Learn a new word everyday
Saturday, October 31, 2009
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Vocabulary
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Learn to pay yourself first
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Money
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If you wish to attain financial freedom, the first and foremost technique to learn in the game of money is to pay yourself first. Doesn't matter how you earn your main source of income. Be an employee or self employed or business man, the source of income doesn't matter. All that matters is, how much do you pay yourself?
Ironically, I do not mean how much you spend by saying how much you pay yourself. To be specific, I'd say, "How much do you pay yourself for your personal investment towards building your assets?".
If you just take a moment to think about this, you will see what your eyes can't see in the game of money. It's all about how do you manage your cash flow. Typically, what most of us do? We pay everybody else first and then we think about us, am I wrong?
Lets take a typical example - A salaried employee, "Mr.Xyz" who earns a handsome amount every month. Now-a-days every salaried employee holds a credit card, very typically, our Mr.Xyz also owns one. Also, Mr.Xyz easily managed to buy a house in a somewhat-to-be-prime locality of the city with a very little down payment, thanks to the very altruistic banks. Mr.Xyz says, "At the least, I'm going to save on my income tax". Truly false notion, Lets talk about this later. Suddenly, riding his bike seems to be a tedious task for Mr.Xyz. Here he goes, "What's life without a car? Lets get one, next years salary increment will take care of the monthly EMIs". Well done!
Mr.Xyz seems to have a content and secured life for somebody who does not know anything about him. That's not the reality. In reality he is no where near to being wealthy. Let's take a look at his cashflow.
Mr.Xyz gets his salary every month, after tax deducted at source. And then, he transfers a major amount for his flat's EMI and then comes the EMI for his car. At last, he has to pay his credit card bill. So now, he has to plan how he is gonna manage the next thirty days with the remaining amount.
Do you see what's going on in here with our Mr.Xyz? He has no investments towards assets, all that he holds near to him costs him very dearly. As I said in my earlier posts, an asset is something which brings money in. But, Mr.Xyz has built a lot of liabilities, with very less or no asset. Remember, as soon as you take up a debt you become an employee for your debt. There are always at least two financial statements for every transaction, more so here. Mr.Xyz's house is a liability in his statement, but an asset which brings in a lot of interest in the bank's statement. You are working hard to make someone else wealthy.
So, think about it guys. If you have any small interest in attaining financial freedom, then you have to take care of your cash flow. If there is a flaw in your cash flow, irrespective of how much ever money you may earn each month, the hole in your money management will drain all of it. You're left with no other choice than to work for many more years to come.
Follow the rule: Pay yourself first.
Pay yourself every month for your investments towards building assets. Live frugally, well below your means. Avoid unnecessary debts, improve your financial knowledge and improve your chances of being financially independent.
Do not work for your debts, rather let your assets take care of your financial needs and you follow your heart to achieve your passion.
Ironically, I do not mean how much you spend by saying how much you pay yourself. To be specific, I'd say, "How much do you pay yourself for your personal investment towards building your assets?".
If you just take a moment to think about this, you will see what your eyes can't see in the game of money. It's all about how do you manage your cash flow. Typically, what most of us do? We pay everybody else first and then we think about us, am I wrong?Lets take a typical example - A salaried employee, "Mr.Xyz" who earns a handsome amount every month. Now-a-days every salaried employee holds a credit card, very typically, our Mr.Xyz also owns one. Also, Mr.Xyz easily managed to buy a house in a somewhat-to-be-prime locality of the city with a very little down payment, thanks to the very altruistic banks. Mr.Xyz says, "At the least, I'm going to save on my income tax". Truly false notion, Lets talk about this later. Suddenly, riding his bike seems to be a tedious task for Mr.Xyz. Here he goes, "What's life without a car? Lets get one, next years salary increment will take care of the monthly EMIs". Well done!
Mr.Xyz seems to have a content and secured life for somebody who does not know anything about him. That's not the reality. In reality he is no where near to being wealthy. Let's take a look at his cashflow.
Mr.Xyz gets his salary every month, after tax deducted at source. And then, he transfers a major amount for his flat's EMI and then comes the EMI for his car. At last, he has to pay his credit card bill. So now, he has to plan how he is gonna manage the next thirty days with the remaining amount.
