5 Financial Fallacies We Follow - Article in CWB magazine - by yours truly..

Complete Well Being is the world's leading magazine on living with awareness. You can visit them here. They published this article on most common financial fallacies in their most recent July 2014 edition, and it did attract some rave reviews.

This article had a dedicated 4 page section in the magazine. 

You can read the complete article by clicking here.

And one of the first reviews for the article is as below:

'Financial Fallacies We Follow' by Mr Manoj Arora was an eye-opener. His quote by Albert Einstein that compounding is the eighth wonder of the world, is thought-provoking. Likewise, his advice to track the monthly expenses is invaluable and easy to follow. Though I had left this habit, Mr Arora motivates me to start again and cultivate financial discipline. 

I was pleasantly surprised to learn that '20 percent of money saved is equivalent to 100 percent of more money earned'.

~ Anuradha, Kochi.

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Cheers

Manoj Arora

Freedom can buy you....what money cannot !!

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What and when to teach Kids on Money Management

We saw in Part-I of this post that how important it is for all of us to teach our kids about money management. This time, we would cover on specific aspects of what they should be taught by what age so that they are ready to face the world with confidence by the time they start their jobs / own businesses.

Open their individual savings accounts

- By the age of 2 years, make sure that every kid has his or her own Savings account.

- These account(s) can be linked to your own savings account for monitoring and control.

- Make sure you are transferring some minimum fixed pocket money to the kids account every month. You can do this online as well or you can also opt for auto transfer of this pocket money.

- This sets up the base for all future education on money management that you going to impart to them.

Show them their account balance and interest credit every month

- By the age of 4 years, make sure that you have a regular habit of showing them their account balance every month.

- Show them the interest capitalised and credited to their account balance every month

- This would help them understand that savings grow to a healthy amount if you collate them and also that more the savings, more is the interest credited by the bank.

Tell them about the Amazing Power of Compounding

- By the time they go to proper school (5-6 years), teach them the concept of Compound Interest. They need not know any formulae as yet but they should realise that the money grows exponentially if allowed to grow in an undisturbed manner.

- Show them that the interest getting credited every month is also getting invested and that they earn interest on interest next month.

Let them take their own decisions wrt Saving vs Spending

- By the age of 7 years, make sure that they are making their own decisions wrt what part of pocket money they are spending and what part they are saving.

- By this time, they would already have realised that the more they save, the more the money would grow by itself. So, they would be able to take informed decisions in life on Spending Vs Saving. 

- This habit and decision making would go a long way in their lives to help them in money management.

Explain "Inflation" to them

- While they are 8 to 9 years old, tell them how the price of things keep increasing with time and that the value of money keeps going down.

- Explain them that they have got to beat inflation if they want to maintain their same life style and buying power with the money they have in their accounts.

Expose them to other forms of "investment"

- Before they reach the age of 10 years, they should understand all other forms of investments whether Fixed Deposits (FDs), Mutual Funds or Stocks.

- These will give them the options to beat inflation.

- They should also start investing some part of their money in FDs (which can also be done online). 

- Show them how a Fixed Deposit earns more interest than a savings account and helps them beat inflation (to an extent).

Well, if you have done this much, you have done what no school or college would ever do to their lives. You will start seeing sparkling results very soon. I have realised this with my 2 daughters. Today, they know much more about money management than any other grown up adults around them. They may not be earning money yet, but they exactly know how the money can be managed well.

When asked about what she wants to be when she grows up, my elder daughter, who is now 11 years old, snapped "I will see Dad !!, I know that i would be financially free by the time i start my job - so i have to really think - may be a Sea Animal Trainer". You are amazed !!, I am not... I know kids are great at learning and can outclass you. Trust them and give them the opportunity they deserve.

Happy money management !!

Cheers !!


Manoj Arora




Facebook : http://www.facebook.com/RatRaceToFinancialFreedom
Twitter : @manoj_216
Blog : http://ratrace2freedom.blogspot.in/

Teach your kids to manage money (Part-I)

Are Kids capable of managing money?

How many times have you been surprised by a certain response form a child? I am sure that there may have been numerous occasions when you might have experienced that children are much more smart and intelligent than most of us truest them to be. They can do unexpected things, and then can do them surprisingly well. Why? Because they have a mind which can think positive and does not carry any restrictions, fear or boundaries in their thinking process. These fears and boundaries constrain so many of us from achieving great results. 

