Gilt-edged securities make people rich
Do people crave for wealth than ever before to seek stability and comfort in life or do they shun such ideas to seek solace in the spirituality they desire?
The answer to these questions however depends on individuals who make such choices in life according to their wish. Well if people seek wealth and material comforts in life what prevents them from doing so? Perhaps the primary reason can be attributed due to lack of knowledge among other factors, according to a financial guru and a trainer who launched the Eagle School of Finance and Management last week at the Mirage Hotel in Wellawatte, Colombo. The audience listened intently to Rukshan Perera, the financial guru who spoke on the subject of boosting ones fortune and why most people continue to remain in abject poverty due to their ignorance on financial matters.
The seminar began with a prayer administered by a pastor who said that ‘we’ all can learn management principles to become a better manager and a better leader and how to strive in excellence in all what we do. Mr. Perera lectured on how to manage personal finances to lead a healthy lifestyle. He said there are several steps that guides a person to be prudent in financial discipline and cited several examples such as invisible things like negative thoughts, ideas, beliefs and perceptions that colour one’s mind. People see them from a different perspective owing to their past experiences that had conditioned their minds. “Good planning and hard work can lead to prosperity. But hastily taken short cuts can also lead to poverty. Lack of money is the root of all evil that lead persons to steal and cheat the company they work,” he said. “If people want to become rich they should have a sound blue print (attitude) without any faults.” Referring to personnel finances in detail, he explained that one must be able to read financial statements like the Profit and Loss account.
Mr. Perera then explained the difference between the rich and the middle class. The rich acquire assets such as buying houses and renting them out, buy Treasury Bills and Treasury Bonds, deposit money in fixed deposits, and buy shares in the stock market. “They also write books and sell them and earn money.” He then asked what does the middle class do. “What do people like you and I do is that we acquire assets that ultimately becomes liabilities. These include acquiring a car on a lease payment from a company or from a bank. What is the difference between an asset and a liability? An asset is where one puts money in an account and liability is where the money is taken away. The rich becomes richer and richer because they add more assets whereas their liabilities are small. The poor on the other hand earn wages but do not invest in assets. They spend all what they earn.”
Mr. Perera said that a reputed author had once remarked that people do not get rich because the subject matter is not taught in schools. “There is a knowledge gap in finances today.”
Referring to the devaluation of money, he said it was the rupee against the dollar. “When the dollar price rises, the rupee price falls below the dollar. Do you think that putting money in a bank is a smart idea,” he queried. He said the best possible option of minimising the risk of the rupee falling behind the dollar price was to resort to hedging practice. He said buying the Swiss Franc or US dollar currency or gold is a smart idea.
“(The) envelope strategy is another concept to minimize unwanted expenses, to curtail expenses in a household. Contingency expenses on the other hand is to save a little money during an emergency,” he said.
Referring to passive income, he said some people get that by renting their houses. “Rich people become rich by buying property like the McDonald’s owner Ray Kroc. Portfolio income was another way of making money by investing in Treasury bills or shares in the stock market where one gets a paper certificate. Warren Buffett, the third richest man in the world, became rich by investing in portfolio assets.” Mr. Perera further said saving and investing 10 per cent and giving some to charity was essential.
He then referred to the P& L concept. “Income minus expenditure gives the sum total of profit or loss (P&L). The moment one sees something within brackets of a financial statement it is an indication of something negative,” he noted. “What is a Balance Sheet,” he then asked the participants.
Prompt came the answer that a balance sheet was a statement indicating ones assets and liabilities. Assets minus liabilities gives the net worthiness of a person, he said. However, he cautioned participants that if a person wants to be financially stable the best strategy that one should adopt is not to avail of loans or borrow money from others to stay afloat.
He then explained matters regarding cash flows in a Balance Sheet. “Cash flows minus all other expenses gives the net worthiness of a person in a balance sheet. It will tell you how rich you are. P&L and the Balance Sheet is not the same,” he explained.