Do you see what's going on in here with our Mr.Xyz? He has no investments towards assets, all that he holds near to him costs him very dearly. As I said in my earlier posts, an asset is something which brings money in. But, Mr.Xyz has built a lot of liabilities, with very less or no asset. Remember, as soon as you take up a debt you become an employee for your debt. There are always at least two financial statements for every transaction, more so here. Mr.Xyz's house is a liability in his statement, but an asset which brings in a lot of interest in the bank's statement. You are working hard to make someone else wealthy.
So, think about it guys. If you have any small interest in attaining financial freedom, then you have to take care of your cash flow. If there is a flaw in your cash flow, irrespective of how much ever money you may earn each month, the hole in your money management will drain all of it. You're left with no other choice than to work for many more years to come.
Follow the rule: Pay yourself first.
Pay yourself every month for your investments towards building assets. Live frugally, well below your means. Avoid unnecessary debts, improve your financial knowledge and improve your chances of being financially independent.
Do not work for your debts, rather let your assets take care of your financial needs and you follow your heart to achieve your passion.
Charity
Friday, October 30, 2009
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Very short stories
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It was a very sunny day. I saw a little girl in the traffic signal selling ear buds. She never asked me to get one and I did not intend to so. Rather, I was lost in my own world of worries about poverty in my country. Suddenly, I was forced to come back to reality, the traffic started flowing like water taking lead in every direction. I searched for that gal one last time out of empathy, and I was amazed to see what she was doing. I saw her sharing her afternoon lunch, a slice of bread, with a stray hungry dog and in that moment, I realized what charity means
The Gold Standard - A past where currencies had real value
Thursday, October 29, 2009
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Money
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Gold had always held its superior place through out the history of civilizations mostly because of its rarity blended with its purely superior properties. It is hard, yet malleable enough to hammer it into a really thin leaf. Ancient Egyptians were very good at hammering gold into really thin leaves, it took 3,67,000 leaves to make a one inch pile. Even in the very early civilizations, people had made jewelry and other ornaments. From the Mesopotamian civilization to this 21st century, people around the world are still mesmerized and go behind gold. Very convenient, not sure whether we've got anymore place left to dig for gold.
Gold also served two other important purposes:
1) Gold as the currency of a nation - gold coins
2) Representative currency of a nation - currency backed by gold
Those countries who started using gold as a currency had hit the wall in no time because of the limited availability of gold. Most of the countries also used silver as a medium of currency. Nevertheless, all of them realized the fact that all these limited natural resources cannot be used for something very fluctuating in demand like currency. So, the majority of the world countries started to adopt the Gold Standard.
Enough with the introduction. Now, What actually was the GOLD STANDARD?
An economy which backed its paper currency with gold was said to follow the gold standard. In such an economy, at any given time, people can redeem their paper currency for gold.
To be more precise, the paper currency derived its value from the gold reserve. A country under the gold standard would set the price for gold, for example Rs.1000 for 1 ounce of gold. This effectively sets the value of the currency; as per this example, 1 rupee would be worth 1/1000th of an ounce of gold.
Advantages:
1) Since the actual currency is backed by equivalent gold, the government cannot go on a printing spree or rather the cash flow in the economy is controlled by the availability of the gold reserve. This normalized the inflation in the economy over a long run.
2) Introduced the first use of formalized exchange rate in history. The exchange rate under the gold standard monetory system is determined by the economic difference for an ounce of gold between the two currencies.
Disadvantages:
There were actually more disadvantages than the notable advantages brought by the gold standard.
1) Because of the limited availability of gold, a country on gold standard cannot take control on the fluctuation of demand for currency internally.
2) A gold standard severely limits the stabilization policies the Federal Reserve can use. For example, most economic recessions can be mitigated by increasing the money supply into the economy. When the currency is backed by gold, a limited natural resource, no stabilization activities could be done.
3) Inflation or deflation in the economy solely depends on the production rate of gold in a particular country.
Luckily, soon after the revival of the Great Depression the world countries realized the flaw in the system and moved out of the gold standard. Now, none of the major countries follow gold standard. Still, gold is one of the main commodity every country keeps in reserve and humans are still fascinated by this precious metal.
P.S.
I could not even imagine how USA would have handled the recent economic recession if it still followed the gold standard. How many tons of gold they should have had in reserve in order to print 1.7 trillion dollars? Can you imagine?
