Syllabus: Personal Finance
Albert Einstein supposedly said:
Compound interest is the 8th wonder of the world.
We don’t know if he really said that but compound interest is indeed the most powerful force in the universe. And when it comes to money, investing, and personal finance, the most important lever that one needs to recognize and pull is the lever of compounding.
Watch this Khan Academy video to refresh your compound interest concepts. Pay special attention to the section where he talks about how long does it take to double your money.(The rule of 72)
Compound interest is very counterintuitive for humans to wrap their head around. To get some intuitive understanding about compounding use this compound interest calculator and play by inserting some numbers. Observe the charts and table generated by the calculator.
Join this Facebook group — Asan Ideas for Wealth This is an active community. You can get answers to your personal finance/investing/money related questions here.
Browse through some of the discussions and comments. Don’t spend more than 15-20 minutes initially. The idea is to get access to this forum.
So, why are you interested in Personal Finance? Because you want to be a little more certain about availability of money in the future for your needs/wants. Right? So watch this video. (Start watching from 2:00 min onwards)
Take as much time as needed to do the exercise suggested in it. The exercise could take a couple of hours or the whole weekend. At the end of the exercise you should have a fairly descriptive list of your goals, dreams, and nightmares. Describe the spreadsheet to your significant other or to someone you feel comfortable sharing your finances.
Remember, during the initial years compounding tests your patience and during the later years, your bewilderment. So, time to remind yourself about the miracle of compounding again. Watch this video. Focus on the first 2min 40s — the story of the king and the chessboard.
Share the Chess Story with 3 of your friends. Then, crack open an excel spreadsheet, and do the math to come up with your own estimate of “the amount of grain on the chessboard.”
Simple doesn’t mean easy. It takes time to appreciate and develop good personal finance habits. Not days or months. It takes years. To ensure that your mind doesn’t forget the basics of good personal finance hygiene subscribe to these two blogs -
Revisit the list that you created in Step 3. Now that you’re clear about your goals, to chart the path to your destination, you need to know where you stand today. To make an assessment of where you are today, visit this link and follow the instructions to create an excel sheet which captures all your finances — your cash flows, assets, liabilities, etc.
Capture every possible minute details. All your bank accounts, FDs, Mutual Funds, Insurance policies, Equity/Stocks, Real Estate, Loans, Income, Expenses — everything. If you’re doing this for the first time, it might be an overwhelming task but don’t cut corners. It’s important that you do it properly, even if it takes 2-3 days.
Remember, fixing your personal finances isn't a quick weekend activity. It will take time.
Once you're done with this excel sheet, remove the numbers (or replace them with dummy figures) and share the excel template in the personal finance Slack group. This will help others in tweaking their own excel sheet and in the process you will also learn from others' templates.
Buy these two books and read them:
To begin, you could start with the book summaries:
Remember, the summary is just to get you started. It's important that you read the books also when you're done with the summaries. Don't worry if it takes time. Read the books slowly. There are no extra points for finishing the books fast. In fact, you may even have to read those books multiple times. Like compound interest, knowledge also builds slowly initially. Keep at it.
List down 10 most important lessons from each of the books. Share it in the Personal Finance Slack channel.
The most effective (yet uncomfortable) way of learning anything is to teach it. So share your lessons on social media (WhatsApp, FB, Twitter, LinkedIn). The more you talk about it, deeper those learnings will go in your own mind and become a permanent part of how you think about money.
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