Learn to Earn

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Learn how to put your money to work for you and become financially independent.

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  • 1.Learn to Earn Putting Your Money to Work for Youand becoming Financially Independent

2. In this Module we will Cover: 1. Asset vs Liability2. Active vs Passive Income 3. Magic of Compounding(Investment vs Consumption)(Financial Independence) (Start Young) 4. Delayed Gratication 5. Fear & Greed6. Risk vs Reward (Learn Self-Control) (Control Emotions)(Risk Appetite)8.Your Intellectual9. Risk Management7. Asset ClassesProperty - an Asset10. How to Invest 11. Life Insurance 12. Financial Planning 3. 1. Asset vs Liability 2. Active vs Passive Income 3. Magic of Compounding(Investment vs Consumption)(Financial Independence) (Start Young)4. Delayed Gratication 5. Fear & Greed 6. Risk vs Reward (Learn Self-Control) (Control Emotions)(Risk Appetite)8. Your Intellectual 9. Risk Management7. Asset ClassesProperty - an Asset10. How to Invest 11. Life Insurance12. Financial Planning 4. So you have got a job - your own disposable income atlast... to blow as you please! 5. oFirst Stop - Credit Card! 6. ooNext - a swanky car! 7. But, will you be using your credit card for the convenienceand safety of not carrying too much cash around... 8. Or, will you use it for rolling credit?I.e. borrow against your credit limit and then repay theamount over months in easy installments 9. And, is your new, swanky car an asset or a liability 10. Lets look at the credit card debt rst... 11. Carrying a credit card debt, i.e. not clearing the balance onyour credit card every month and rolling the debt can bevery expensive 12. Credit Car BILL dDue : $1,0 Minim 00Paym um ent :$25Say, you buy your much desired electronic gizmo for $1,000with your credit card, because you know you can easily paythe minimum amount due each month 13. Cred it CarDBILL due: $1,0Minim 00 Paym ument:$25 Fine p rint: A PR =18%The interest rate your credit card company charges is 18%(some credit companies charge 36% or more)And, the minimum amount you have to pay each month is $25 14. $1, 538$1, 000To get rid of your debt, it will take you 5 yearsAnd you will pay an interest of $539That is, the $1,000 electronic gizmo has cost you $1,539 15. Plus, chances are, your electronic gizmo will go out of fashionwithin a year of purchase but you will have to keep paying forfour more years! 16. ooHow about the swanky car - is it an asset or a liability? 17. In the best-selling book,Rich Dad Poor Dad,author Robert Kiyosakiegives a very easy tounderstand denition ofassets and liabilities... 18. Asset T$$ $$ $$An ASSET is something that puts money in your pocket,whether you work or not(or you can think of asset as an investment - something that creates value) 19. $$ $$ T $ $ LiabilityA LIABILITY is something that takes money out of your pocket(or you can think of liability as consumption - something that does not create value) 20. tsstal lmen ont hly in Me Fuel e I LITYLIAB ntenanc e Mai eViewed like this, your swanky new car is really a liabilitybecause it takes money out of your pocket for the monthly installments you have to pay (assuming you took a loan to buy the car) cost of fuel and maintenance 21. Utility value? Convenience value?You say, how about the utility value of the car - the factthat you can reach ofce on time because you have a car?Plus, its convenience value - no more struggling in publictransport? 22. Takes Money out of your Pocket Puts Money in your Pocket (indirectly)entsstallmth ly in Mon e e Fuel YUtility value?ILIT nanceConvenience value?L IABMainte eWhat you have to see is the NET IMPACTDoes the car add more to your pocket than it takes away? 23. Takes Money out of your PocketPuts Money in your Pocket (indirectly) entsstallmly inMonthee FuelY ILITnance Utility value?Convenience value? L IABMainteeConsider: Do you really need a swanky car, primarily toimpress your friends? Can you not buy a second hand carfor utility and convenience? 24. Asset T$$ $$ $$vs$$ $$ T $ $ LiabilityThe rst Building Block on Financial Literacy is being able todistinguish between Assets and LiabilitiesSo that you invest in assets that put money in your pocket,before you buy liabilities 25. Purchase swankystuff from this incomelEarn Income l Create AssetsPutting your money to work for you means: First creating assets that generate income Then, from the income of these assets, buying liabilities -non-income generating hearts desires like jewellery, swanky car, posh house... 26. What are income generating assets? 27. 1. Asset vs Liability2. Active vs Passive Income3. Magic of Compounding (Investment vs Consumption) (Financial Independence) (Start Young)4. Delayed Gratication5. Fear & Greed 6. Risk vs Reward(Learn Self-Control) (Control Emotions)(Risk Appetite)8. Your Intellectual9. Risk Management7. Asset ClassesProperty - an Asset10. How to Invest 11. Life Insurance12. Financial Planning 28. Some examples of income generating assets Stocks (shares of companies) Bonds (government or corporate) Art (paintings) Intellectual Property (book, song, music) Precious Metals (gold, silver) Real-Estate (provided it generates net income) 29. Income AssetYou could argue that you yourself are an income generatingasset - after all, now that you have a job, you get a monthlyincome! 