Well, if that is the case, never ever think even for a moment that they cannot manage money better than what you do.

Why do we not allow Kids to manage money?

There are two major reasons that i see why we do not normally allow our kids to handle money:

1) In most parts of the world, and especially in India, we traditionally keep children and money apart from each other for the major part of their growing and learning years. Probably, because money has not been considered such a "good thing" by our parents. In one of my earlier posts - Yes, Money can buy happiness :) , i explained that how money is a dead element and is neither good or bad. It depends on the person who is possessing it. So, as long as, your children are brought up in a morally and ethically sound environment at home, be assured that they will make the best use of the money that you ask them to handle. 

2) Add to this, the second major reason for the kids not managing their money is the issue of money management or personal finance not being taught in our schools and colleges. While schools do teach the concepts like simple interest and compound interest, shares and dividends, they never go on to show the impact and importance of implementing these concepts in their own lives. 

Because of both these reasons, our children go on to start their jobs and families and lead their lives with only theoretical knowledge about money and no idea on how to leverage that knowledge. Nothing different happened in my life. Well, later on, i went on to acquire the practical aspects of implementation of this knowledge is a different story that you would read in ore detail in my book "From Rat Race to Financial Freedom". I was one of the rare fortunate human beings who accidentally got into experiencing, reading and writing a lot of stuff around dreams, financial freedom etc, but that is not going to happen for most of us and our kids. The only way this will work out with our kids is by giving them deliberate exposure to this knowledge.

What if i can leave a big chunk of money for my kids ?

Many of us work hard to earn money. When i asked some of my friends as to what will they do with so much money at the end of their lives, many of them had an expected answer : " We will leave this for our children so that they can enjoy their lives" after we have enjoyed ours. I can understand the love and affection for that the parents would typically have for their kids, but do you think that the children would be able to sustain this inherited wealth and put it to right use, unless they know how to invest, manage and grow their money? Almost all the studies conducted on this topic has shown that 95% of the inherited wealth is lost within 10 years of inheritance, and the biggest factor responsible for this has been that the inheritor had no idea how to manage the inherited money. In most such cases, the inherited money either got invested incorrectly, or was lost in lottery or spent on unwanted luxuries, or was plainly outnumbered by the inflation monster. So, more important then collecting money is an effort to learn money management and money investing

How can i help my kids learn money management ?

Years would just fly by before you know it. By the time you decide to be doing something with your life, your life would have reached to a point of no return. You may decide to be different but this happens to more than 90% of the people in this world. Do you think something different would happen with your kid's life, unless you teach them something about money which you were not taught at that age? No, their life would be the same as yours. It has been said very wisely "It is insane to keep doing the same thing and expect different results".

So, start teaching your kids some fundamentals about money, have them open their own independent bank accounts, tell them the concept of bank interest, savings account, fixed deposits, compound interest and its power, give them monthly pocket money and then let them decide what they want to do with their pocket money - how much they want to spend vs how much they want to save every month. Show them how their money is growing in the bank and show them specifically when bank credits them interest, and then what happens to the interest, and what can happen if it is allowed to grow with time leveraging. Now a days, it is so easy to show all these things online to them. 

You got to take these steps when your child is still at a very young age - much before they are burdened with the pressures and responsibilities of life. If you have not done some of these things and your child is more than 2 years old, you are already late. You are late, but not everything is lost. You can recover. You can take a decision to start doing something about teaching them basic money management.

I know that some people would like this post, some would feel happy about it, some would also share it with their friends but what next? I am not sure how many but i am sure some of you would act now !!. Because knowledge without implementation is as good or bad as having no knowledge at all. Don't just read and appreciate the post. Act today..time is running..

This was Part-I of the post. In the next part of the post (Part-II), i will share with you as to what all i feel you can teach your child at different age groups so that the child learns money management in a disciplined and incremental manner. All that will be based on my personal journey with my kids.

Don't just leave money for your Kids... Teach them how to manage money

Happy teaching !!


Cheers !!


Manoj Arora




Facebook : http://www.facebook.com/RatRaceToFinancialFreedom
Twitter : @manoj_216
Blog : http://ratrace2freedom.blogspot.in/

Do I need Freedom when life is going on just fine?

