Recently my father got a copy of a book for children about Money.  Here is what I learnt from that book and I thought it will be useful for all of us to know a little about Money. So here are some important concepts about money:

Saving:
Saving money is very important. We should save money because if one day suddenly we need money we will have it with us. If we just keep on spending all the money that we get and one day we need money we will not know what to do.
I am also saving all my pocket money because I might need it in future. I have kept it in a bank account and I get interest on that every year.

Tax:
As we all know that Government pays money for various things we should never spoil those things as Government takes money from our parents in the form of tax. All those people who get regular salary have to pay tax. When we buy a movie ticket half of the money that we pay goes to the government. This is called Entertainment tax.

Investing:
Investing makes our money grow. Just as a plant grows from a seed to a plant. When we keep our money in a savings bank we get interest but if we will invest our money in fixed deposits, shares, mutual funds, public provident funds, etc. our money will grow from a small amount to a big amount faster. Real money takes more time to grow whereas a plant grows within weeks.

Insurance:
Insurance protects you from spending a big amount on medical treatment, repairs, etc. Today if I am spending a small amount on a helmet, kneepad, arm-pads, etc. this will help me in being safe while skating. I will not have to spend a big amount on medical treatment. And if I fall ill the insurance company will pay the hospital bill. This way I  and my family are spending lesser money from our pockets.

Prize Money:
We should treat our prize money just like our pocket money, because that also we have earned by working hard. We should save that money and not waste it on unwanted things. A part of the money we should spend on something fun like ice-cream and the balance we should put in our piggy bank or the savings bank account.

Banking:
We keep our money in the bank so that it is safe. The bank gives us a passbook in which we can see how much money we have deposited and how much money we have withdrawn. For using our money the bank pays us interest – this is also added to our total amount. Last time I saw there was an additional Rs. 314 interest in my savings bank account.

Credit Card:

When we are in a shop and we do not have cash with us we can buy things by using our credit card. The shop-keeper will let us take the goods because he will get the payment from the bank which has given us the credit card. However we have to make the payment to the bank after a few days when the bank asks us to make the payment. If we do not make the payment before the due date, we will have to pay interest on the amount that is due.

—end of Mridula’s article——

comments from kids more welcome than from adults -subramanyam

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Who can become a builder, who can become a broker, how much brokerage to charge, should prices be quoted for built up, super built up….NOTHING is even documented forget being regulated. You could go and look for a flat for Rs. 1.3 crores. On finalizing the flat you realize that the ‘other charges’ – loading, brokerage, stamp duty, parking charges, etc. etc. add upto Rs. 15 lakhs – about 12% of the so called ‘price’ of the house.

At least some of these costs are available upfront, while some of the costs is just a guess – like loading. Sometimes the neigbhouring building also seems to be in the loading – at least in big Indian villages like Mumbai.

The other real cost is the interest cost – let us say you borrowed the full Rs. 1.3 crores + the stamp duty + the life insurance charges – after all you want your wife to inherit only the home, not the home loan as the SBI life advertisement tells you! If you repay this as an EMI – for 20 years, the true cost of your house is Rs. 2.6 crores (without considering the regular maintenance and tear and wear that would have happened).

However if a person sells this house after 27 years, he will tell his friends “I bought this house for Rs. 1.3 crores (remembering the brokers words) and now I have sold this house for Rs. 4 crores – it is a 3 bagger in 27 years. I wish I had bought one more flat”. Mathematically I leave it to you to calculate the profits, and find out the IRR.

Amar Pandit has written a nice article in rediff.com about the list of ‘charges’ while doing a real estate deal. It is worth reading while finalising your house purchase.

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