Become wealthy and invest in 'assets' | Learn Personal Finance - YouTube

Due to coronavirus problems, families are facing so much heat, so much financial troubles that they

need like crores and crores of rupees to get their loved ones treated.

Now, if all your money is tied up

in a house, how are you going to liquidate that asset?

You will have to do something called as distressed sale.

Hi, everyone. Welcome to today's video.

So just carrying forward from our yesterday's discussion.

So yesterday we were talking about finance for dummies or finance for beginners,

and we covered the concept of corporate finance

and what are some of the key terms

involved in terms of raising debt capital of a venture that you are starting.

And today, I'm going to talk about a more personal issue, the personal issue being

talking about personal finance.

This is a very, very important thing that impacts all of us.

And here is the reason why that all of us get some kind of a salary or we make

money via our businesses and we need to invest or we need to figure out a way

not to lose the wealth that we are building.

So therefore, this video is going to be extremely helpful for you.

I will tell you how to utilize and use your money effectively.

Where to invest, how to invest.

What are some of the key things that you

need to keep in mind so that you can actually enjoy your money.

So let's get this video started.

And I have a really fun flowchart for you,

so please don't get bogged down with everything that is written.

You will understand all these points one by one.

Let me tell you another story.

So let's imagine that you won a lottery of 10 crore rupees.

So congratulations, first and foremost, that you won a lottery.

Now, what are you going to do with it?

You might have heard a lot of stories

that people win lotteries and they go and spend that money in an insane manner.

They would go and buy a Ferrari.

They will go and buy a mansion.

They will go and buy a really weird painting.

So there is just no end to splurging your money.

So the moment you win a lottery, you need to decide what is your goal.

And that is the reason why it's called as personal finance, because it's personal.

So you need to decide what your goal is.

Is your goal to become rich or stay rich or is it to become wealthy?

So the difference between rich and wealthy is very simple, that a rich person has

money for a limited amount of time, and then the money dissipates because you

end up spending that money on really ridiculous things.

So the goal is never to be rich.

The goal should be to become wealthy.

Now, wealthy families are, for example,

Rockefeller, so their wealth have sustained over a period of time.

So the difference between being rich

and being wealthy is very simple, that a wealthy person knows how to invest

his or her money for generations to come.

So they are able to sustain the wealth that they have built.

Now, of course, if at this stage I ask you

that, hey, what is your goal? You would say that what I want to become wealthy.

So tell me how to become wealthy?

So essentially, if your goal is to become wealthy, you need to understand then

the difference between liabilities and assets.

Liabilities is something like a car if you buy it,

and then every month you're paying

for insurance. Every month, the value of that car is depreciating.

So it's not something that allows you to make money.

Unless you are an influencer and you are putting photos on Instagram with your red

Ferrari, then maybe you will get some post and you will make some money.

But liability is something that does not

allow you to make money. It could be the latest version of your iPhone.

It could be excessive clothes that you buy.

It could be anything that eats up your money that you immediately have

but it does not generate any future cash flows.

Cash flows means that it does not generate any returns.

So so far, what have we understood?

Number one, that personal finance is driven by goal.

You need to decide whether you want to be rich or you want to be wealthy.

If you have made a choice that, hey, I want to be wealthy,

then you need to understand the difference between liabilities and assets. Liabilities

are items that actually sink in your money

and it does not generate future returns for you.

And assets are completely opposite.

Assets are things that help you generate money going forward in the future.

Now, you might say that Hey Akshat, sounds good.

Tell me how to invest in assets?

I don't want any liabilities in my life. So number one, become a frugal spender.

You must understand the value of minimalism.

I'm not saying that go become a penny pincher

but you must understand the things on which you should spend money,

which are investments that can help you generate returns.

For example, all these different things.

It could be things like that

you are taking a self-improvement course

because you yourself are an asset, which I have not fixed here,

and a bunch of different things which get you on a path of self-improvement,

all these different, different things are an asset for you.

So understand the difference between assets and liabilities and start

identifying assets which can generate returns for you in the future.

Now, assets are of two types.

The first type I have not written here and I'll speak it out.

The first asset type is called as your Time.

Now, if you utilize your time really well,

it leads to productivity improvement in how you're spending your time,

how you're generating more money from your time so on and so forth.

So do consider time as a very important asset that you have,

which majority of the financial advisors of people who are speaking on YouTube

regarding finance would not tell you. So do consider that your time is a very,

very valuable asset, so you utilize it productively.

Now let's talk about the second type

of asset, which are called as direct moneymaking assets.

So these are things like fixed deposit,

for example, if you have a bank account, you go and create an FD. Our parents

and grandparents have been doing it for years and fixed deposits, very easy to understand

that, hey, put your money in the bank account looks pretty safe and at the end

of a one year period or six month period, you get a certain rate of return.

Usually in India right now, the rate of return is somewhere around 5-6

percent, which is not very high because this, the returns that you make from this

or these assets, it needs to be seen in context of the inflation.

This is a concept that I've talked repeatedly about on this channel,

that inflation is the price rise that happens almost every year.

For example, last year,

if you were buying Apples at 100 rupees and now it has gone up to 110 rupees

this year, the inflation hypothetically is 10 percent.

So the point to be noted here is that if your money is growing only at six percent

and the inflation is growing at 10 percent, then the money that you're

keeping in your FD or any asset that generates lesser return than

the inflation will actually eat into the savings that you have.

