Highlights from Personal Finance and Investment Basics Webinar-Your Quick Guide

Gripdough launched a webinar series on Sunday, and here is a short summary of the topics discussed.

Why Invest?

As we start our discussion on investing, the first question that comes to mind is, “Why should we invest?”. The short answer to that, we live in an exciting era of technological advancements and AI has been transforming all the traditional industries and creating new opportunities for everyone. While it has been awe-inspiring on one hand, on the other hand we are witnessing unprecedented rise in cost of living, rising inflation, economic disparity and unemployment crisis bubbling in some of the affluent pockets of the world. This makes us all wonder, what the future would look like in a decade or two, from now.

Compounding Returns– Compound interest is said to be the eighth wonder of the world. Even a small amount of money invested consistently over a long period of time amplifies the compounding benefits. That is why it is very important that financial literacy and investment has to be part of curriculum even at school level. The earlier the investment journey begins, the better the financial stability as the kids grow up
Beating Inflation– The simplest definition of inflation is, “the money you have on hand right now, will have lesser purchasing power in the future”. We have to make sure that the income that you earn in the future, will be able to match, if not beat the inflation rate. That is an important reason why we invest
Passive Income Generation – Passive income helps you and your family to have more peace of mind, as it reduces financial risk, protects you against unfortunate situations like job loss or any economic downturn. It even frees up some funds for you to pursue your goals and hobbies.
Retirement Planning– With life expectancy on the rise, and the inflation going up, it is important to think about investing early. It not only helps to secure your financial future, but there is also an added advantage that if you make a sound retirement investment plan and it all works out well, you can even have an early retirement.

Personal Finance

Now that we have thought about why invest, let us try to understand what some strategies are to allocate funds for investment. Think of your personal finance as the CFO of a company would, in a very structured way to manage your money. Think of your personal finance and how it is performing using the points listed below.

Budgeting– Do you have a planned budget? Are you able to stick to the budget and live within your means?
Savings– What is the % of savings allocated in your budget? Do you want to make some improvement in the % allocation?
Investment– Consider your investments so far. Have they been profitable? Are they diversified? What are the future plans?
Debt Management
Retirement Planning
Insurance– Is the coverage sufficient? Have you reviewed all the terms and conditions? Do you want to shop around for better plans for more coverage?
Estate Planning– how have you streamlined the inheritance process for your future generation? Have you been regularly reviewing and updating the plan?

Budgeting

Budget is a financial plan that outlines expected income and expenses over a specific period of time, typically a month or a year. Budgeting gives a better control of finances and helps in formulating a goal-based savings plan. Emergency Planning is an important part of budgeting, where typically 3 to 6 months income is saved for emergencies in a highly liquid asset form. A family budget can help foster financial skills and promote more financial responsibility among all family members, especially young children. We can make it fun by setting some family goals together, use colorful visual aids and even ask them for suggestions. There are plenty of budgeting apps that the family can use, if they are digital savvy. But we can also go old-school and make up an excel template or print out a chart and put it up on the fridge so that the entire family can contribute.

Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime

Savings

“Pay yourself first” is a very important thumb-rule to be followed when it comes to savings. There are different methodologies one can follow to make an effective savings plan to suit you and your family. You can choose and customize whichever plan suits your family’s unique needs and lifestyle.

50/30/20 Rule– 50%- Needs, 30%- Wants, 20%- Savings
Goal Based Savings
Emergency Fund Principle
Incremental Savings
The Latte Factor– cutting down on trivial expenses we make every day, can lead to substantial savings in the long run.

Investment- Diversification

Now that savings plan is ready, it is important to come up with an investment plan. A non-negotiable rule of investing is “Don’t put all your eggs into one basket”. There are plenty of asset-classes, where one can diversify and invest their funds into. Compared to past few decades, we have so many opportunities and ease of access to various asset-classes to invest in. Some of them are discussed below

Gold – Excellent hedge against Inflation. Can invest in many forms such as Physical Gold, Gold Bonds, Gold ETFs and Sovereign Gold Bonds
Real Estate – Rental income- good source of passive income. Asset may appreciate in value depending upon the city you invested in, and the time period you made the investment.
Government Bonds – safe and risk averse. Rate of return- nearly 7% for 10 years+ bonds.

Stock Market Investment

Follow a clear mental model
Potential for higher returns
Good hedge against Inflation
Dividends
Compounding benefits
Possible to achieve Diversification within your stock market portfolio.

Summary

Investing offers several benefits, including compounded returns that can significantly increase wealth over time and help beat inflation. Effective personal finance starts with creating a budget, allowing you to save first and spend what’s left. Diversifying investments across various asset classes—such as gold, real estate, funds, and the stock market—is crucial. Within the stock market, it’s also important to diversify your investments. Following a clear mental model can guide your decision-making and enhance your investment strategy.