Financial Literacy

Thank you for the feedback on Financial Literacy – 1 and hence this time, I am back with two short snippets which I hope will be useful to you.

Snippet 1: The Power of Compound Interest

If I ask you a simple question: What is more?

If I give you one lakh a day for the next 31 days

Or

If I give you 1 paise today, 2 paise tomorrow, 4 paise the day after, etc for the next 31 days.

What do you think is more?

I am quite sure most of us will decide on the first option, 31 Lakhs, and go with it.

What we do not realise is the fact that in the second option, we get over 2Cr in 31 days and if we chose option 1, we would be leaving a lot of money on the table due to this miscalculation.

Please try to write it on paper and calculate for yourself to find out the amazing power of ‘Compound Interest’.

It is time we start believing in compound interest and take decisions with full awareness of the same.

Snippet 2: Pay Yourself First

A few days back, I read a book called ‘The Richest Man in Babylon’, where one of the simple rules (simplified here for easy understanding) is this:

“From the money that you earn, pay yourself first by keeping at least 10% in a safe place and never spend it.”

If this fact is clear, the accompanying statement for this rule is, make this saved money work for you and generate revenue.

The book also says one thing very clearly, it does not matter if you earn less or more (eg. 10Rs or 10Cr Rs) each month, our life will find ways to spend it all. So unless we decide to pay yourself first, we will end up spending them all.

Hence, I believe ‘Paying Yourself First’ is an obligation, duty and responsibility we owe to ourselves and our future at all times.

I hope you enjoyed these snippets and it helps you in your journey towards financial literacy.

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