Hardware and Software of financial freedom

Hi friends,

Taking cue from my previous article let me take you ahead in the journey towards financial freedom. Coincidentally this article is aligned to be published on the Budget Day so I shall also talk about it in this article. Now its my duty to bring it to your notice the important aspects of personal finance which I happen to call the HARDWARE and SOFTWARE of managing your money. I am of the opinion that like any electronic device which is automatic in nature has both these aspects which run very much in coordination to give you the feel and the comfort that you desire. Now the important thing in my above statement is the COORDINATION which you need keep in mind.

Also I would like to add is that YOU can achieve financial freedom in 2 different ways

  1. Doing it all by yourself.
  2. Taking paid help from an expert. ( Beware of FREE advice, rather pay the FEE for the same )

Now both these methods that I have mentioned here have their own PRO’s and CON’s. Which is a better method is a subject matter of debate and the opinions vary from person to person. Hailing from the field of Personal Financial Services I may sound a bit like I am taking sides but I am not, and would say I prefer the 2nd method to the first one. And I have reasons for the same. The reasons are linked to my earlier article in which I mention you the art of WORK SMART.

Now irrespective of the path you take, you need to learn both the Hardware and Software to achieve Financial Freedom. And in today’s world of huge competition its Smarter to take help from someone who has the attitude, skills and knowledge about the same and can guide you in the right direction.

If you want to achieve it all by yourself you need to manage all the three things over and above the herculean task on you of earning money and feeding your family. So I feel its smarter and faster way to achieve Financial Freedom by outsourcing certain things to a subject expert and pay necessary fee for the same. Now Who is an expert and who is not is one big question and I would like to cover it in my upcoming articles as to

  • Who is an Expert and How to hire one &
  • Why pay fees for advice.

I know by now you are impatient and desperately want to know what are the Hardware and Software aspects of attaining the financial freedom . Lets talk about Software first. Now irrespective of the physical structure in place you need a system that makes the physical structure work efficiently. Likewise its important to learn the software for better functioning of the hardware and unless you learn and master this first you will surely not be able to run the hardware properly.

So what is this Software that I am talking about. It includes many things like:

  • Importance of Budgeting.
  • Your belief system about Money.
  • The Seven Stages of Money Maturity.
  • Understanding Fear and Greed Cycles in Human Beings.
  • Discipline.
  • Understanding of Macro and micro economics.
  • Understanding the effect of Compounding and Inflation , etc.

Now it may look a very huge task to understand the above things but don’t worry I shall make them easier for you to understand to apply in your day today life with the help of this Column regularly month after month.

As mentioned before in this article before, I shall now talk about BUDGET here as it is the Tax season and the publishing of the magazine coincides with BUDGET DAY in the Parliament.

Something About Budget:

During 1760’s, The Chancellor of the Exchequer in England would carry the statement of government Finances to the House of Commons ( Lok Sabha of England ) in a leather bag. The French word for such a bag is BOUGETTE , which became BUDGET in English. And since then the word Budget started being used as THE WORD associated with Managing Money.Therefore the Finance Minister is often captured on the Camera holding the Budget Bag as if he were a magician about to pull a rabbit out of his hat.

Why is Budgeting so important? And what is the similarity of household budget and Union Budget.

Well what Budgeting means is very simple. Lets say You earn X amount of income and you have Y amount of expenses and you maintain a record of all your expenses and income to stay informed as to how much money you can Save. Similarly, the computation and classification of the Revenues and Expenditures of a household is called household budget and that of Govt of India is called a Union Budget. Now lets understand some basic definitions

If expenditures < Income = Savings.

If expenditures > Income = Deficit.

So these basic definitions show you why is Budgeting so Important. If you work Smart and keep your expenses less than what you earn, YOU SAVE MONEY. This can be invested and put to better use in order to enable your money earning you more money in form of Interest, returns or dividends. Now if you are spending more than what you earn you are having a Deficit and you have 2 options. Use your previous savings to spend or borrow money.

This is exactly the situation prevailing in our country. Govt of India is currently spending close to 6% more money than it is earning and hence there is immense pressure on the Finance Minister to deliver a Budget which decreases the expenses, increases the income ( which means more taxes to be paid by people ) and bring the deficit level to around 3% which is the ideal level which has been globally accepted. It is a situation to worry as it was the sole reason why European countries like Spain went Bankrupt as their expenses are almost 100% more than their incomes and US is on the same path too but is surviving because of large Reserves(savings) and many other factors.

You will be having more questions like how does the Govt earn money and also how is Budgeting related to Financial Freedom. I shall inform you about the same in the next article. Till then keep Smiling and invest in increasing your knowledge about finance. God bless you all.

Shivang Desai
Shivang N Desai is an Associate Finacial Planner and is founder of the financial services firm SD Finance. He writes regular column- “Money Guru” on BuddyBits.com.