Understanding Risk

Risk is associated with everything in life. However it is important to understand the concept of risk as pertains to finance. We earn money and then spend it. What remains is our savings. we want to invest those savings optimally so that they grow and fund our needs in the future. needs are mostly time dependent where certain things crop up in near future whereas there some needs in the far distant future. Think sickness and old age. Sickness can be around the corner and demands expense in terms of medicine,doctor fees payment etc.You want immediate cash to cover these expenses and hence a part of your savings needs to be invested in risk free instruments. Risk free entails total capital recovery for immediate usage. old age expenses especially for young savers are not immediate requirements hence they can be saved in higher risk instruments  Risk is the ability of a person to be able to stomach the changes in capital mostly in a downward direction.

Introduction to Finance

It is extremely important that engineers and broadly people from all walks of life understand the basics of finance and more importantly how finance and financial planning can affect their life. I teach students of engineering in Pune, India and recognize that they may not have a proper understanding of how finance works and why would it be important for them to gain such an understanding.

Finance and the knowledge of finance are important. The knowledge of finance has gained utmost importance due to the pressure humanity imposes on resources of earth. What was available for 100 mouths in the 1900's is now available to 100,000 mouths. That has been the extent to which human population has multiplied.

In addition to multiplying, an average human now lives longer than his of her grandparents exerting more pressure on the available resources. It is the responsibility of a government to care for its citizens. That has given rise to governments giving life-long pensions to people ultimately leading to national bankruptcies. Greece is a telling example.

All is not lost. Our generation is unique and at cross-roads especially in the developing world.  We stand at the gates of great achievements. There is talk of BRICS and how the BRICS are going to change the way the world looks 20 years from now. We have at our disposal communication and the information about what we can consume. However consumption is a responsible activity.  That is outside the scope of our educational resources. We can buy cars, apartment, jewelry etc in a jiffy but we do need to afford it. This is instant gratification. However do we plan for the future?

The answer is sadly, NO. Too many students I teach do not know the basics of money management and investing. They do not invest time to learn right now and when they graduate out of college they lack the time to invest in learning. They go ahead and but things on credit and forget that things need to be paid back with interest.

They forget retirement. They forget that their salaried family breadwinner is usually a pensioner and will have a pension for life. Our generation will not. The conclusion is that one needs to plan for the present gratification and future security.

The onus has now shifted to the individual to take care of oneself or herself. In this scenario, self help of financial matters is important. It is not ROCKET SCINECE. It is all about discipline. Through the posts on this blog I want to make people aware of different opportunities available to secure oneself financially. I will cover a range of topics including investment opportunities, current affairs that affect the common man on a national and an international level.

I hope that more people follow the posts on my blog and actively comment. It will be a delightful journey of knowledge.