally managed corporate organisation. Compare this with your insurance products which give much lesser returns and your money is invested in the Government which is inefficient with your money, to say the least.
2. However the total AUM under Mutual Funds is about Rs 3.5 lakh crores while LIC alone manages funds worth more than Rs 6 lakh crore. Yes it’s true that LIC has been there for over 50 years and has a huge distribution reach. But it has hardly tapped the huge insurance potential that India has.
3. Financial experts scoff at ULIP saying that it’s very expensive compared to Mutual Funds. But LIC collected more than Rs 25000 crore in 2006-07 and it’s total fund under ULIP is approx 40000 crore which is more than UTI’s AUM of approx 39000 crore (since existence)

All this and more points to widespread financial illiteracy at all levels. Be it college grads, software geeks, MBAs, Engineers, even CFA/Economists( they are experts at business finance or government finance) and even Financial advisors (they rarely have a holistic view), everyone needs to be literate about his personal finances.

And there are over 700 mutual funds, 5000 stocks, 300 insurance policies and hundreds of other financial products to choose from!!

Interested! And the literacy programme that I have in mind will have the following details:

• Financial planning basics.
• Financial markets.
• Financial products like Mutual Funds, Stocks.
• Research reports, Financial analysis, technical analysis.
• Insurance : Basics, Company review, product review.
• ETF : Basics, Company review, product review.
• Bonds : Basics, Company review, product review.
• Tax Planning : Basics, product review.
• Retirement Planning : Basics, product review.
• Children’s education. : Basics, Company review, product review.
• Calculators :Budgeting, Networth, Loan, Asset allocator, Risk analyser,etc.

Any suggestions. And if you are interested why don’t you subscribe to my RSS feed or by email. And tell your friends too. I’ll cover them one at a time. [ I need to learn them and then only I can share it with you ]

Btw, if your eyebrows are tensed up and you are thinking why I am making so much effort working on this financial literacy programme, I’ll tell you my secret. It’s for the website I dream of every day and night!! The site launches in August’07.

This post links to a treasure trove of information on personal finance. Actually, April was National Financial Literacy Month in the US and JDR (GetRichSlowly) has the ultimate collection of posts covering everything on Personal Finance.

Other than the 20 posts linking to the literacy drive, he also links to his popular articles and the websites which provide such information. Maybe it’s all dry information, but you can do well to bookmark that post and keep coming back to it. It’s dry, but important for you. Why? Look at the following questions and then decide.

How much do you know about money? Have you learned about the power of compounding? Do you know how the stock market works? What is a bond? Can you tell the difference between an Income Statement, a Balance Sheet, and a Cash Flow Statement? Do you even know why you would want to?

Do you know how to keep a budget? Do you understand how your taxes are used and why we pay them? Do you know what it takes to purchase a house? How much insurance do you need?

Head on to this treasure trove. Even though some posts are US specific, the concepts are useful and important to learn.

Simple maths tell us more about the power of starting early and investing regularly rather than any rants. Check out this simple calculator by Hugh where he gives an option to compare two savings/investing options.

I have taken the following case:
Case 1: You start now with a yearly investment of Rs 1000 and stay invested for 40 years.

Case 2: You start after 20 years from now but invest Rs 2000 instead for 20 years.

In both the case, the amount invested is Rs 40,000. Assuming a common growth rate of 10% in both the cases, in case 1 , the accrued balance works out to Rs 442,593 . The accrued balance in case 2 is Rs 114,550.

Why don’t you work it yourself and take away your learnings.

Getting rich is in your hands, nobody else’s . So get started with working hard or smart (depends on you again), adding to your finance knowledge and generally taking responsibility for yourself. Get Rich Or Die Trying.

If Financial decisions look like rocket science to you and Investing is even more daunting, here are some baby steps for you.

This one is from Deborah Fowles, Guide to Financial Planning in About.com Seems very elementary but I doubt how many people are scoring more than 5/10. Here it goes, the top ten:

1. Get Paid What You’re Worth and Spend Less Than You Earn : Hey, I get less than what I deserve and so do you!! And I’ve not done any budgeting so that I may be sure of the second part.

