The Physics Of Personal Finance

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  • miie9235 miie9235 6 days ago
    You do express your point pretty well, as do a lot of blogers on: Suze Orman on Personal Finance, but I wish you could add a little more references on personal finance as I find some of your points a little 'unconventional' and would appreciate to know of documented similar opinions. I<m not asking that you do research until next Tuesday but ...
  • guestec62c24 guestec62c24 1 month ago
    Thank you for posting this info.

    In todays tuff economic times every dollar saved is worth more then a dollar earned.

    I am sure that my readers will be able to make good use of the advice in this article.

    For your reference I posted the the article here - http://www.savingmoneytips.org/physics-personal-finance
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The Physics Of Personal Finance - Presentation Transcript

  1. The Physics of Personal Finance Ranjan Varma Chief Web Architect India’s first online weekly on personal finance http://www.ranjanblog.com http://personalfinance201.com
  2. Newton’s three laws
    • Every object in a state of uniform motion or rest tends to remain in that state of motion or rest unless an external force is applied to it.
    • The relationship between an object's mass m , its acceleration a, and the applied force F is F = ma .
    • For every action there is an equal and opposite reaction.
  3. Getting started is the key
    • Procrastination in matters of personal finance is widespread. So the most important step is to get started.
    • Failure teaches, success does not.
    • The journey of a thousand miles starts with a single step.
    • Stay tuned to check if it’s rocket science.
      • What follows are some key questions and some possible answers and discussions .
  4. Is it so Important ?
    • Lack of financial literacy leads to many wrong decisions on savings and investing
    • Debt trap is widespread.
    • Inflation erodes the value of your money.
    • You are responsible for other people’s life and well being.
    • You want your children to thank you by providing for them.
  5. Budgets are like diets
    • If you want to manage something, you must be able to measure it.
    • It is important to know where you are spending your money.
    • Everybody wants a six pack figure or a figure like Aishwarya Rai, but few succeed in living by a strict diet that makes them happen.
  6. Simple equation or rocket science?
    • Savings (t) = Income (t) – Expenses (t)
    • Savings = Investment
    • During a lifetime there are periods of saving, and periods of dis-saving.
    • Our savings are other people’s (company’s) investments.
  7. Time Value of Money
    • Personal finance is about moving money, or purchasing power, backward and forward in time.
    • Once you decide what you want to leave for the next generation, the problem is to balance income and expenses during your lifetime.
  8. Opportunities to move money
    • Financial assets—accounts, mortgages, loans, stocks, bonds, real estate, collectables, options, etc.—are the vehicles by which we move money forward, and backward.
    • “Saving and investing” is when we move money forward to the future. We give up current consumption for future consumption.
  9. The magic of compounding
    • Make your money work for you.
    • There is an advantage in starting early
    • Know the rule of 72. The number of years taken to double your money is =72/CAGR. Or planned CAGR is =72/No. of years wherein you want to double your money.
    • Go to slide 18 for best results.
  10. What is your risk profile?
    • Become aware of your risk profile
    • You must have a well-defined attitude to risk.
    • Your asset allocation should match your risk profile
    • Thumb rules of Asset Allocation:
      • 100 – age in equity, balance in debt.
      • 120 – age in equity, balance in debt.
    • This is your own Investment Policy !
  11. Not all liability is bad
    • Like risk, debt must be managed, and can rarely be eliminated.
    • Large purchases, such as houses and vehicles, create “good” debt.
    • Many purchases, such as food and clothing, create “bad” debt. But good for the economy!
    • Credit cards are short term money movers, not long term loans. And at what cost?
  12. What’s in your portfolio?
    • Debt or Equity?
    • Cash, Bonds, Stocks.
    • Mutual funds, brokerage accounts.
    • Managed or Indexed.
    • You are the decision maker.
      • Take responsibility for yourself
    • Match it with your asset allocation decision
  13. Have you covered the risks?
    • If people depend on you, have you got your risks covered?
    • How do you figure out how much insurance you need?
    • Many methods to calculate human life value, what applies in your case?
    • Insurance is not an investment as is widely accepted in India.
    • Figure out the cost of a ULIP.
  14. The stock market
    • What determines the price of a stock?
    • (The forces of supply and demand!)
    • Beliefs by buyers.
    • Beliefs by sellers.
    • Beliefs must differ for the market to work!
  15. What is growth and value?
    • Stocks generate a positive return in 2 ways-
      • Dividends
      • Capital gains
    • “Valuable” stocks have one or both characteristics-
      • They are under-priced
      • They will increase in value
  16. Where is the value?
    • How to identify under-priced stocks
      • Need to determine the real value of the company.
      • Compare to current price.
    • How to identify price growth stocks
      • Determine the future of the company.
      • Review history of similar stocks.
  17. Do you require a fund manager?
    • Over 20 AMCs offering 700 MF schemes.
    • Funds ka funda…. do you see the ring or who’s pulling the strings?
    • Look at the costs.
    • Look at the past performance
    • Belief in God helps!
  18. Can you do this yourself?
    • Look at your own time vs. return matrix
    • Successful investors work hard at it.
    • Luck rarely lasts a lifetime.
    • Day trade always has a tendency of squaring off your gains.(?)
    • You can only profit from your special, or different, skills, knowledge, experience, insight, hard work, and luck.
    • Experts are injurious to your financial health!(?) Have you read Freakonomics?
  19. Stay invested………
    • You are “in it for the long run.”
    • Stay away from hot tips.
    • Filter out the noise.
    • Greed helps in taking knee jerk decisions.
    • Understand the pitfalls in investing, the sins of personal finance.
    • If in doubt,
    • buy an Index Fund/ ETF
  20. What is index fund/ ETF ?
    • Passive fund management
    • Tracks an index, look at the tracking error.
    • Have been proven to be at par with actively managed funds.
    • And at a much lower cost!
    • No advisor pushes it because there’s no commission.
    • Greater the fund corpus, lesser the cost!
  21. India’s first online weekly on personal finance
    • Sections on
      • Mutual Funds,
      • Stocks,
      • Insurance and so on………
    • Forum , where you can ask your questions
    • Weekly updates on the latest in personal finance
    • Directory of financial advisors
    • Calculators
    • Blogs
    • Spoon feeding is wrong, information is power.

Ranjan VarmaRanjan Varma, 2 years ago

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