Summary of Book
1
THE MONEY ORDER
Our money worries usually centre around finding the best return on
investment. But there is a lot more to financial fitness than just
investments. We need a system and not a single-shot solution.
e feel guilty about the mess in our money lives. Almost like a sound
playing constantly in the background that becomes louder in moments of
silence, a cold dread that lingers just at the back of everyday life. We worry about
not doing enough, about not making the ‘smart’ decisions, about missing the
moneymaking train as it zips past, about not having enough for our kids and
ourselves in future years.
We worry about ageing parents and their long-term care. But most of all we
worry about emergencies and hoard cash. The cash accumulates, and then some
sharpshooter comes along and offers this fantastic deal. He’s persistent; pushy;
throws numbers; works on your fears, emotions, guilt. And gets your money. This
ends in several ways. In a total loss, a partial loss or simply a bad investment that
gives you returns worse than a bank FD (fixed deposit).
This book is a conversation about money. At the end of reading it, you will be
able to organize your finances in a manner that allows you to get on with your life,
with all its complications, rather than stay worried about the ‘right’ investment.
We’ll build a system rather than a single-shot solution.
Think of your financial life as a money box. The money box fills in your
working–earning years with income; you use the money to pay for living costs,fe
es, rent, EMIs (equated monthly instalments), taxes, insurances and vacations,
and a whole long list of what it takes to live the Indian urban mass affluent life.
Usually the box shows a surplus left behind at the bottom each month.
This gets invested for future use. Along the way you dip into your money box
to pay for your kids’ higher education, their marriages, and then finally when you
get too old to earn (we all get there – just look at your grandparents or parents),
the box begins to fill with pensions and other investment income like interest,
dividend and profit.
The mistake most people make, and we are not to blame, is to think of the
money box only as a container of investment products. We start thinking about
what to invest in – should I buy a plot of land, or should I buy shares, or should I
invest in that pension plan – to solve our money worry. But ‘what to invest in’ is
not the first decision we should take – a mistake that we all make, pushed as we
are by a sales commission–driven insurance industry or a next-new-thing–driven
mutual fund industry.
So, how should we think about our money box? A good money box is one that
allows you to streamline your cash flows. It builds in safety nets for preserving
your savings in the face of an emergency – typically a medical emergency, a job
loss, or death of a salary-earning family member.
Insurances have a purpose in a money box. We’ll understand what that
purpose is. No, it is not wealth creation. Product choice becomes much easier if
you understand why you need that product in the first place. Then, finally, we
come to investing and understand what suits us and how to build our portfolio.
The book is about helping you construct this box by understanding your own
needs and situation. It is not a get-rich-quick book. The goal is to make you feel
more confident about your money life, but in a system that allows you to be
hands-free for most of the year, needing to open the box no more than twice a
year.
The by-product of this exercise is that you will actually be able to fund all the
things and save for goals that are important to you. This is not easy work and your
unique money box will take six months to construct. But once done, you have a
grid that works on its own and needs a minor tweak just once in a while.
Interwoven into this book are stories and case studies of some of the hundredsof people who have
written to me on the four TV shows I have done, in the last
ten years, and responded to the column I write in Mint. Equally interwoven is a
larger perspective of why we are faced with a marketplace that is predatory. You
will understand why the government’s need to finance its deficit leads to you
buying toxic products.
Yup, there’s a link. You will understand why the global financial sector wants
you to feel stupid. You will understand how you are actually doing the best you
can in a marketplace that is full of sharks. You will see that you are not a money
dummy.
Think about it: How does the toughest value-for-money kitna-deti-hai person
suddenly become stupid when it comes to money?
You will understand that the current ‘buyer beware’ in the financial sector –
or transferring of responsibility to the investor of buying the right financial
product – is a regulatory failure. It is not unlike a car vendor flinging open the
bonnet and saying: ‘Go do your due diligence and ensure this car is safe.’
Asking an average person to understand concepts of present value, future
value, real return and so on is no different from asking him to buy a car after
ensuring that the engine is safe! You will understand why the regulatory changes
under way are so important for your future.
The book is not going to give you a prescriptive road map. It is more of a
direction. A way to think about your financial life with some rules of thumb that
you can modify according to your own situation. You need to engage with it and
personalize it.
May your money box be full of good things, always