2. Stick to a Budget : I’m ashamed, no budgeting exercise for myself, not to speak of sticking to one.

3. Pay Off Credit Card Debt: Thank God, I finally get a score on this one. I’ve managed to stay clear though I’ve had to suffer with the agonising interest calculations earlier.

4. Contribute to a Retirement Plan: I do have a pension plan but I’ve never cared to figure out whether it is sufficient! Will give 1/2 for that one to me.

5. Have a Savings Plan: Yeah ,I’ll be partial to myself and give some score here too! I do save about 15% of my income though it’s a recent phenomena. Better late than never!

6. Invest! : Pretty straight forward. But few people manage to find an hour for that in a week. They’ll rather watch TV(Big Boss is on these days!)

7. Maximize Your Employment Benefits : A meeting with your HR guy!! Brace yourself. I have no hope with my guys.

8. Review Your Insurance Coverages: Putting a finger on that is important from the family point of view. Those of you without that responsibility can breathe easy on that count. But I get full marks here!

9. Update Your Will: Never thought about that up till now. Bless Ms Fowles.

10. Keep Good Records: I will, as part of my New Year resolutions. But I’ve yet to get started on that. Next Monday, I promise.

Phew!, I score about 4/10!! So much potential to improve!!

But before I sign off, for guys who suddenly want to get started with their budgeting exercise, here are percentages of major spending categories from the US Bureau of Labor Statistics (2003) Consumer Expenditure Survey. May not apply to you and me but it’s an interesting statistic anyway. Gives you an idea where you stand and where you can increase/decrease your expenses.

Food at home 7.7%
Food away from home 5.4%
Alcoholic beverages 1.0%
Total food and drink 14.1%
Housing 32.9%
Apparel and services 4.0%
Vehicles 9.1%
Gasoline and motor oil 3.3%
Other transportation 6.7%
Healthcare 5.9%
Entertainment 5.0%
Personal care products and services 1.3%
Reading .3%
Education 1.9%
Tobacco products and smoking supplies .7%
Miscellaneous 1.5%
Cash contributions 3.4%
Personal insurance and pensions 9.9%

Work on your Budget sheet for two hours and it’ll tell you a lot about yourself. Look at it as a personality test!!

And yes, Taxquery wonders how any financial planning can be successful without tax planning. He’s dead right. Go to his wonderful blog for tons of info on Taxes

Gaurav’s post on the 30 things he wanted to do before he’s 30 was a brave one. I wondered at his bravery and wished him all the best only to land up in trouble myself He wants a way to build a Networth of 1 Crore before he’s 30 and now wants me to find it.
Gaurav’s target of becoming a crorepati is brave but also bordering on being foolhardy, I think. To top it, he wants to start with a seed capital of only Rs 2 lacs and a monthly infusion of Rs 20000! This way he will need to grow his money at an outstanding rate of 200% annually!!

Impossible. Or could be there some way? Legal, ofcourse.

Very recently I read a book, The Big Idea, which ends with the following Goethe’s couplet: Whatever you can do, or dream you can, begin it. Boldness has genius, power and magic in it.

Here in this blog I have been talking about Mutual Funds, Real estate, Bonds, ULIPs and ETFs. All of them do not pass muster when it comes to giving a return Gaurav wants. What about stocks? Yes, there are stocks that have given that kind of return in the past. But how to identify those stocks who would do the same in the next 30 months? Nobody knows those stocks. So is there still a way?

Now Gaurav says that he has avery high risk appetite. That should essentially mean that when he has invested in shares that he expects will zoom and those share prices drop 30% soon after he buys them, he will average his cost by buying more. Letus assume that he is willing to take the volatility for the desired growth and he is confident of his decisions.

Moving on that assumption, Stocks can give you that growth. But since we cannot identify the 5-6 stocks that will give a growth of 150-200% over a period of 30 months, we need to ride the waves on the stock market.

