Once a boy was gifted Rs. 500 on his birthday by his grandmother. He happily made plans about spending it in all ways imaginable by a 10-year kid. But his mother explained to him the importance of saving over spending. She bought him a piggy bank to start his savings journey and it was soon full of notes and coins. His mother then encouraged him to put it all in a savings account opened for him, although operated by her. That’s how the boy developed the habit of saving.
We spend a lot of time and energy in increasing income. It is important to learn and master the art of spending along with judicious saving and prudent investing to build a promising future for ourselves and families. So, following are some steps can help us to be a smart investor:.
Budget plays a main role in managing our finances. It helps in managing cash flows, short-term dues and achieving long-term goals. It is important to have a budget that includes regular spends and even discretionary spends. It brings financial discipline and leaves us with surplus which is then used for investing.
Once we have a sense of surplus, it’s important to lay down what will be our financial requirements in the future. Planning future goals leads the way to achieving them. It essentially entails ensuring that today’s surpluses grow to provide for future needs and wants.
After having planned for goals, next comes Investing. The goals along with risk appetite and time horizon will help to determine where we can invest. You can invest in various mutual fund schemes depending upon your risk profile & time horizon. Generally, younger people should invest aggressively, and older people should invest conservatively. The goal is to choose a basket of securities to reduce the risk of your portfolio.
A practice that can catapult into long term wealth generation is to save & invest first and then spend. It can be done conveniently with the help of a Systematic Investment Plan (SIP). We should keep SIP instalment date at the beginning of the month, not as a compulsion but something that provides us with the freedom to spend the rest of money without being guilty of not saving.
Saving for emergencies is as important as Investing for the long term. It provides a cushioning effect in the situations of extreme emergencies that you have no control over, like a major illness or losing a job. The emergency corpus should be at least equal to your 3 to 6 months’ salary and invested in liquid assets.
The 10-year-old learnt many lessons about money & savings and aimed to fund his college tuition fees all by himself. His savings may be small, but an early start gives him the head start to achieve his dream. This Savings Day, take the pledge to Start Small but Start Early.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.