Since childhood we are taught to work hard, secure good results, excel in studies and then enrich our CVs with these degrees to secure a good job. We get into the rat race and start rushing behind money. We work harder and harder and earn more and more money but we ignore the fact that due to lack of financial literacy we do not plan our savings and the way the savings should work for us to generate more money.
So now we have two aspects into picture – planning the savings and then channelizing the savings. There is a need to change the equation from ‘income – expenditure = savings’ to ‘income – savings = expenditure’. We need to create assets that would work for us. Our money should make money for us.
We need to select the right assets for our portfolio. The most important aspect in making this decision is the inflation factor. Inflation is our secret enemy. If we invest at the rate of 9-10% and the rate of inflation is 15%, then our investment does not make any sense.
Two years down the line gold was considered as a defensive asset. People used gold to diversify their portfolio. But now in 2015 it is a big question - whether it would cover the inflation rate? Today we are evidencing a downward trend in gold prices.
Public provident fund is a good option except for the fact that it has a serious problem of non-liquidity.
While going for company debentures, we need to select the right scrip or else when the company lands in a financial crisis, it is we who are going to lose.
If we are ready to take risk we can go for mutual funds and equity. But the only condition here is that we need to give market the time to perform.
Thus we have ‘n’ number of options to invest. Within these categories of investment also we have many options. Depending on the tenure of investment and the risk category we belong to, we can decide the right one for us. But the basic objective to be kept in mind is that as we grow older and older we should do less of donkey work and the assets created should do the hard work for us. Such prudence can be rightly termed as financial literacy.