The first magic happened today morning when I looked at a blog/site that I had been avoiding (Because I understood little of that). It’s EagleEyeTrade by Rajeev Mundra.

Talking to Rajeev who runs a Technical Trading seminar too, I did some number crunching. Assuming a challenging but realistic goal of 10% growth every month, a starting amount of Rs 6,25,000 will become Rs 1.09 crore after 30 months. Vow!!!

Atleast, theoretically it’s possible. Ofcourse it will take a lot of guts (time & energy too). It depends on Gaurav’s risk appetite. And Rajeev’s expert guidance. If you ask me, the guys can do it. I wish them Good Luck.

For the first time I’m putting a disclaimer. Here it is: Ideas posted on the blog are educative in nature and must not in any way be construed as advice or recommendations. Investing/Trading in financial instruments is risky. This blog cannot be held liable in anyway for losses incurred.

Slideshare is a wonderful way of sharing your slides and powerpoint presentations. It is a place to share and discover slideshows. You can embed the slideshows in your blog, tag, comment and have fun.

I have embedded a presentation I have made on “Taking responsibility for your finances”

Click here for the slides

What do you have to say? Please subscribe by Email or Feeds

FINANCE looks daunting. For me too.

I was in Rishikesh a few years back in the winters and one old resident told me, “The water is warm when the Sun has not risen. Try it”, with a straight face. Next morning, it was pretty dark when I waded into the “warm waters” of Ganga. Boy, Oh Boy! I did not expect the old man to be so cruel!!
But I had the bath of my life. It was invigorating and real fun! I came back and thanked the old man who had tricked me into that chilled out experience.

What’s that experience to do with Finance, you’ll say. Well, I’m an old man by some standards. (This should also mean that I’m young by other standards:). And I want you to have fun with Finance.

Let’s take a look at what Finance means and I’m sure you will find it Fun, Interesting, Nasty, gives an Advantage, Not Precise, Creative and Exciting.

Finance itself has a very wide meaning and it encompasses Business Finance, Personal Finance and Government Finance in general. We will focus on Personal Finance only.

Your questions in personal finance would revolve around the following:

Your Personal financial decisions will involve paying for education, financing durable goods such as real estate and cars, buying insurance, e.g. health and property insurance, investing and saving for retirement. Personal financial decisions may also involve paying for a loan.

Phew! Are you prepared to wade into the”warm’ waters of Finance? Welcome. Why don’t you subscribe by Email or Feeds We can travel together.

The Little Book of Common Sense Investing is an amazing book by John Bogle. Read this about the book you can buy on Amazon.

Investing is all about common sense. Owning a diversified portfolio of stocks and holding it for the long term is a winner’s game. Trying to beat the stock market is theoretically a zero-sum game (for every winner, there must be a loser), but after the substantial costs of investing are deducted, it becomes a loser’s game.

Common sense tells us—and history confirms—that the simplest and most efficient investment strategy is to buy and hold all of the nation’s publicly held businesses at very low cost. The classic index fund that owns this market portfolio is the only investment that guarantees you with your fair share of stock market returns.

To learn how to make index investing work for you, there’s no better mentor than legendary mutual fund industry veteran John C। Bogle. Over the course of his long career, Bogle—founder of the Vanguard Group and creator of the world’s first index mutual fund—has relied primarily on index investing to help Vanguard’s clients build substantial wealth. Now, with The Little Book of Common Sense Investing, he wants to help you do the same.

Some excerpts from the book:

Index funds eliminate the risks of individual stocks, market sectors, and manager selection.

Only stock market risk remains.

Don’t allow a winners game to become a loser’s game.

Fund investors are confident they can easily select superior fund managers. They are wrong.

The stock market is a giant distraction.

If the data do not prove that indexing wins, well, the data are wrong.

It’s amazing how difficult it is for a man to understand something if he’s paid a small fortune not to understand it.

The miracle of compounding returns is overwhelmed by the tyranny of compounding costs.

Interesting!! What do you think? Waiting to hear your comments.