For me, being a pastry chef is the easiest part of my job. I wear multiple hats at work and truly sometimes I wish that the only thing I had to do was make macarons! But, life doesn’t work like that. While growing and running my business I wasn’t spending enough time looking at my finances. 2 years ago, I found myself in a situation in my business where someone I deeply trusted, stole money from me (a LOT of money). This was heartbreaking and frustrating and truly deeply disappointing. To be honest, it kind of broke me and my confidence. I couldn’t believe that someone I trusted with everything could do something like this to me. After the initial shock, I went through a range of emotions. I was so so angry. Once the emotions stabilized, I started thinking about how I ran my business. Why wasn’t looking at the finances a priority for me? What kind of feelings did I have towards money? What are the things that I know about money and why don’t more people talk about it? I made it my mission to change the way my head works where money and my personal finances are concerned. I have so much to learn and I hope I can share it all with you as I go on this journey. I’ve decided to do a series where I ask an expert 7 questions related to finance and hopefully their answers will shine a new light on how you see things!
I’m starting this series with Dr. Anil Lamba. He’s a Chartered Accountant, a financial literacy activist and an author. I attended a workshop with him recently and it changed the way I see things. I highly recommend his book, ‘Romancing the Balance Sheet’ to anyone starting a business. You can learn more about him here (www.anillamba.com)
Let me know what you think of the questions in the comments and if you have specific questions you would like me to ask the next guest.
7 questions with Dr. Anil Lamba
1. What key financial advice would you give a person just out of college?
Start the habit of saving as early as possible. Even if you are not earning much to begin with, make it a point to save a portion of your earnings. It is a habit worth inculcating and will serve you well over the years. As has been said, “Don’t save what is left after spending, spend what is left after saving.”
2. In your experience, what mistake do most people make where their finances are concerned?
There are many mistakes that are commonly made:
- Not developing the habit of saving.
- Not understanding the difference between performing and non-performing assets. A friend of mine was once telling me that many years ago he was very keen to buy a music system which then was costing about 2 lakhs. He saved up and finally managed to buy it. At around the same time, his brother, 5 years younger, purchased a small plot of land at Lonavala also for 2 lakhs. The music system stopped working a couple of years later. The plot of land his brother had invested in is now worth about a couple of crores.
- Not taking insurance early on in life (both life and medical), when it is easiest to get since one is healthier, and the premiums are also the lowest.
3. What do you wish you had learned about money sooner?
I wish I had understood the concept and power of compounding earlier. Compounding refers to the snowball effect that happens when your earnings generate even more earnings. Albert Einstein is said to have called “the power of compound interest the most powerful force in the universe.”
4. Can you bust some financial myths?
- That a life insurance policy is an investment. Being insured is a must, but never make the mistake of thinking that the premium that you are paying is an investment. I can’t think of a worse investment than insurance. The problem arises when people try and combine an insurance with an investment (like taking a ULIP plan). I would suggest when you invest, make a pure investment. The same goes for insurance. Because the moment you plan to receive the insurance money back in your own lifetime, you are treating it like an investment and the entire objective of insurance gets defeated. Which is why a term policy becomes very attractive.
- That buying jewellery is a good investment
- That buying assets is always better than renting assets.
5. Your take on saving money vs investing it
A penny saved is a penny wasted. A penny invested can build you a fortune.
6. What things would you like to teach your children about money?
- Start the ‘saving’ habit early. Start small, start slow, and keep on increasing the percentage of income saved over the years
- Learn how stock markets function and begin building a stock portfolio as early as possible
- Invest is one piece of real estate early on in life.
- Learn the subject of finance management before you venture into any business. Learn to read financial statements and Balance Sheets. Understand concepts like inflation, and insurance and compound interest. Learn the principles of economics.
7. Does gender play a role in the way people treat their money? Would women deal with money differently than men?
Should not, except perhaps in their approach towards investing, the female gender being a little more risk averse. (This is from my limited observation, but may not be universally true).