Few months back I was working in my office. While sitting in front to my desktop I was analyzing my financials over the past 9 years. And I have found that I am not financially educated person. As I have spent so much unnecessarily in those years. Then, I read an eye opening quote over the internet by Alan Greenspan –
“The number one problem in today’s generation & economy is the lack of financial literacy”
This quote gives me a food for thought to reanalyze myself to take care of my financials for my future. If we want to improve our financials we have to start our young minds to teach in schools.
I was surfing over the internet and found some eye opening facts. Almost 75% Indian adults are not able to make their decision on finances. Even more, 80% women are not financially educated. These numbers scared me a lot. Actually, making good decisions on your finances is an art to understand how money works.
In India, the majority are of middle class peoples. Their finances are not good, as they depend upon only one source of income.
There is a true fact, if you don’t have any financial education you don’t have money for your retirement.
In this article, I will tell you a story of three friends – Arun, Varun & Tarun. Their story will help us to understand their financials, cash flow patterns and their mentality. As well as you can relate yourself to check are you financially educated?
All three are very good friends and working in a same company.
Arun is married, having two children’s and a salary of 50k per month. Arun is doing some side hustle at home after his office working hours. He has responsibilities towards his family and he understands well. He knows with this salary (50k) he cannot run his home. So, he started his own side business after office. The money generated due to his side hustle he put those money to buy assets. He purchased some shares over stock market. Even he also tries to buy some land. Furthermore, he also put his money to his business whenever investment is required. Arun is financially educated. Arun knows the importance of money and how it works.
“That man is richest whose pleasures are cheapest” – Henry David Thoreau.
Varun is also married, having a child and taking a salary of 80k per month. Varun does nothing after his office hours. He does his regular job from 9-5 only. Every weekend, Varun enjoyed with friends, family and partying regularly. Varun is very happy with his job. Even he put some amount of his money into bank saving account and fixed deposits. Every month he does the same thing with his salary. Varun knows little bit about financials but never focus on it as his salary completes his desires. He buys expensive phone, loan EMI for his brand new expensive car.
On the other hand, Tarun is a junior to his friends in office. He is single and getting very good salary of about 40k every month. Tarun has no responsibility towards his family. He spend most of the time with Varun. He also gets involved in parties with Varun and friends. Tarun buy expensive cloths, expensive phone and pretend himself rich. But Tarun was very upset and complains every time. He complains his salary is very much less as compared to others and drains too quickly. So, he struggle every end of the month and in his hard times as well. Tarun knows the importance of money, but don’t know how it works. He has some debt as well. Tarun is not financially educated person.
CASH FLOW PATTERN
As Tarun is not financially educated person. His cash flow pattern clearly stated that his salary completely went into expenses. Also, he has no assets which adds income to his income tub. His cash flow pattern shows a poor person mentality.
Whereas, Varun has some sort of savings. In his cash flow pattern, he adds some savings to his asset tub which is a lump sump amount only. This cash flow pattern shows a middle class person mentality.
If we closely look and understand the cash flow pattern of Arun, he filled his asset tub fully by purchasing land, shares and investment in business. The value of shares he purchased is now into lacs. He also added a good area of land into his name. The side hustle converted into part time business but he still doing his job. His part time business which giving him very good extra income equivalent to his job salary.
CONSEQUENCES OF NOT FINANCIALLY EDUCATED
Company's Financial Trouble
Now, the company where Arun, Varun and Tarun were working comes under financial trouble. Company’s annual reports showing loss, because they not even to generate enough revenue. Now, to reduce down company loss, the management take a decision of attrition for some employees.
All three removed from the company along with other employees.
Tarun was very sad and upset as this job is only source of his income. Even Tarun don’t have any assets into his asset tub which helps him to survive in this tuff situation. Tarun has no time to sit at home; he has to run after for any source of income. Not financially educated, leads him very depressed and tensed.
On the other side, Varun saves some of his salary to bank saving account and fixed deposits. Varun situation is better than Tarun. He also has to find his new source of income to run his day to day living. He can sit at home till his savings are with him. Once his savings are over he is equivalent to Tarun. Unfocused view also not financially educated, Varun leading himself to poverty.
Above of all, Arun who was working after office hours, having land and shares value in Lacs; has no impact of this situation. In fact, Arun convert his part time business into full time business. He is living his life happily even more after his job and become financially independent. His financial education leads him into rich category even taking average salary from his job.
I hope you understood this small story of Arun, Varun and Tarun.
Hence, their financial knowledge leads their life.
Many of us can relate our self with these three characters. These three peoples taught us a very well how we should manage our personal finance.
Let me tell you another facts, 1/3rd of Indians are willing to take loans for a consumer durable items such as phone, TV and refrigerators.
Furthermore, 34% peoples said they rely on friends for advice while taking loans, followed by family which is 31.8% and colleagues at 25.4%.
It doesn’t matter whatever you are earning either 80k, 50k or 40k; what matter is how you manage your financials. Building an asset or a passive source of income helps you to achieve financial independence. Money in hand boost your confidence & shows automatically in your actions as well. Always note, to be financially educated means having the ability to not let money from your hands easily. Spend where it is necessary only.