Jan 10, 2018 4 min read

Follow This & You’ll Never Fall Short of Finance in Your Life!

Keep some pennies aside to meet the uncertain tomorrow effortlessly.
Hello investors! Today, we want to share one story that entirely explains the best technique which can help you attain financial stability, and you will never fall short of finance. More specifically, it describes one of the accounting conventions, i.e., “The Conservatism Principle of Accounting,” which is the core topic to understand if you want to achieve the required smoothness in your financial life.

However, it is a very basic topic for you if you have a little knowledge of accounting or have gained expertise in finance, we brought this write-up for you to help you relate the same accounting convention with your mutual fund investment habit so that you can attain required financial stability in your life.

The accounting convention, i.e., ‘Conservatism,’ goes like, anticipating no profits, but provide for all possible losses.’ It means that you should not account for any profit which is possible in future, despite the possibility be cent percent. And, you should be prepared to face any possible event which may cause you financial damages, i.e., be ready to bear losses. This principle of accounting helps the accountant to be on the safer side in case of any uncertain events. And, if you try to adopt this habit in your mutual fund investments, then you’ll also get a smoother approach to your investments and attain financial stability. Let’s understand it with the help of the stories of two persons:

The Story of Careless Kid: A 35-year-old, Mr. Kid, is a well-settled person and earns a healthy income from his business. He is a jolly person and enjoys life to the fullest with whatever he earns. Due to his jolly nature, he is always positive. Although it’s a good thing, when it comes to financial matters, being positive is not the solution. He always used to be happy whenever he was to receive any income in any face. But he used to ignore the probable losses. He says, “why should I cry for the loss that not yet has happened, rather I should enjoy the payment which I am going to receive tomorrow.” This habit often puts him in tough situations in the times of sudden requirement of funds. In any such cases of emergency funds requirement, he has nothing to contribute in his hand.

The Story of Sensible Sid: Again, a 35-year-old, Mr. Sid, a well-settled person who is earning healthy income to meet his requirements. He is sensible and spends his money only for the required articles. He save a portion of his income and invest in some suitable schemes. Moreover, being a sensible one, he puts the probable losses in the priority and not the possible incomes. He keeps an account of all the losses and saves some money for emergencies. He used to say, “To maintain the stability in my financial life, I should not get excited about the future profits which are accrual, rather I should be prepared to meet the possible losses.” This habit always helps him to meet all the financial emergency cases, and his life thus goes stable without any hindrances.

So, from the above two stories of Mr. Kid and Mr. Sid, the latter one is smarter as he has maintained his financial life smoothly and is prepared to meet future consequences. The former one is doing as what his name suggests, ‘careless kid.’ He is really careless and ignorant toward his future financial conditions. He is simply enjoying the life today and have no plans to support his future financially.

This is nothing, but a simple rule of general accounting which helps the accountant to be on a safer side to meet the cases of emergencies. According to this rule, one must be cautious about all losses which are likely to happen in the future, doesn’t matter how you are celebrating for the accrued income that is going to be cashed next month. In a very general way, it is when you count on any possible income and later on, you don’t actually receive it for any reason. Not a big deal, you will be sad for a day or two. But, when you account for your possible losses and are prepared to face them financially, you can beat the emergency crisis smoothly.

What is more important to you? Compromise your small requirements now to maintain the financial stability, or enjoy life today and face difficulties later. If you choose the former one, then congratulations as you have understood the importance of financial stability. Managing a financial stability in life is important for all the individual. Following this rule of general accounting, you will remain financially strong during the cases of emergencies and can lead a stable life.

Start SIP online

To maintain this stability more effectively, you can start online mutual fund investment plan with us at MySIPonline. Keep your small savings in our Smart Savings Account and let them grow. You can access your Smart Savings Account at any point in time and can redeem your money whenever you require them.