Become wealthy and invest in ‘assets’ | Learn Personal Finance

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

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. Please don't forget
to give it a thumbs up.

It helps with the Youtube algorithm. I will see you on the next video..

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