How to use Ardha shastra in daily life?

13. How to use Ardha shastra in daily life?

I kept account of every farthing I spent, and my expenses were carefully calculated. Every little item, such as omnibus fares or postage or a couple of coppers spent on newspapers, would be entered, and the balance struck every evening before going to bed. That habit has stayed with me ever since, and I know that as a result, though I have had to handle public funds amounting to lakhs, I have succeeded in exercising strict economy in their disbursement, and instead of outstanding debts have had invariably a surplus balance in respect of all the movements I have led. Let every youth take a leaf out of my book and make it a point to account for everything that comes into and goes out of his pocket, and like me he is sure to be a gainer in the end. –Gandhiji

The second purushardha, among the four purushardhas prescribed by our ancient ages is ardha, the earning and management of money.  Every person who wants a successful life should have a basic understanding of below financial meanings. Every leader also should have a good understanding of the financial affairs of his organization or project or movement.

1. Income or revenue:

• Active income: Money that a person or organization earns from sales of goods or services.
• Passive income: Interest on deposits or savings accounts and dividends earned from holding shares.
• Capital gains: Excess of amount received from sale of assets (such as shares, house property, land) over amount spent to buy them.

2. Expenses:

• Business expenses: Money a person or organization spends to produce the goods or services sold (such as staff salaries, rent, utilities, advertising, travel expenses, phone charges)
• Personal expenses: Money spent without corresponding income generation (such as vacations, jewelry)

3. Profit/surplus: The excess of income over expenses is called surplus or profit. If it is a negative figure, meaning excess of expenses over income, it is called deficit or loss. It should be the goal of every person or organization to have as much surplus or profit as possible, by maximizing income and minimizing expenses.

4. Profit or loss account: It is a statement for a particular period, called financial year (usually 12 months from 1^st April to next 31^st March or from 1^st January to 31^st December) in which the income is shown on one side and expenses for the same period are shown on the other side.

5. Assets:

• Business assets: Things that a person or organization owns, have resale value, and is used in the generation of income. Eg. Factory building, machinery, furniture, computers, inventory. They include cash and bank balances.
• Personal assets: Things that a person owns, have little resale value, and usually not linked to generation of income. Eg. Car for personal use, jewelry and collectible items.

6. Liabilities:

• Equity or share capital: Money or investment owned by a person/organization in his/its own business
• Outside liabilities: Money that a person or organization owes to others (such as home mortgages, vehicle loans, gold loans)

7. Net worth/Capital: The excess of assets over outside liabilities is called net worth in the case of individuals and capital or equity in the case of business entity. It should be the goal of every person or entity to maximize net worth/capital.

8. Balance sheet: It is a statement in which total assets on a particular date, usually 31^st March or 31^st December of every financial year is shown on right side and total liabilities for the same period are shown on the left side.

The profit or loss account and balance sheet put together are called financial statements. They are prepared to have valuable information regarding income, expenses, profit or loss, assets, liabilities, equity, of a person or organization.  The below are four main elements for the financial growth and success of a person or organization.

Maximize income and have multiple sources of income:

• If you are a salaried employee, improvise yourself with skills and ask for a raise. According to career surveys, many employees don’t negotiate their salary, because they feel uncomfortable asking for more money. Many are also afraid to negotiate salary because of the risk of losing the current job. But this is really a risk, if you are asking for too much, or if the employer feels they can readily replace you with a better or equally qualified candidate. 

Hence before asking for a raise, invest in improving your skills and talents. The more indispensable you are, and the more in-demand your skills, the more money you can negotiate without losing current job.