Gold also served two other important purposes:1) Gold as the currency of a nation - gold coins
2) Representative currency of a nation - currency backed by gold
Those countries who started using gold as a currency had hit the wall in no time because of the limited availability of gold. Most of the countries also used silver as a medium of currency. Nevertheless, all of them realized the fact that all these limited natural resources cannot be used for something very fluctuating in demand like currency. So, the majority of the world countries started to adopt the Gold Standard.
Enough with the introduction. Now, What actually was the GOLD STANDARD?
An economy which backed its paper currency with gold was said to follow the gold standard. In such an economy, at any given time, people can redeem their paper currency for gold.
To be more precise, the paper currency derived its value from the gold reserve. A country under the gold standard would set the price for gold, for example Rs.1000 for 1 ounce of gold. This effectively sets the value of the currency; as per this example, 1 rupee would be worth 1/1000th of an ounce of gold.
Advantages:
1) Since the actual currency is backed by equivalent gold, the government cannot go on a printing spree or rather the cash flow in the economy is controlled by the availability of the gold reserve. This normalized the inflation in the economy over a long run.
2) Introduced the first use of formalized exchange rate in history. The exchange rate under the gold standard monetory system is determined by the economic difference for an ounce of gold between the two currencies.
Disadvantages:
There were actually more disadvantages than the notable advantages brought by the gold standard.
1) Because of the limited availability of gold, a country on gold standard cannot take control on the fluctuation of demand for currency internally.
2) A gold standard severely limits the stabilization policies the Federal Reserve can use. For example, most economic recessions can be mitigated by increasing the money supply into the economy. When the currency is backed by gold, a limited natural resource, no stabilization activities could be done.
3) Inflation or deflation in the economy solely depends on the production rate of gold in a particular country.
Luckily, soon after the revival of the Great Depression the world countries realized the flaw in the system and moved out of the gold standard. Now, none of the major countries follow gold standard. Still, gold is one of the main commodity every country keeps in reserve and humans are still fascinated by this precious metal.
P.S.
I could not even imagine how USA would have handled the recent economic recession if it still followed the gold standard. How many tons of gold they should have had in reserve in order to print 1.7 trillion dollars? Can you imagine?
Fiat money - currency with no intrinsic value
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Money
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Majority of the countries in the world have the fiat money system in place. The currency of such countries are not backed by any commodity [like gold or silver]. Fiat money any country as such is worthless without the backing of the government of that country. Fiat money is the legal tender according to the government decree of collecting taxes and other charges. The value of the fiat money is only backed by the confidence of the people over the government as well as the other financial institutions those who accept the fiat money. The value of all the commodities in the country fluctuates purely based on its demand.
Since, the fiat money is not actually being backed by any commodity, the federal reserve of a country has enormous control over the monetory condition of its country. During economic recession a country following fiat money system can ingest more cash flow in to the economy in order to help in the recovery.
In the recent recession time, the US Federal Reserve have printed 1.7 trillion dollars and pushed into the economy literally backed by nothing. Ever highest in American history. What does this actually means? The purchasing power of the US dollar is actually reduced because of this very high liquidity.
The fiat money system has its own intrinsic difficulties. Since, the countries are allowed to print as much paper money as they want, there is a very high chance for HYPER INFLATION if proper regulations are not in place. Hyper inflation is the terminal stage of any fiat currency. Hyper inflation is often the result of increasing regular inflation to the point where all confidence in money is lost.
In a fiat monetory system, the value of money is determined by the confidence. Usually, fiat money loses its value when the government which acts as the issuer refuses to further guarantee its value.
As long as we've got strong monetory policies governed by the federal reserve, backed up by the government, the fiat money will continue to have its value.
Since, the fiat money is not actually being backed by any commodity, the federal reserve of a country has enormous control over the monetory condition of its country. During economic recession a country following fiat money system can ingest more cash flow in to the economy in order to help in the recovery.In the recent recession time, the US Federal Reserve have printed 1.7 trillion dollars and pushed into the economy literally backed by nothing. Ever highest in American history. What does this actually means? The purchasing power of the US dollar is actually reduced because of this very high liquidity.
The fiat money system has its own intrinsic difficulties. Since, the countries are allowed to print as much paper money as they want, there is a very high chance for HYPER INFLATION if proper regulations are not in place. Hyper inflation is the terminal stage of any fiat currency. Hyper inflation is often the result of increasing regular inflation to the point where all confidence in money is lost.