It was one of the typical chilly days in January month of the year. I was in US with my family. We were just about at dinner time when suddenly there is a family decision (typically family decisions means decisions taken by my wife and 2 lovely daughters) to go out to the Indian store about 3 miles from our house. Well, i did not get enough time or opportunity to repel against this decision and unwillingly, my hands automatically moved towards my car keys.

As we went along the small and beautiful drive from our house to the Indian Store, we saw shopping complexes and street shops on both sides of the road. This was Bentonville, a small laid back town in Arkansas state of USA. This was one place where we found lot of peace and relaxation after coming here from the neck breaking pace of a city like Delhi. Going to the India store in Bentonville was a weekly routine and it took us 5 to 7 minutes to reach there.

As we entered the store and got hold of our grocery trolley, kids had their routine fight on who will push the trolley and who will pick the grocery items from the store. While all this was going on, i suddenly happen to locate one of my office colleagues who looks stressed and drained out. He is done with his grocery collection from the store and is about to leave when we see each other face to face. Looking at his unusually stressed face, i am obviously curious to know if things are fine at his end. I end my curiosity by asking him about his well being.

Not wasting any time, he says "No, things are not fine". I go on to inquire further and he discloses some seriously disturbing facts. His father has been detected with a rare cancer in the last stage and the chances of his survival are not beyond a few months. Well, that would be a shocker of a news for anyone, especially if it is a sudden discovery. He goes on to say that his mother is also not keeping well and that he might have to travel back to India with his family soon.

His family (wife and kid) had just joined him in US. We had met together as families just a few weeks back. They are a beautiful couple and have an adorable 3 year old daughter. Moving the entire family back to India withing few months of settling in US in itself is quite a challenging move. But, in any case, these things dwarf out in front of the challenging family situation that stands tall in front of him.

The emotional setback apart, there is another thing that concerns this colleague and friend of mine. And that is obviously, the financial angle to the entire situation. He has got to fight for his fathers survival as long as he can, and this fight does not require any emotional moves. This requires "lots" of money. Chemo treatment, special medicines, doctors and hospital expenses, injections, movement of families from one country to another, unsettling and settling houses in each country etc etc. Health Insurance covers have an upper limit which easily gets crossed in such tricky situations. Going back to India would also mean that his income also goes down. His mind is majorly occupied thinking of all options to arrange for finances from somewhere so that he can look after his family in this time of crisis and provide the best possible medical treatment to his father.

Though he never expressed his financial need directly to me (we are close as families, i still happen to be his supervisor in office), it was coming out very obvious from his body language. Financial stress can be equally painful and disturbing, if not more, when compared to emotional stress that a person faces at such a stage of his or her life.

This is it !! This is THE point in life where you start valuing your Freedom (Financial). This is where you can take out your trump card. This is the point where you realize that financial freedom can be such a blessing in your life. It did not take me more than a split second to assure him that he can forget about all his financial worries and should focus on being with his family in India in this time of need. Could i have said this to anyone 5 years back..NO !!

Talking anything about whether he took any financial help from me or not would be completely missing the point here. The gush of bliss and satisfaction that i got after seeing his assured face in itself was so rewarding. How could i do that ? Why couldn't anyone else give him the same assurance as i gave. Not that anyone else was not willing or did not want to. It is just that everyone is so involved in the never ending struggle of their own lives that there is hardly and time and money left to give to someone else. This is one of those incidents which further strengthened my goal of financial freedom and made me believe that i am on the right path. This made me believe that i must not stay in mediocrity and must continue to find my way to freedom. This was reason enough for me to go through whatever pain is needed to be financially free.

So many of us are so comfortable in the situation where we are today. We are earning enough (or so we feel). We fail to come out of the comfort zone and achieve something of true significance in our lives. Rat Race becomes a part of life and Financial Freedom a mere wish.

Wake up ladies and gentlemen, there is a way to move to the other side. There is a way to move From Rat Race to Financial Freedom. You would never know when you would need it. If not you, someone close to you definitely needs it and you owe it to them.

Cheers !!

Manoj Arora

Facebook : http://www.facebook.com/RatRaceToFinancialFreedom
Twitter : @manoj_216
Blog : http://ratrace2freedom.blogspot.in/