• If you are a professional or business man, focus on quality. Quality sells whether in the case of products or services. Satisfied customers increase sales through referrals and repeat purchases. Higher quality and a solid reputation allow you to charge higher prices, resulting in higher profits.
• Go above and beyond in work and business. Unsuccessful people have ‘it‘s not my duty’ attitude.  Consequently they are never given more responsibilities, and their salary grows very little from year to year, if at all they keep their jobs. On the contrary, successful people focus on solving other‘s problems and making their life easier, be it colleagues or customers or general public. They make themselves invaluable to their employers or customers, by writing articles or books related to their industry or speaking at industry events. Successful people work harder to achieve the mutual goals of their employers or their businesses.
• Avoid procrastination. Putting off the work for later results in dissatisfied employers, customers and also damages other non-business relationships. Pending work also causes stress and damages mental and physical health.
• Seek a mentor in career or business. If you know your goals, find someone who has already achieved them. Many people would like to share their knowledge and ready to offer a helping hand. They can participate in your growth by teaching you what to do and what not to do. Instead of the proverbial “reinventing the wheel”, learning from their trials and errors is one of the best and least painful ways to become successful.
• Network and volunteer regularly. Most of the committees of charitable organizations are made up of powerful, successful people. If you spend time giving back to the society, you can build valuable relationships with such people that will often result in future business relationships or job prospects. Networking makes it possible to find many jobs even before they’re publicly posted. The chances of being hired by an organization are more through referral from its employees or business partners. Don’t wait until you’ve lost your job or business, because most people try to stay away from unsuccessful and broken candidates. Make networking and volunteering a part of your daily or weekly schedule.
• Below are seven common multiple sources of income:
  • Earned income through salary for actively working in a job or professional fees received for providing services. This source has time constraint because an individual can only work limited 8-12 hours in a day.
  • Business profits: Unlike earned income, this source has higher money potential because a business owner can leverage the working hours of many employees.
  • Interest income on money lent through savings account or deposits
  • Dividends on holding shares and chits
  • Rental income from letting out apartments or buildings
  • Capital gains on sale of investments such as shares, land
  • Royalty income: Create a book, blog, business idea or anything that you can offer to others on a pay per use licensing model
• Minimize expenses
  1. Write down all of your expenses: How many times do you hand over ten rupees for something and think, “Oh, it’s only ten rupees,” and then repeat the same process every day for a month. Keep note of every rupee you’re spending. You can then see where to cut expenses in the future.
  2. Stick to a shopping list: Before you go to the super market, prepare a list of needed things and stick to the list. This is especially helpful for impulsive buyers. Many customers go out to buy one item and come home with a bag of five or ten items. They probably do not need half of those extra things, but end up buying them anyway.  Sometimes shopkeepers induce customers into buying unnecessary stuff. A shopping list gives you a clear idea of what you need and eliminates impulsive purchases.
  3. Avoid temptation to imitate rich neighbours. The temptation to live grandiosely and beyond our means is influenced by factors such as TV, magazines, friends, colleagues and family members. The problem is that overspending often leads to debt accumulation, under saving and long-term financial insecurity. Also avoid the temptation to show off wealth.
  4. Use public transportation or bicycle or walk, to the extent possible: If you have access to public transportation such as city bus or local train, you can save a lot of money on fuel, parking, and maintenance over time.
  5. Carpool: This is a method in which you can share a ride to and from work with someone else. Thus you can significantly reduce wear and tear on your vehicle and save on fuel.
  6. Look for inexpensive entertainment options: You can take advantage of your city library instead of buying several books and magazines. You can also attend local community events such as music festivals and art exhibitions. 
  7. Cancel unread newspaper and magazine subscriptions: If you get a magazine or newspaper in the mail but simply don’t read it, cancel that subscription when it comes up for renewal without a second thought. An unread subscription is nothing more than expensive garbage sitting around.
  8. Exercise away from gyms: Instead of paying for a monthly gym membership, consider working out at home using simple equipment or walk in parks.
  9. Don’t buy cheap products: Cheap products don’t last long and hence a consumer has to keep buying replacements. Hence the adage “we are not rich to buy cheap stuff”. While shopping for a product or service, always look for the best quality, not lowest price.
  10. Never buy in a hurry and compare prices in several shops or online. Stay away from pushy salesmen who offer discounts for immediate purchase or pressurize with artificial ‘last day sales’. Most of them have only their targets and commissions in mind, but not the best interests of customers.
  11. For one time events or projects, borrow, instead of buying. You’ll most likely be able to find someone in your circle possessing the equipment
  12. Prepare your own meals at home: When you cook at home, make a lot of whatever you’re preparing so that you can freeze some of it for future meals. You can also take some leftovers as lunch to work.
  13. Reduce or eliminate eating out or getting parcels: Dining out and parcels can be a nice luxury and huge time-saver for a busy family, but they are very expensive and also unhealthy. Instead, look at other options to make eating at home more pleasant by trying new varieties that you can find on online.
  14. Buy non-perishable items (such as soap and shampoo) in bulk and also use coupons. Many people never even bother to look at some of the larger packages of non-perishable items. They think it’s too expensive or take lot of space. Try looking at the cost per unit of all of the sizes and choose the one that’s the best deal.
  15. Carry a water bottle always: Drinking water is not only a great way to stay healthy, but it can also help you save money. Many people, when thirsty, consume at lot of snacks and beverages, but nothing can quench thirst like water. Skip cool drinks and even bottled water sold in shops, and instead use water taken from home. 
  16. Turn off the electricity: Any time you leave a room or leave the house, double-check that you’ve turned off the lights and fans. In addition to turning out the lights and fans, be sure to also unplug unused electronics. Older devices and cable boxes can drain a lot of energy if left plugged in, even when they’re not being used.
  17. Take care of your teeth: Brush your teeth twice a day and don’t forget to floss and rinse with mouthwash. If you don’t take care of your teeth now, you’ll pay the price in expensive dental bills years down the line.
  18. Exercise regularly, follow healthy diet and get annual health check-ups: Following these tips will save you from costly medicines, injections and operations down the line.
• Control debts

1. Recognize good and bad debts: As many people are afraid of, all debts are not bad. Good debts typically carry low interest rates, give tax deductions and either creates an income source or investment that grows in value. Below are three common types of good debt:

i) Student loans for higher education

ii) Housing loans for construction of house

iii) Business loans for new business start-up or expansion

Bad debts typically carry high interest rates, give no tax deductions and neither creates income source nor investment that grows in value. They are usually paying for things you ‘want’ instead of really ‘need’. Below are three main types of bad debts.