In a fiat monetory system, the value of money is determined by the confidence. Usually, fiat money loses its value when the government which acts as the issuer refuses to further guarantee its value.
As long as we've got strong monetory policies governed by the federal reserve, backed up by the government, the fiat money will continue to have its value.
Take control of your own future
Wednesday, October 28, 2009
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Personal Development
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"A person without any goal travels to an unknown destination." I'm very sure that you would have heard that several times in your life in some way or the other. But the crux remains the same, a person with properly set goals has his niche.
Setting goals gives full control over one's life. I personally do not believe in becoming "something" by chance. Whether we accept it or not, we're always swirling in the cause and effect motion.
Think about it baby. Would you attribute chance to what you are now? You might say "Yes" and say, "I would have been something else if I've got that chance." Wait a minute, don't fool around me - you did not get that most wanted opportunity only because of something you did not do.
You cannot attribute chance to something more transparent like that.
Your present is the effect of what you did in your past and your future will be the effect of whatever you are doing now. You decide the fate of your future - most of the time. And most of the time we do not do the right thing only because we do not know what's the right thing is.
Ignorance is bliss, but its only as long as you are ignorant. The simple answer to such a big problem is to visualize your future and set goals to yourself.
1) Come up with a vision for your life. Your vision should really be broad enough to accommodate all the twists and turns your life might bring to you. For an example, your vision might be: "I want to be a BILLIONAIRE in another 25 years" or "I want to form an organization of at least 50000 employee in my country". Whatever you might consider to be your ultimate achievement.
2) Now come up with a long term goal that aligns with your life's vision. A long term goal is what you want to be in another five years down the line. Your long term goal needs to be pretty tangible and also, your long term goal should help you in achieving your ultimate vision. So, you might have to do a bit of homework before settling down for one. Gather information - the most important. Know the means to achieve your mission.
3) Come up with a list of short term goals to achieve your long term goal. Since your long term goal is tangible, it will be easy to come up with a list of short term milestones. Short term goal is something you can finish off in a three to six months time frame.
4) You can even break down your short term goal and come up with list of ultra-short term milestones. The whole idea of the process is to be informed about what you've to do.
Be informed about your future, so that you can be prepared.
Now, all that you have to do is to stick to your plan. Of course, there will be deviations, but at the least now you have your route map. Do not worry.
Achievers do not believe in luck and they do not achieve by chance. They always knew what they want to be, and they concentrate on what have to be done. If they happen to achieve something else on the way to their ultimate goal, it is just a by-product of their hard work. Take control of your present actions and thus, take control of your future.
Setting goals gives full control over one's life. I personally do not believe in becoming "something" by chance. Whether we accept it or not, we're always swirling in the cause and effect motion.Think about it baby. Would you attribute chance to what you are now? You might say "Yes" and say, "I would have been something else if I've got that chance." Wait a minute, don't fool around me - you did not get that most wanted opportunity only because of something you did not do.
You cannot attribute chance to something more transparent like that.
Your present is the effect of what you did in your past and your future will be the effect of whatever you are doing now. You decide the fate of your future - most of the time. And most of the time we do not do the right thing only because we do not know what's the right thing is.
Ignorance is bliss, but its only as long as you are ignorant. The simple answer to such a big problem is to visualize your future and set goals to yourself.
1) Come up with a vision for your life. Your vision should really be broad enough to accommodate all the twists and turns your life might bring to you. For an example, your vision might be: "I want to be a BILLIONAIRE in another 25 years" or "I want to form an organization of at least 50000 employee in my country". Whatever you might consider to be your ultimate achievement.
2) Now come up with a long term goal that aligns with your life's vision. A long term goal is what you want to be in another five years down the line. Your long term goal needs to be pretty tangible and also, your long term goal should help you in achieving your ultimate vision. So, you might have to do a bit of homework before settling down for one. Gather information - the most important. Know the means to achieve your mission.
3) Come up with a list of short term goals to achieve your long term goal. Since your long term goal is tangible, it will be easy to come up with a list of short term milestones. Short term goal is something you can finish off in a three to six months time frame.
4) You can even break down your short term goal and come up with list of ultra-short term milestones. The whole idea of the process is to be informed about what you've to do.
Be informed about your future, so that you can be prepared.
Now, all that you have to do is to stick to your plan. Of course, there will be deviations, but at the least now you have your route map. Do not worry.