30. Active Income Passive IncomeYour Job orBusinessSalary orIncome There are two types of income-streams Active Income stream: the salary you get from a job, or prots you earn if you are self-employed Passive Income stream: is the income your assets generate for you 31. The game, Monopoly,k reiterates some of thesebuilding blocks ofnancial literacy 32. Roll the dice > Complete a round >b Collect moneyYou earn income on completing one round of the board -this is your Active Income because you have to work tocomplete a round 33. Buy Property (asset) and b earn rent (passive income)Once you have bought a property (asset) you startearning Passive Income from rent (when a fellow playerlands on your property) 34. Build houses and hotels (more b assets) on your property and increase your passive incomeWhen you build houses and hotels (more assets) on agroup of properties your (rental) passive income increases 35. Your financial assetskeep you afloatFinancial Independence could be thought of as FinancialSurvivabilityThat is, if you were to quit your job today how long couldyou live, maintaining your desired lifestyle 36. Active Income whenPassive Income once you are working you have retiredThis is so because at some point in time you have to liveoff your passive income streamMostly we think of this as retirement - say when you are65 or 75 years old 37. Live on passive income ...till you die!Active Income whenonce you have retired...you are workingFrom that time on, till you die, you have to ensure that youhave enough passive income to live on, leading a lifestyle ofyour choice (like a location of your liking, pursuing yourinterests and hobbies like travel, good food...) 38. Need to live on passive income 20-30 years, or moreGiven the advances we are making in healthcare, chances arebright that you will live till you are 95If you retire at 70, it implies that you need passive incomestreams to support your desired lifestyle for another 25 years 39. Your assets need to generate an annual income commensuratewith your desired lifestyle, for these 20-30 yearsSay, you have decided that after retirement you will live inShangri-La (any place of your liking)Adjusted for ination, you calculate that you will need$50,000 every year to live your desired lifestyle in Shangri-LaThat is, for 25 years, from retirement till you die, you willneed a passive income stream of $50,000 every year 40. To generate $50,000 every year, for 25 years, you needa kitty of at least half a million dollarsTo make this come true, while you are working, you need toput together assets that will generate $50,000 (and more, to meetination) every year for 25 yearsIf your assets can generate 10% return per year, you need tobuild a kitty of half a million dollars (you could dip into the kitty in thelast few years, but to keep calculation simple lets assume that you want to leave thekitty for your next of kin, or bequeath it to charities) 41. You want to quit your job and pursueYou are 25 other interests when you are 45...years oldHeres a more delicious thoughtSay you are 25 years old and you want to quit your jobby the time you are 45, so that you can pursue yourother interests, like fashion photography, amateur astronomy, travel... 42. You need assets that generateadequate passive income streams tosustain your lifestyle for 50 years...If you can put together assets that will generate passive incomestream, adequate for you to lead your desired lifestyle from age45 to age 95, you can go ahead and quit your job! 43. You think thats day dreaming! 44. 1. Asset vs Liability2. Active vs Passive Income 3. Magic of Compounding (Investment vs Consumption)(Financial Independence)(Start Young)4. Delayed Gratication 5. Fear & Greed6. Risk vs Reward(Learn Self-Control) (Control Emotions) (Risk Appetite) 8. Your Intellectual 9. Risk Management7. Asset Classes Property - an Asset10. How to Invest11. Life Insurance12. Financial Planning 45. P e c u n iaC o m p o u n d o .. .Well, the Magic of Compounding is more powerful thanHarry Potters magic... 46. Invest $500 every month, lstarting at age 35 @ 8% interest, b compounded annuallyLets say that wisdom dawns on you when you are 35 years oldAnd you decide to invest $500 (or Rs 500) every month in assetsthat generate 8% interest compounded annually (that is, you reinvestthe interest back into the asset) 47. bAfter 10 years you will have around $87,000After 10 years (that is at age 45, when you want to retire), you willhave a kitty of around $87,000 (or Rs 87,000) 48. Thats not enough to retire on!, you say 49. Instead of 35, if you start at 20 l(investing the $500 @ 8% compounded annually)bAt age 45 you will have over $435,000If you became wise at 20 years of age and decided toinvest the sa