PSYCHOLOGY OF MONEY

 Hi subha here , 

why i have endup here is , i have met someone and they said we have to earn and we have to spend that is life . it is not like that , i need to clarify them there is lot more to know  psychology behind money .Here we are going to see about how to organize money , how to use credit and even how to save and invest our money  and even about how to save and invest for our future

Path to financial security

It means ability to the households to manage the ongoing economic needs and to prepare for the future.

Things we cant control - economic environment 

Lets start off thinking about cash and credit management ,  we want to make sure that we have the right amount of money left over to preserve liquidity, liquidity represents the amount of cash on the hand, available cash to us, we want to be efficient in our use of financial services, this means using right mix of bank accounts - having right insurance products, so that we have the protections and the services we need, 

Things to be Noted 

. Household record keeping

. Keeping track of the money going in, the money going out 

( this will help us to know where we are - our strengths, our weaknesses, our opportunities that we have and the threats that we are facing )

Concept of the Time Value of the Money 

Our money - grows us , work against us( when we borrow) , work for us ( savings and interest)

why is it so important to build wealth then ? is it just because we think we should have more money? 

This is a product of changing economic environment , their is the whole host things when our overall resources will sift or change and that idea of savings is something that will smooth that path for us 

Achieving basic financial goals 

. buying a house 

. funding education for children 

These types of things are all expensive tickets, but we plan ahead, if we put money aside toward those goals starting now, then when the time comes for it , we are lot more to take the responsibility

We should also thing about the emergency fund - in case car breaks down, someone gets sick that we have some resources on hand that we can use to meet the immediate need 

Starting savings in the early is  very important for saving your future, so again , money that will not be needed for spending today should be invested 

I need to say - we need to protect all our resources , make sure that we leave something for those that were dependent on our income 

Time value of money 

ALBERT EINSTEIN, said that compound interest may be one of the most powerful forces in the universe

Compound interest refers to the idea that we put money somewhere - money is going to earn money , when we take money today and have it grow towards  future 

The relationship between present value and the future value of a one time payment is what we've been exploring 

Lets we know about Risk and Returns 

Savings products 

Saving account , insured money market account - very safe because they are federally insure. you can easily get to the money in savings if you need it for any reason, the interest rate on savings generally is lower compared with investment 

while safe , savings are not risk - free the risk is that the low interest rate you receive will not keep pace with inflation. for example, with inflation a candy bar that cost 5 rupees today will cost 10 rupees ten years from now , if money doesn't grow fast as inflation does it is like losing money

Investment products 

Stocks, mutual funds are the most common investment products. all have higher risk and potentially higher returns than savings products. 

Over many decades, the investment that has provided the highest average rate of the return has been a stock, which make stock one of the most risky investments. if a company doesn't do  well or falls out of a favor with investors , its stock can fall in price and investor could lose money 

You can make money in two ways from owning stock, first the price of the stock may rise if the company does well, the increase is called a capital gain . second , companies sometimes pay out a part of profits to stockholder with a payment that's called dividend

Bonds generally provide higher returns with higher risk than savings and lower returns than stocks, but the bond issuer's promise to repay principal generally make bond less risky than stocks, 

The risk of investing in mutual fund is determined by the underlying risks of  the stocks, bonds, and other investments held by the fund. no mutual fund can guarantee its return, and no mutual fund is risk - free 

Always remember 

. The greater the potential return, the greater the risk 

. One protection against risk is time and that's what young people have 

. On any day the stock market can go up or down