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10 Commandments for Financial Freedom

The book works as a guide to solve the problem of lack of knowledge about money and the journey towards financial freedom

Dolly Mirchandani / 10:18, 02-Apr-13

Title: 10 Commandments for Financial Freedom

Author: Mehrab Irani

Pages: 376

Price: Rs. 395

Publisher: Vision Books

Everybody in the world wants to gain freedom from the shackles of their money problems. There are various books published on personal finance providing loads of information to us. They are so many books to choose from that eventually you may walk away without buying one. Most of these books contain many difficult financial terms which are difficult for a lay reader to understand. Only a few books aim to explain the concept of personal finance in lucid detail.

One of them is Mehrab Irani’s, “10 Commandments for Financial Freedom”. There is no secret formula to become rich but the 10 commandments enumerated in the book comprise the essential elements of earning, protecting, budgeting, spending, saving, leveraging, investing and insuring money.

Irani has around 13 years of experience in investment banking, research and fund management. He has used his first hand industry experience to provide insights on how to attain financial independence. The book is all about each asset class that an investor in India owns. It also explains the various finer aspects of these assets classes to give a better understanding. 

The book doesn’t teach you how to earn money although it will tells you the most efficient ways of doing so. It makes the readers understand the various stages of dealing with money and how they can reach the stage of financial freedom. There are 14 chapters in the book which are described as “Commandments”.

The “Commandment 1” stresses on the importance of asset allocation. It states asset allocation is “nine times” more important than market timing or individual stock selection. Instead of wasting time, money and energy scanning through various finance and investment journals, analyst reports, business news channels, etc, investors need to be wise and simply concentrate on their asset allocation plan. The Commandment points out why asset allocation is the most important factor in determining superior long term risk adjusted returns.

According to the author, the process of asset allocation is quite simple and simple things always work far better than complex theories and algorithms. By thinking about too many complicated and impractical solutions, people actually underestimate the power of simple, logical and correct solutions. Investors have to make proper asset allocation plan which will depend on their current income, tax status, current expenses, future requirements, children’s education and their wedding. Investors should also “rebalance” their investment portfolio to regain their original asset allocation.

Various financial terms—such as discounted cash flow, beta, cash flow deficit, yield curve, etc—are explained in great detail in the book to make them comprehensive for the lay readers. The book also includes important historical perspectives related to equities, bonds, gold and currency markets along with examples. The self-understanding questionnaire at the end of each commandment helps the readers to check their understanding of the principles explained in the commandments. Irani also makes references to many financial experts like Merton Miller, Rex Sinquefield, Bethany McLean, John Bogle, Nicholas Taleb and Warren Buffett among others.

The “Commandment 5” deals with the principles which one needs to understand invest profitably in the stock market and fixed income securities. It discusses in great detail the various factors such as economic, monetary, fundamental, technical and psychological factors. The essential thing to understand is that investing in equities is not actually risky over the long term; it is the volatility over the short term which makes it appear risky. It seeks to remove various myths which you might have had about equities while at the same time makes the readers psychologically equipped to be a successful equity investor.

The “Commandment 6”, emphasizes never fall into a debt trap because it is really difficult to come out of one unscathed. It explains how to unleash the power of positive leverage. It deals with the myth that leverage is risky by explaining the difference between positive and negative leverage and how one can use the power of positive leverage to create investment assets out of thin air which provide positive net cash flow after tax.

The “Commandment 7” opens a startling truth that our house in not an investment asset but a “bad capital” asset because it takes money from your pocket in the form of property tax, maintenance, utility bills and other charges. However, people still need to own one to avoid unnecessary expense of paying rent. The best time to buy your house would be just before the peak in interest rates. That’s the time property prices would have come down or stabilized. 

In “Commandment 8”, the author says some amount of speculative items are necessary in our financial portfolio to comply with proper asset allocation. However, one should not over invest in speculative items.

All the 10 Commandments explain the important points on how to manage your hard-earned money. This book works as a guide to solve the problem of lack of knowledge about money and the journey towards financial freedom. The book aims to free everybody from their money problems through financial education. It is equally useful for both to a seasoned investor and an individual investor.

About the author

Mehrab Irani is General Manager, Investments, with Tata Investment Corporation in Mumbai. He is a qualified chartered accountant, company secretary and CFA (Level I) with rich experience in investment research, portfolio management and investment banking. He has diversified experience of both equity and fixed income markets, including research, dealing and portfolio management. He has been responsible for managing the portfolios of a third party (mutual fund) and also proprietary money (corporate). He has also experience of investing in different categories of mutual funds including equity, fixed income and cash management. He has written numerous articles for many finance and investment journals and online websites. He appears on various business news channels in India.

About Vision Books

Headquartered in India's capital, New Delhi, Vision Books is a medium-sized specialist publisher of books on business and management, investment, stock market, personal finance and tax saving. Other areas of publishing focus include career guidance, politics and current affairs, strategic and defence affairs, select non-fiction books on matters Indian, accessible reference books on India, distinguished fiction, and religion and spirituality, together comprising a list of more than 600 titles.