So this is the first key point that you need to remember.

Usually the returns from FD is close to five

to six percent, and it's usually inflation adjusted.

It is generally never more than the inflation rate. So doing this

or investing in FDs is never going to make you wealthy.

So this is a very important point to keep in mind.

Second asset that you have is something called stocks.

So you go and buy stocks of different companies.

I've given a link in the description of Zerodha.

I use that very extensively for my own trading and investment purpose.

So you can check it out. You can open your link.

It's an affiliate link.

It will help me to grow this channel, but it will not hurt you in any way

in terms of the cost that you incur, in terms of opening the account.

Now, stocks are very useful and I will be doing a specific course on analyzing

stocks, how you can go about investing in stocks, but do understand

that with financial education, you can actually make decent returns,

up to 15 percent returns a year easily in the stock market.

I've been doing that consistently for the last several years.

The third option that you have is called as commodities.

So commodities are oil, gold, silver and wide variety of different

commodities that are traded on the commodity exchange.

Now commodities have a cycle, right.

This brings me to the concept of economics.

So many times people ask me that

can you identify which is the best asset out of this?

My normal response to that question is

very, very simple, that there is always an economic cycle at play.

What happens is that the asset

prices, any asset, this is, what is this? These are these are assets.

Any asset will go through a cycle.

Some assets first go up, then they go down, then they come up.

This is called economic cycle. Now real estate had

that cycle in India, when the real estate prices literally rose

from very little amount in the 90s to very high amount in 2000s,

you might have a lot of friends who were having their farming land in Gurgaon and then

they became multimillionaires when they sold their land.

Real estate, back in the day was going

through a cycle in India and it lasted from approximately from early 90s

to approximately 2008 when the financial crisis hit.

Now the housing prices are not rising at such a massive place.

Why? Because it is in a downturn.

This is where we are in terms of housing cycle.

Similarly, commodities notoriously go through that cycle.

For example, you might have very recently read that the oil prices became negative.

If you would have bought oil contracts, you would have gone bankrupt.

So commodities also go through this cycle

and almost every sector, or every type of investment goes through a cycle.

For example, we are currently in an upswing on cryptos.

We don't know when the downturn will come.

Now, essentially speaking, these are five or six major type of assets

that you have the option of investing to become wealthy.

Now, just very few important points before I close out the video.

Number one, please don't invest in fixed

deposits because they do not give you the type of return to become wealthy

because usually the fixed assets are inflation adjusted.

So you will never become wealthy.

You might stay rich in that scenario. Right.

That's point one.

Point two, that you must follow the principle of diversification.

For example, in my portfolio, what I do is that I mostly invest

in stocks, but I invest in different types of stocks, so I stay diversified.

Now, let's say that I'm looking at my total portfolio.

Let's imagine that I have one million dollars.

Then am I going to invest everything in the stock market itself?

I'm going to invest, let's say approximately, depending on my goals,

right, what type of return I'm looking to make,

I will diversify this.

I will have some money allocated

in housing, some money allocated in stocks,

some money allocated in bonds, some money even allocated in FDs.

Because the idea here is hedging that in a risky environment, you hedge your risk.

Now going forward, I will make separate videos and all

of these asset class and explain the difference in primary concepts around it.

But for the time being,

understand that these are your different options and you need to stay diversified

within each asset class and overall asset class as well.

That is the second key principle that I wanted you to know.

Third, and very important principle is liquidity.

So basically, when you're making investments, those need to be liquid.

Now I have friends who are 25, 26 and they are making a salary

of 50-60 thousand and they have gone and bought a house in Gurgaon for

2 crores on a loan. Now that is called as negatively

diversified. Why? Because you don't have this right, you do not own any assets, per se.

You are actually paying money from your EMI.

Now if your housing prices do not rise,

you are in a very bad financial mess. So that is negatively diversified.

That's point one and point two, they are illiquid.

For example, you might have noticed that these days you get

like very negative messages on social media that due to coronavirus problem,

families are facing so much heat, so much financial troubles that they need

like crores and crores of rupees to get their loved ones treated.

Now, if all your money is tied up

in a house, how are you going to liquidate that asset?

You will have to do something called as distressed sale.

You will have to sell your house in Gurgaon

just to make ends meet, pay your hospital bills. So your Rs. 2 crores house,

you might have to go out and sell it for one crore. So it becomes a problem.

So that is called as liquidity problem.

So always ensure that you follow this

principle of diversification that you are investing across different asset classes.

So when such a need arises the way it has happened in coronavirus time,

you can actually go and sell your stock portfolio, for example.

So it is very easy to sell.

You can literally liquidate your money

in a day and you will get the entire money in two or three days time max.

So that is a liquid asset.

So stocks are liquid asset,

commodities are somewhat liquid, fixed deposits are somewhat liquid.

But if you are investing in assets like

real estate, then those are not liquid assets.

So I hope you understood these three specific points, that invest across

different asset classes, keep it goal oriented to build wealth.

Number 2, make sure that you are diversified within asset class itself.

For example, if you're buying stocks, then don't just go and buy one single

stock of one single company and that's it. You have to buy different categories

of stock in different industries of stock. Third, focus on liquidity,

because once the need arises for money, only liquid assets can prevent you.

I hope you enjoyed watching this video.

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I will see you on the next video.