Secret Confessions of a Rich Man

Understanding money and subject of money, which is popularly known as finance is very critical for success of an individual or an enterprise. Whether you are an individual in search of becoming rich or an organization with a goal of profit maximization or a not for profit entity intending to serve the society, knowledge of finance is important for all of us to achieve our objectives in life.

A lot of books and study material is available on variety of subjects including finance, but unfortunately there is very little written about the basics and logic behind learning finance. The following article talks about the need of learning finance, the reasons why finance is important and the first steps that you should take in order to equip yourself with financial knowledge.

Why should you train yourself in Finance?

We feel that we are aware about the various financial products and services that are available in the market. We feel we have adequate knowledge about the KRA's and the KPI's which are financial numbers and ratios that guide our performance appraisal. We also feel we understand our salary structures very well are capable of understanding where all the money written under CTC column goes other than our bank account.

Some Concrete Reasons "Why" Training on Subject of Finance is Important?

1. 
   
   
   Finance is not a new subject but a new Language: Don't believe? Yes it is. Try watching CNBC during the market hours for 15 minutes. First five minutes are okay, but as time progresses further you realize that you understand the English, but it becomes difficult to comprehend.
2. 
   
   
   Number Phobia: No Sir. I don't have one..!!! Try calling an insurance advisor under the pretext of buying life insurance. Again try listening to him for 15 minutes. You realize that the facts and figures stated by him start to become a little too overwhelming after a while. Some of us may admit openly others may not but we do suffer from a little bit of number phobia. Our ability to comprehend too many numbers is restricted beyond two digits.
3. 
   
   
   It's all about Money, honey: Yes it is. Finance is a subject which brings you closer to the concept of money and making it big. Look around, all successful people are very shrewd financially. Those who are not, are not up there for long. Take an example of the famous bankrupt boxers Muhammad Ali or Mike Tyson.
4. 
   
   
   Finance is boring: Everything in the world that we cannot comprehend is boring. To some people metaphysics can be boring while to others medicine would be a terror. When you make money and start understanding the game of making it more, yes sir, the subject becomes really interesting.

 

So where do I start?

 

This is a question I come across all the time. If I wanted to learn finance where should I start from? Do you recommend a book? Should I take up some kind of a course? What exactly should I do?

 

Well, the answer here depends on why is it that you wish to learn finance? If it is a job necessity you can contemplate joining a course, if it is your own personal financial management, you can start with a book.

 

In today's times what hurts people's finances most is the bad advice. People take financial advice from advisors who lack both formal education and requisite experience to handle someone else's money. As Warren Buffet says, "Wall Street is the only place where people who drive Rolls Royce take advice from people who take the subway."

 

I know what you're thinking? How do I differentiate between a good advice and a bad advice? First and foremost, let me tell you no advice is a bad advice. The advice may be right, but it may be given to you at the wrong place or time. For example, we all understand that investing in equity is to be done by following the grain "Buy Cheap, Sell Dear." But if you observe, rarely retail investors do so.

Coming to the point, the only fool proof test that you can apply on your advisors is to ask them a series of questions:

 

1. 
   
   
   Have you done this yourself?
2. 
   
   
   If yes, how much money did you make while implementing this on your own?
3. 
   
   
   How many successful clients can vouch for your advice?
4. 
   
   
   Have you yourself made enough money that you will guide me to succeed?

 

Well these are only sample of questions and there are lots of other things to be learnt before we can actually appoint an advisor or advisors.

 

It helps, if you are able to appoint someone who has reached the kind of level which you wish to reach or someone who has made so much money that you wish to make as your mentor / coach. A mentor / coach can become a guiding light in the path of financial darkness that exists in today's time.

 

Essential things to learn "first" when you start:

 

Right from doing a basic math upto complex merger, acquisitions and spin offs there are thousands of concepts which are required to be learnt in the field of finance, accounting & investing.

 

But first there are a few concepts which will help you to make your foundation strong before you start building your sky scraper on it:

 

1. 
   
   
   Knowledge of Cash Flows: A very well known author named Robert Kiyosaki says that cash flow is the most important word in the business world. Without understanding cash flows it is very difficult to survive, grow and prosper in today's time. Your cash flows decide your fate.
2. 
   
   
   Understanding Financial Statements: Financial Statements are important source of financial information which helps you to understand how resources are made available to an organization and how they are deployed. Commonly understood financial statements include an Income Statement, a Balance Sheet, Statement of Changes in Financial Position, Statement of Changes in Cash flows, summary of accounting policies and notes to accounts. Income statement is like a performance appraisal of the entire organization for a given period. Balance Sheet talks about the financial position of an organization as on a particular date. Statement of Changes in Financial Positions indicates the transactions happened between the owners and the company during a given period. Statement of Cash flows reflects the enterprise's sources and uses of cash. Summary of Accounting Policies and detailed notes to accounts are included to make the other financial statements more meaningful and the entire financial information complete.
3. 
   
   
   Financial Management: Financial Management is a topic which talks about how to raise the money for given stated objectives and how to utilize them efficiently and effectively. It is commonly said that the most difficult kind of selling is selling an idea to an investor. Financial Management is a subject that makes this job easy. You need funds to do any profit or non-profit making activity in today's world. Financial Management is a very wide topic. Its sub topics would include:
   1. 
      
      
      Raising long term sources of funds
   2. 
      
      
      Utilization of long term funds or capital budgeting and project finance
   3. 
      
      
      Raising short term sources of funds
   4. 
      
      
      Working Capital Management
   
   
   To summarize the article, we can say that learning of finance is critical to success of any individual or an organization in today's world. There are four main reasons of learning finance: Finance is a new language and not just a new subject, Number phobia, it's the only subject that links you directly to money and life becomes very boring if cannot comprehend finance and financial concepts. The biggest reason why a person who makes money but do not get rich is due to the bad advice and questioning is a fool proof method of choosing your advisors. The three most important lessons that you should learn in finance are knowledge of cash flows, understanding of financial statements and financial management. A mentor / coach who have achieved what are setting out to achieve can help you to reach your goals faster.