Our school days
We all have that friend in our school days who asks you for money and says he will allow you to use his cricket bat for a match. Or he offers you a week with his videogame at his home instead.
You decide whether you want to lend him the money and think whether that videogame time is really worth it .
Just then another guy in your backyard offers you to use his cricket kit entire summer for the same money . You feel so privileged relishing your importance and think for a entire night before you agree to the cricket kit deal .
Our college days
We do a lot of this in college too . There we have friends who give you money in return with the interest ; as they say. But the problem in college was – instead of lending money to any of your two friends who offered you a good money back deal with healthy interest ; you along with your other friend were more interested in knowing where exactly they bet their money on and earn such a healthy payback . And when you came to know which IPL team it used to be , you yourself want to offer these deals to your other friends with the intent of making more money.
Then come the job days
But then as we all leave college and start doing a job , this interest of making more money just dissolves somewhere . You feel you have done enough of this barter system and money lending ; and now choose a one stop solution for all your money needs: THE BANK . So finally all your worries of financial management since all these childhood years end for once. Alas !
You give your money to the bank to keep it with them , usually the one which your employer endorses; but unlike your school days don’t really bother to know if (A) some other financial instrument will give you something more ;
Unlike your college days you don’t feel challenged to know (B) what this bank will do after taking your money and why cant you yourself do it .
Yeah , I understand , now we are the elite employees in a MNC with a corporate culture and such petty thinking is for someone else to do . After all , all attention now is shifted how much more your employer can pay you , and not on what he has already paid you .
Let’s ask a WHY?
Lets ask a WHY? to points (A) and (B) and lets know how it feels like if we become so keen :
A) : Why should we give all our money to the bank only ?
All that the bank will give you in return is the 3.5% to 6% interest on your amount . This return is way less than the inflation which we all encounter in daily lives(refer earlier blog) and hence is a pathetic option to choose.
If you argue that they also give you the credit cards and the banking portals by which you can transact at ease and improve the leisure quotient of your life , you better fly down to Ibiza .Dan Bilzerian with a lot of leisure is waiting for you there !
B) : How does the bank give you your money back with the interest too ?
The money you invest in banks ; which is just a place for you to store all your money , is actually investment for the banks and their source of income. This money is then invested in Equities and debt instruments to gain a return way more than inflation ( lets say 12-15 %) and 3.5-6% is passed on to you in your savings account .
So its like your elder brother when you were five ; who cut your half of the chocolate into two saying that both of you should share equally, when he had already cut the entire chocolate into two equal parts earlier itself in front of you .
Yess!!! You have just been compared to a five year old . So next time you go to your bank and see your bank manager with a chocolate in his hand . . . . . . . . . . . . . . . . do nothing , just cover up your anguish with a subtle –Good Morning .
Ask a WHY? again
The follow up questions which we in school and college asked in both the above cases are :
(A): Which alternative is available apart from the bank which will give me more returns ?
Mutual funds ,Equity Investments,Debt investments fetch more returns than bank savings account .And Liquid funds also give you access to transaction in a click .
(B): How can I myself do what the bank does for me ?
You can yourself invest your money in Mutual Funds and allied equity and debt instruments through an informed and expert advisor and gain above inflation real returns rather than settling for a meagre below inflation return from the bank.
This is the descending chronology of financial wisdom with adulthood at the top.
As kids we all owned that piggy bank with the dog who would grab the coin on its door. Then too ,it was always the coin of an adult or some relative who gave it to the kids for a trial in his piggy bank ; but could never ask it back even he wanted to . Even then , the kids were smarter !!
On a serious note , we as investors of our money should grab the habit of questioning every instrument the banks or other conventional instruments offer. We should not blindfold ourselves to the banks , but authoritatively question the banks about your money and its growth .
If the above 4 questions which we have asked ourselves along with my previous two blogs have arrested your thinking process about money , congrats ,we are all ready to set ablaze this journey towards “Financial Independence”.
Well, if you still want to make sure you have bag packed all essential financial brainwork before the journey, contact me at the following :
I will surely once again help you with checklist .
Aniket Choudhari (MBA, CFP)
2nd floor, RK Business Centre, Cement road, Shankar Nagar, Nagpur