1. Credit Card Debt: If the credit card dues are always paid in full by due date, this debt can be a strategy of building credit history. But most people pay only minimum due and the remaining balance carries very high interest rates of 24-36% per year.
2. Loans from private parties: Loans taken from private people usually carry very high interest rates. The installment repayment is entirely applied only towards interest component leaving the principal component intact. Thus it is impossible to get out of debt trap.
3. Consumer Loan Debt: Consumer loan debt, taken for purchase of house hold appliances such as television, refrigerator, washing machine, expensive vehicles also carry high interest rates.

Once you know each type of debt and their interest rates, you can begin to pay off debt quickly. Focus on paying off bad debt first, especially those with the highest interest rates.

2. Housing loan: If you intend to reside for less than five years in a city, renting the house is economical. But if you intend to reside permanently in a given city, then the economics and emotions of buying own house are always better. Banks gladly come forward to lend housing loans at low rates of interest, because it is a priority sector and also secured by property.

3. Often friends and relatives ask for surety or guarantee signatures. If they fail to repay the loan, the person signing surety or guarantee is liable to pay and may end up losing all his wealth. Hence it’s better to stay away from signing sureties and guarantees.

• Invest wisely/accumulate assets

1. The first sound principle of investment is security for recovery of the principal. Protect your money from unsafe schemes, which promise unreasonably high rates or return. Often friends and relatives naively enter into such schemes and goad others to follow. Consult with auditors or financial advisors before venturing into them.

2. Understand risk and return: Usually, when there is more possibility that we may not get the invested money back, the returns also should be higher to compensate higher risk. Following the same logic, the returns are lesser for secured investments. For example, refund of money kept in banks is guaranteed by RBI and hence the interest rates are very less. On the contrary, deposits kept in private financial entities may not have such guarantee and hence they offer higher interest rates to attract customers. Thus risk and return have inverse relationship.

3. Liquid and illiquid assets: Liquidity means having ready cash on hand to meet financial obligations. Liquid assets usually are cash or bank balances and property that can immediately be converted into cash without substantial loss in value. Illiquid or fixed assets are possessions of value that are held long-term, such as land, buildings, equipment, vehicles and so on.

4. Diversify investments: As per wise saying ‘don’t put all eggs in one basket’, diversify investments to balance liquidity, risk and returns, according to your immediate and future cash requirements.

5. Often friends and relatives ask for huge amounts of hand loans. If they cannot repay it, both money and relationships are lost. Hence only small amounts (that can be afforded to be lost) should be given as assistance. If big amounts are solicited it is better to politely say ‘no’ for such lending.

6. As per wise saying ‘hope for the best and prepare for the worst’ you must be ready to face unexpected events in life. Plan accordingly with life insurance, health insurance, vehicle insurance and so on. Get annual health tests so that deadly diseases can be diagnosed and cured without being burden to family members. Make sure vehicle is in good condition through proper maintenance.

7. If you are self-employed, invest in a regular pension fund.

8. Plan to keep aside six months of living expenses in an emergency fund in case you are fired from job or your business goes belly-up.

9. As soon you start earning money and has assets, it is better to write a will with the help of a lawyer.

10. If you are interested in share market, hold shares forever or for longer periods and never indulge in day trading etc. Tax rates are higher for short term capital gains than long term capital gains. Besides, in selling and buying shares frequently, brokerage commissions eat up capital gains.

11. Never gamble: A major percent of those who struggle financially play the lottery or cards. Wealthy people do not rely on random good luck to generate income or build wealth. They create their own good luck through smart choices and hard work. If you still want to play for fun, use money from your entertainment budget and make sure you don‘t get addicted to gambling.

12. Accumulate assets that result in generation of income and also have resale value.

Review your financials periodically for ways to maximize income and assets and to minimize expenses and debts. Take stock of your friends and relations. Dump the toxic people that suck your strength financially and emotionally. Implementing these principles is a sure path to financial growth and success of any person.

Eliminate ‘bad luck’ from your dictionary.  Many unsuccessful people have a way of creating bad luck for themselves. It‘s a by-product of their poverty habits. Instead of accepting responsibilities for mistakes and learn lessons, they blame stars or times for their failures. They believe in lucky stones, numerology and all such superstitions. They either forever wait for the right time to start a new venture or simply carryout their daily routine without any significant improvement. Poverty habits, repeated over and over are like minor defects in a car. In time, these defects build up until the total breakdown – a preventable health problem, a lost job, a broken business deal or fallen business empire or total bankruptcy.

Conversely, successful people know that luck is the moment where opportunity meets preparation.  Their positive habits lead to opportunities such as new job prospects, promotions, bonuses, new business deals and so on. Make it a habit to record your financial transactions daily and review it on a weekly and annual basis. Old habits die hard, and hence keep in mind that it may take some time before you start seeing major impact from your financial planning. Be patient and keep your financial success in mind.