Instead of just keeping money in a bank account, why not invest it? Investing money is not as complicated as some people make it out to be.

Every year, inflation reduces the value of your savings (At the rate of~6% per year). If your money is left in a savings account, it earns just about 4% interest and loses value every year on account of inflation. In order to create wealth you should look for options to nullify the effect of inflation on your money.

So, are you saving enough to invest?

Aim to save at least 20% of your income every month in order to make desirable investments.

Calculate your budget for expenses by using this formula:

Expenses = Income – Savings (take out a certain portion as savings before you spend)

If you earn Rs 30,000, then the budget allocated for expenses should be Rs 24,000 (after deducting Rs 6000 for savings and investments) and then spend accordingly.

Do you have an Emergency Fund?

Create a liquid fund which is easily accessible only at the time of an emergency.

Your emergency fund should = 3 to 6 times your monthly expenses. You can keep this money safe in a mix of Fixed Deposits (FDs) and/or Liquid Mutual Funds.

Do you have TERM Insurance?

Do not think of insurance as an investment, especially products like Endowment Plans, ULIPs etc. Term insurance is the cheapest and most effective form of insurance. If you have dependants (e.g. old parents, or children) a term insurance policy will give them a large sum of money in case of your demise. An ideal cover should range between 10 to 20 times of your annual income.

Are you saving for your Retirement?

Start investing for the golden years of your life from the day you get your first pay check. A long term investment would yield great benefits. Begin the process by investing at least 5-10% of your income every month. Invest in Equity Mutual Funds via monthly SIPs and continue to invest till you are 5 to 10 years away from retirement.

Have you identified your Financial Goals?

Everybody wants to be rich, but not everybody is ready to work towards creating wealth. Set targets for yourself and you will be able to create significant wealth if you start investing with a plan.

Narrow down your goals and identify the cost and the time it will take to achieve them.

Start small and increase your investments as your income increases.

Create a Diversified Portfolio

Never put all your money in one asset class. They are divided in 4 primary categories:

  • Equity – Volatile but potentially high returns over long term
  • Debt – Includes FDs, Bonds, PPF etc – Stable but with lower returns
  • Real Estate – Land, Residential, Commercial property
  • Commodities – Stuff such as Gold, Silver etc

Diversified investments protect your portfolio and enable growth which would negate the effects of inflation. Start small by investing in Equity, ideally through SIPs in Equity Mutual Funds. You can invest directly into stocks once you are more adept in understanding the market.

Have you made Tax Saving Investments?

Savings in tax after investing is almost akin to free money. Take the maximum possible advantage of this.

Insurance Premiums, ELSS Mutual Funds, PF/PPF are some tools covered under Section 80c through which you can save on taxes. Saving tax after investing is as good as easy tax free money.

If you are in the 10% tax bracket, you can save almost Rs 15,000. If you are in the 30% tax bracket, you can save almost Rs 45,000. If you have a house or educational loan, you can get additional benefits.

It’s time you make the best use of your money.

Are you making these Financial Blunders?

Leaving money idle in a Savings Account – it is merely a prey to inflation.

Investing using borrowed money (especially to buy stocks)

Buying Insurance as an investment (They usually have low returns + long lock-in periods)

Trusting a sales/bank agent’s verbal pitch – (Get it in writing)

Chasing unrealistic high returns – Chase a target to meet your goals

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