WHY FINANCE?

What crosses your mind when you hear the word finance, well this is probably the first thing I will ask you when you would say that you want to know about finance, Michael said. Michael, a B-tech graduate, who had never been into the financial stuff all through his studies, is having interest in finance and is also excelling at it. I am Darren, an MBA (Finance) and actually want to know the real aspects of finance.

Finance means to deal with the money, probably, I said. Absolutely, finance is all about money and everything related to money, by cash, credit, banking and investment, enhanced Michael.

Okay, so I have my remaining of Rs.500 from my salary in the form of cash, and I have my debit card, and which is connected with my bank, so yes, a bank account, so I am related to a bank but, no investment.

That’s what we are going to talk about, what actually is finance and the importance of finance in your life. Michael said.

See there are three important aspects of finance.

1st thing, Finance plays a major role in our monetary matters of past, present and future. Say, you can pay your dues from the past, you can save money now and use it in the future for better purposes. Or you can use credit card to spend the money today, what you earn tomorrow.

2nd thing is that, if you use finance correctly, it will protect you if you run into troubles, having an accident, falling sick, or losing your job or in case of an emergency requirement of funds. This is the protection of finance.

3rd thing Finance gives money to people who have business ideas, but don’t have enough money to realise them. So if you have a business idea and want to enhance it, finance can help you like no other thing.

Now finance is divided into 3 areas.

Personal Finance: Personal finance can be how liable your finances are to help you buy you a luxurious car or how liable they are in making your mansion or a rich lifestyle.

Corporate Finance: This is related to raising and investing money by companies, like how much debt or equity to use. Like which investment to do, where to invest your money.

Public Finance: this is how government and public sector companies raise money.

So since we are going to talk about our money, so let me explain about something that will be beneficial to you. You would be more interested in managing your finances, so let’s talk about the personal finance.

Personal finance is about saving your financial future, how to make your personal budget, your portfolio, how you can manage your money, how to plan your own investment strategies. And for learning the art of finance, you need to follow the fundamental principles of finance, which are:

Start saving regularly.You will have to build strong habits of saving regularly even a very little amount, should not spend much than required and stick to your monthly expenses, only borrow the money when you can repay back early.

“What”, I jumped off my seat listening to what Michael explained. I can’t start my savings now, I just started my job last month, I have many things to do for me and my family, I just can’t start saving now, this is not possible, I tried to explain my point.

“But you will have to”, Michael said

Start saving your money as early as possible, the earlier you start saving, the profitable your future will be. If you can just save a small amount of your income every month, you will earn interest on it, and when you invest that, the little small savings grow up-to large savings with time, this works like magic in the long run.

Next is you should Plan Ahead. You will have to think early, act early, you will have to plan about your future, about your retirement, getting proper health insurance, life insurance at the earliest and with proper understanding.

“What, Retirement, Buddy I am just 23, I just came out my college life and started to work. Are you serious, I have plenty of years in my hand to think about my retirement.”

This where we make mistakes, we think we have a lot of time left, But remember if you don’t start thinking of your retirement while working, you will keep working till your last breath, for every little thing. The money that you have today, need to be utilised in a proper manner for a better tomorrow. You will have to start thinking now, for your tomorrow.

And the next is to keep diversified Portfolios. Since you cannot rely on a single source of investment, as dealing in finance is often a little risky. In that case, you should have a diversified portfolio, so that the risks are divided, like diversified investment in, equity, cash and bonds.

Portfolio, equity, bonds, what’s all that? I asked.

You will get to know everything, its just the beginning, keep the points in mind, and remember that managing your money is the most important task and this is where many people lack, because everyone earns money, but very few utilize it properly, and this is what finance is all about. So start saving your money today, so that your will money will save you tomorrow. Michael said and started to leave.

“Michael always comes up with such lines that hits me hard, got to think over it.”