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Bonds CD Bank Deposits Build First Wealth Part 4

Bonds CD Bank Deposits Build First Wealth Part 4

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Published by Anil Selarka
This is continuation of series "How to Invest into anything?" This part SR04 deals with relatively simpler products like Bank Deposits. However, the important part of this article is to teach the investors how to invest even into bank deposits. The author shows implications of many important process, and also explains in very simple terms what an Individual investor should do in such circumstances. He also explains how the Investor reduces his wealth by using plastic money, and how he can become prosperous by intelligent savings. The author also shows how to use Recurring Deposit to build real wealth with common sense planning. Meanwhile, please read more
This is continuation of series "How to Invest into anything?" This part SR04 deals with relatively simpler products like Bank Deposits. However, the important part of this article is to teach the investors how to invest even into bank deposits. The author shows implications of many important process, and also explains in very simple terms what an Individual investor should do in such circumstances. He also explains how the Investor reduces his wealth by using plastic money, and how he can become prosperous by intelligent savings. The author also shows how to use Recurring Deposit to build real wealth with common sense planning. Meanwhile, please read more

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Published by: Anil Selarka on Aug 22, 2009
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03/29/2012

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 Ref: 0908-031A of 21-08-2009
In the days of Kings, Queens, Sultans, Moguls and Rajahs, there were only two currencydenominator with reference to which a person’s wealth was measured. - Gold and Silver. Otherunits used were the number of sheep’s, goats, horses, cows and buffaloes.However, these objects were relatively scarce, and hindrance to trade development. When paperwas invented, especially Security paper, the concept of bank notes was introduced. It revolutionized the coming century. A time came when Alan Greenspan was spoken of more thanthe Jesus Christ.Having seen the investment medium of Gold (Silver and Palladium will be discussed later), let ussee how a person should build wealth that is liquid, earning and transferable. East and West followed different philosophy, thanks to numbers of Nobel Laureate Economists who inventednumber of theories understood either by them only or some small fraction of so calledprofessionals who brought the financial ruin as you witness today.WEST followed the policy of “Spend first, Save later” and used plastic money (credit or debit cards) with gay abandon. Paper and Plastic were the two numerators of proof of wealth. When Iwent to USA a few years ago, I tried to pay them with greenback, that is, $ 100 green dollar bills somuch loved by the Asians over here. They love dollar more than their wives and children. Thecounter clerk asked me “Sir, don’t you have credit card? We can not accept this note” I asked himfor reasons to which he replied, we do not know whether it is genuine or fake. WOW, we Asians gomad after dollars, and these Americans do not trust their own currency!EAST followed the policy of “Save first, Spend later”, diametrically opposite of western philosophy.This is why Asians prospered, and West was brought down to knees. After contracting debt viacredit card, if the consumer can not pay, the remedy was easy – go bankrupt!Look at the following table, how much consumers gain or lose in following West and East policy.We compare two countries – USA and INDIA for simplicity.Let us say, an American bought a few items for US$ 10,000 via Credit Card, paying interest @ 12%on average (it varies between 7% earlier to 16% to 24% now) for say, 3 years. An Indian saved themoney for 3 years earning 9% interest and then decided to spend it. The cost of the items isworked out as under:
 
Description An American An Indian (not Red Indian)Period of Comparison 36 months 36 mtsItem Cost 10,000.00 10,000.00Immediate Spend 10,000.00 0.00Paid by Credit card10,000.000.00Interest paid for Credit Card or Received onsavings (Debit/Credit)using reducing balance@12%Paid for 3years –EMI 332.141,957.04@9%Receivedfor 3 yearssaving277.78/mth1,517.14Net Item Cost Cost + Int 11,957.04Cost - Int 8,482.86Relative Cost Difference LOSS3,474.18GAIN 3,474.18MORALE:1.
 
If Debt via credit card is used for consumer item, it is irrecoverable expense. The item alsodepreciates over 3 years, so that realizable value also diminishes.2.
 
If no debt is used for consumer items, but savings resources were used instead, the cost of theitem is reduced by interest income on savings.3.
 
Debt is useful for a businessman because he employs the amount for earning. Though he paysinterest, he also earns income or profits. His loss or gain is the difference between the two. It is“two way traffic” for him.4.
 
For an employee, having no other income than salary, he loses on contracting debt, because noincome is created out of debt. It is a “One way street” for him – loss only.This is why the East is asserting on West now. America is technically bankrupt with years of consumer spending financed by Credit cards. Eastern countries like China, India and other Asiannations have acquired wealth due to their reliance on savings rather than debt.
Make your First Million by Savings (very difficult), Subsequent millions are easy.
 Making first million in any currency anywhere in the world is extremely difficult. One makes orloses continuously, learning all the time. The balance so accumulates make the million after longtime, may be 3 to 8 years.Once one has made real one million in the currency of his country, he has sufficiently learnt the art of making a million. If he is able to hold on that million for at least 3 months, making of furthermillions become relatively easy process. There is a saying that “Money attracts More Money”. It works both ways – once one begins to lose, the lost money attracts more money from the holder,compounding the losses. Similarly, when one has made a million, the chances are the money that he holds will attract more money inward to make him rich.So let us make our first million in the currency of your country. A million is a million, regardless of any currency. The PPP or Purchasing Power Parity operates silently in every currency to make theabove idiom true.
Bank Deposits vs. Bonds; Currency Risks, Capital Risk and Exchange Risk 
 Each country has its own products for savings. For instance, it is easy to buy Treasury bonds inUSA, howsoever small amount may be. In a country like India or Hong Kong, the availability of Treasury bond is limited to large amount, often 250,000 minimum. An ordinary saver can not handle such amount. He is not millionaire yet. Now again, I remind you of the difference between“Savings” and “Investment”.

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