Financial Wisdom 4 Young Indians
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1. List the benefits of studying personal finance.
2. Summarize the key steps in successful personal
3. Understand the basic terms in personal finance
1. Assets Vs Liabilities
2. Savings Vs Investments
4. Understanding time value of money
5. Applying time value of money concept to
1. Wealth Creation
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Financial literacy is
...fundamental to being
smart about money.
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Financial responsibility is being
Your financial decisions and
Your own financial well-being.
“If it is to be, it is up to me”
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What is it?
Engineering is the
monitoring of long-term
plans to achieve
What are the steps in the
financial engineering process?
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Financial Planning Benefits
Financial planning helps you achieve:
Financial Success – achievement of
Financial Security – being able to
fulfill any needs and most wants.
Wealth – an abundance of money and
other financial resources.
Financial Freedom – the state where
work is an option, you choose. Not
compelled to opt.
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The Building Blocks of
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Important Personal Finance Terms
Asset – is one that gives a positive cash flow
Liability – is one that gives a negative cash flow
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…Important Personal Finance Terms…
Inflation–Steady rise in the general
level of prices (reduces purchasing
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…Important Personal Finance Terms
Returns Low, Fixed, Less Risky Higher, Variable, Risky
Types of Returns Cash Flow only (if any) Cash Flow and Capital
Term Short Term Long Term
Purpose Festivities, Gifts, Small
Wealth creation, Large
Savings Vs Investment
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Opportunity Costs and Trade-
offs in Decision Making
Opportunity Cost – Value of the next
best alternative that must be foregone.
Opportunity cost reflects the best
alternative of what one could have done
instead of choosing to spend, save, or
invest money. Examples?
Trade-offs occur when you give up
one thing for another.
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The Time Value of Money in
Financial Decision Making
The Time Value of Money compares:
value in the future of a Rupee received today
value today of a Rupee amount to be
received in the future (PV)
Key factors: Time, Interest, Principal
Annuity - a series of payments/deposits
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Compound Interest – interest
earned on interest.
Compounding – the process of
earning compound interest – is
the best way to to build wealth
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Calculating Future Values
Future Value (FV) – Value of an
asset at the end of a particular time
Example: Wealth Creation
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Easy Thumb Rule - The Rule of 72
Calculates the number of years it takes
for principal to double
Years = 72 divided by interest rate.
Example: 72 divided by 8% = 9 years
Calculates the interest rate it takes for
principal to double
Interest rate = 72 divided by number of years
Example: 72 divided by 10 years = 7.2%
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Illustration: The Rule of 72
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Future Value of an Annuity
What lump sum will be got over time if a
series of deposits are made (assuming
same amount is deposited each time)
Example: Power of Compounding:
Kaun Banega Crorepathi?
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Present Value of a Lump Sum
Present Value (PV) - Today’s value of
an amount to be received at a future date.
Example: How much should I deposit?
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Present Value of an Annuity
Present value of a stream of payments
to be received in the future.
Example: Retirement Planning
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Insurance helps to transfer risk at
How much insurance do I need?
Income Replacement Method
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Golden Rules of Personal
1. “Pay yourself first” by spending less than you earn
2. Stay up-to-date about current economic conditions
3. Map your financial future by establishing goals and making
realistic plans to achieve them
4. Insure your risks
5. Take advantage of tax benefits on investments
6. Develop expertise in financial matters
7. Remember that you are responsible for your own financial
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This training was delivered by FINERVA