09/01/2015
INTRODUCTION
Financial Education
1. Basics
a. Importance of financial education: As much as skills are required to
earn money, it is required in equal measure in spending it wisely.
Accordingly, financial education provides you the basic life skill to build a
secure financial future. Proper financial knowledge can improve your
ability to save for your long term goals and prevent you and your family
from financial exigencies. It is important to know the following concepts:
b. Savings and Investing
Saving is the excess of your income over your expenditure. Generally,
savings is in the form of savings bank account and cash. Your money is
very safe in a savings account, earning a small rate of interest and you
can get back your money as and when you need it (high liquidity).
Whereas when you are investing, you are setting your money aside for
long term goals. It is normal for investments to rise and fall in value over
time. However, in the end, prudent investments can earn a lot more than
in your savings account.
c. Budgeting
The first step in your financial planning is budgeting - a process for
tracking, planning and controlling the inflow and outflow of your income. It
entails identifying all the sources of income and taking into account all
current and future expenses, with an aim to meet your financial goals. The
primary aim of a budgeting is to ensure reasonable savings after providing
for all expenses.
Benefits of budgeting
Benefits of budgeting
• it puts checks and balances in place in order to prevent overspending
at various levels;
• it takes into account the unexpected need for funds;
• it disciplines you in matters of earning and spending; and
• it helps you to maintain same standard of living even after post
retirement
d. Inflation effects on Investments
While planning your investment, it is important to take into account the
effects of inflation on your investments. Inflation is the rise in prices of
goods and services. As the prices of goods and services increase, the
value of rupee goes down and you will not be able to purchase as much
with those rupees as you could have in the last month or last year.
