How to start Investment

  How to start Investment            

          When we have money in our hands, we can start thinking of how to spend that money but if a thought comes in your mind about saving in the first instance after getting your salary, I must assure you that you are going to be financially fit person. Basic for that I already discussed in one of an earlier blog, that we must divide the expenses into three columns like want, need and saving. You can go through in details by clicking the link
https://gagandhayalfinance.blogspot.com/2019/11/personal-finance_10.html

            In this blog, I will keep my focus on other things keeping in mind that you already thought of want and need part of your salary. So I will discuss only the Saving part, but let me correct myself for you that you must also feed in your mind the Investment in place of Saving. Reason for the same I discussed in blogs, as Saving can not beat inflation prevailing so saving part can not make you wealthy. so you must invest your saving part which in turn would produce rewards in terms of profit.

            So to start learning about the basics of Investing, I must recommend you all, a famous book "Rich Dad Poor Dad" by Robert Kiyosaki. He tries to explain the basics in a very simple term, that we must invest our money in Asset class only and not in Liability. So how to approach:

Asset: 

         is something that puts money in your pocket. For example, Investing in Bonds, Real Estate, etc which will obviously beat the Prevailing Inflation rate and fill your pocket with the handsome bonuses.

Liability: 

            is something that takes money out of your pocket. For example, Car which we think as a need and asset because we have to commute but think deeply that car requires maintenance and daily fuel charge that means it is draining your money.

            An interesting example is that of Building purchased with loans or in cash. So in which category it should lie in, Asset or in liability? The simple explanation to it is if the same building is used by you or your family to reside in and not giving any return than it is a liability and if the same building is on rent and giving you money in return than of course it is Asset.

           So if your invested amount is making some cash coming into your pocket over a short or long term period than the investment is an asset. So Stocks which includes Mutual Funds as well, Real Estate, Intellectual Property are some example of an asset. 

        But one point is worth to mention that Asset also requires money to put in to acquire that asset which in long term will be generating cash flow for you. Whereas Liability not only requires money to acquire but also drains out the money in maintenance thereafter.

           Here I must stress that your saving part must be used to build your investment basket. Robert Kiyosaki also gives a great concept of the mindset of various classes of people.  Rich Person uses their income to build asset whereas middle class and poor class person acquire liabilities thinking that they are buying an asset. 

Latte Factor

          Another important factor that is important to mention is about Latte Factor as made popular by David Bach in his book  'The Automatic Millionaire'. This Latte factor refers to the very minute but regular spendings on things which appeared important in the short run but will cost you a huge in long run like Movie Tickets, Taxi/Bus charges, Outside Food, etc. So if you can cut short these small spending, it will be a major step in the improvement of your financial health. 

Spendings

          Another important point to consider is ad hoc spendings that means the spendings we make just at the spot. for example, you have no intention to buy clothes for you in the month but suddenly you saw a  heavy sale on clothes and you made a purchase. this is going to spoil your balance in the long term. So, it is recommended to have little patience while going to make such purchases and must implement different measures to avoid these sudden purchases.

                 One important point is that people tend to purchase Insurances thinking of an Investment, which I must say is the biggest mistake they do. Because Insurances are meant to come for your rescue in emergencies and not to fill your pockets. In one of my blogs, I discussed the need and purpose of Insurances and why you must not spend your money unnecessarily on them except for a few. Everyone must have just a handful of Insurances with them and not all available in the market.