Financial Affairs of The Common Man: Master the Art of Personal Finance Management By Anil Lamba (published by Penguin) is a book that gives the reader knowledge, tools and information that will empower him to be completely in charge of his or her personal finance management.
It is a strange thing that many people spend so much time earning money, but when it comes to managing that money, they often bury their heads in the sand! Are you the kinds who cringes at the very mention of numbers and accounting? Well, then here’s a book that you’ve got to read.
Anil Lamba is a renowned personality in the field of finance. Not only is he a bestselling author, but he is also a financial literacy activist, and an international corporate trainer. Dr. Lamba is a practicing Chartered Accountant and holds degrees in Commerce, Law and a Doctorate in Taxation.
What about the book is appealing…
A no-nonsense approach and very simple and straightforward language. Crisp and short paragraphs, almost like bullet points that are easy to digest.
Focus on concepts that the lay investor may not comprehend. For example, the effect of inflation on investments may be a no-brainer for many people. However, many people still do not easily comprehend the need to get the rate of the growth of their earnings outpace the rate of inflation. Or, the power of compounding. Most people just don’t get the concept. The book does a great job of setting the basics straight.
It also highlights the fallacies that many investors fall into, and the mistakes that they unknowingly make. For example, merging the life insurance goal with investment goals.
It covers a range of topics such as insurance, inflation, power of compounding, investing in stock markets, mutual funds, other investment options, investing in real estate and so on.
Personal finance management- Some Takeaways from the book
The power of compounding has been called the eighth wonder of the world. One who understands it, earns it and the one who does not, pays it.
Life insurance policies are taken for the benefit of the beneficiaries and not the person insured. The moment you plan to get the money back in your own lifetime you have defeated the objective of taking life insurance.
There is a direct relationship between return and risk. Anybody who has made quick money on the stock exchange must realise he has taken a great deal of risk unknowingly.
Investments are to be purchased when prices are low and sold when prices are high. This requires swimming against the general current in the market. Hence, there must be an in-built system of timing the purchases or sale of investments so that the psychological factors are ignored and purchases are made when the prices are entering the bull phase and sold when they are entering the bear phase.
I want you to remember two phrases that don’t exist in the stock market- Maximum Profit and Minimum Loss.
Keep profits open- ended and put a stop-loss. People often tend to do the reverse. They put a limit on the profit and keep their losses open ended.
In my opinion, the number of scripts in the portfolio should be in single digits.
In my opinion, any attempt at evading, or even saving taxes is probably more expensive than the payment of tax itself.
Open a PPF account early and there is no need to do any other retirement planning. No court of law in India has the power to order the attachment of the balance in a PPF account.
Own a house no matter what anyone says.
- Read the book at one go to understand the basic principles related to managing finances.
- Dip into the book from time to time and use it as a guide. You may have professionals imparting advice to you, but that does not mean you must be oblivious to knowledge about managing money. This book will ensure that you get basics straight.
- Encourage children and young adults to read specific chapters in order to inculcate financial literary early on. Keep in mind that parents are not necessarily the best guides for imparting investment education to kids. Here is a book that can serve you well!
- Our personal favourites: The chapter on making your personal balance sheet…especially if you’ve been wary of accounting, is quite helpful. The chapter on stock investing is also quite practical in nature.
Financial Affairs of the Common Man presents a collection of the various aspects of personal finance management that every individual should consider. It not only introduces the concepts that you must understand to effectively plan your finances, but also provides the tools and the knowledge needed to do so. So, get a deeper insight into Personal finance management with this one!