Achievers do not believe in luck and they do not achieve by chance. They always knew what they want to be, and they concentrate on what have to be done. If they happen to achieve something else on the way to their ultimate goal, it is just a by-product of their hard work. Take control of your present actions and thus, take control of your future.
Achieve more by doing less
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Personal Development
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I have always believed in knowing where am going. It's kinda difficult for me to leave my landing destination to chance. So, Goal setting have been one of my favorite topics and tasks too. Don't grin, I'm not that bad in it.
I always try my best to stick to my plans. Anyway, Day one - I'll be all enthusiastic about doing stuffs. Day two, fine. Not that bad. Then, over a period of time my interest and perseverance used to deteriorate. I have observed this many a times and I used to call it off whenever I'm on the verge of collapse - Buddy, YOU NEED A BREAK!!! And that break would be the end of it.
Have you faced this issue anytime? Don't think about bluffing a NO.
One boring day, I decided to find out whats going wrong every time. After thinking about this cycle a lot, it dawned on me. Holy cow!!! I always try to over-do things, push myself to the limits. And because of this nature of mine, I found it very difficult to continue doing anything.
So, I decided to deceive myself a bit. I found a trick. Rather than over-do something I started to under-do it. Blimey! It paid off very well, over the period of time I wasn't wearing off as I used to. Also, day by day I found more interest in doing everything with involvement rather than doing it as a ritual.
Still confused, may be you need valiant example. Suppose, you want to have a great body and you also know what you have to do to achieve it. You know that you've to workout, control your diet and keep an eye on your calorie in-take. So, you prepare yourself for the journey and in the very beginning you start to over-do everything.
You spend an hour in the gym, follow a crash diet and you are all into low calorie food. Soon you will be overwhelmed with what you are doing and sooner, you'll be back to square one. In no time, you will call it off and take a break - eat everything you like, more of pastries and ice creams with less or no workouts.
And you very well where this small break will lead to - a big break. It takes all the effort in this world to start it all over again.
Instead of this, try to underwhelm yourself. Start off with 20 minutes of work out a day, be conscious about your food but do not starve in the name of a crash diet. Give yourself some credit. Soon you will feel the difference. Instead of being overwhelmed, you will be underwhelmed and you will be more interested to stick to your plan.
Over a period of time, this method of achieving your goals yields superior results.
Remember the old saying, "Drops of water, makes mighty ocean." Won't you be happy to achieve more by doing less? Give it a shot, friend!
I always try my best to stick to my plans. Anyway, Day one - I'll be all enthusiastic about doing stuffs. Day two, fine. Not that bad. Then, over a period of time my interest and perseverance used to deteriorate. I have observed this many a times and I used to call it off whenever I'm on the verge of collapse - Buddy, YOU NEED A BREAK!!! And that break would be the end of it.
Have you faced this issue anytime? Don't think about bluffing a NO.
One boring day, I decided to find out whats going wrong every time. After thinking about this cycle a lot, it dawned on me. Holy cow!!! I always try to over-do things, push myself to the limits. And because of this nature of mine, I found it very difficult to continue doing anything.
So, I decided to deceive myself a bit. I found a trick. Rather than over-do something I started to under-do it. Blimey! It paid off very well, over the period of time I wasn't wearing off as I used to. Also, day by day I found more interest in doing everything with involvement rather than doing it as a ritual.
Still confused, may be you need valiant example. Suppose, you want to have a great body and you also know what you have to do to achieve it. You know that you've to workout, control your diet and keep an eye on your calorie in-take. So, you prepare yourself for the journey and in the very beginning you start to over-do everything.
You spend an hour in the gym, follow a crash diet and you are all into low calorie food. Soon you will be overwhelmed with what you are doing and sooner, you'll be back to square one. In no time, you will call it off and take a break - eat everything you like, more of pastries and ice creams with less or no workouts.
And you very well where this small break will lead to - a big break. It takes all the effort in this world to start it all over again.
Instead of this, try to underwhelm yourself. Start off with 20 minutes of work out a day, be conscious about your food but do not starve in the name of a crash diet. Give yourself some credit. Soon you will feel the difference. Instead of being overwhelmed, you will be underwhelmed and you will be more interested to stick to your plan.
Over a period of time, this method of achieving your goals yields superior results.
Remember the old saying, "Drops of water, makes mighty ocean." Won't you be happy to achieve more by doing less? Give it a shot, friend!
