Savings and Investments

Dear Friends, in the last article we have geared up to multiply our hard earned fortune.  We tried to throw away the negative mindset and tried to look forward positively towards building the prosperous future.  How much you are earning is not so important. How do you plan your finance is the most important and interesting thing. Believe me! Big fortunes made by really successful peoples do not depends upon how much they have earned, but it depends upon how they have earned. It includes planning, planning and planning, planning of money, planning of time etc. In the previous article we have tried to set the goals and spending 50% of your earning. In this article we will try to plan how to save and invest remaining 50% of your income.

Prepare for an eleventh hour

1. Your life is the most precious life on this earth [at least for your family]

Before starting any kind of saving and investment, first insure your life. I don’t want my family bare the heat and suffer in case of my death. I want to secure my families future after me. They will require the money for their survival. So it is great idea to insure your life first. There are many insurers in the market. Compare various life insurance products from various companies and try to get the best insurance policy.

2. Life is a roller-coaster ride

Life is not bed of rose; it is full of ups and downs. So prepare yourself for any kind of unforeseen unexpected scenario. You and your family may require huge amount of money in case of emergency like accidents and hospitalization. If you are not prepared, your hard earned money may get disappear very soon. In such emergency, you don’t even have any option rather than spending money on hospitalization and medication. Here, you can not say NO. You want to save your family or your family wants to save you. No option than spending money. Are you prepared for such unforeseen scenario? If not, then you should do this now. Buy some good mediclaim policy or health insurance policy. There are many insurers in the market. Compare various health insurance products or mediclaim policies from various companies and try to get the best insurance policy. In case of emergency, your insurer will pay the bills of hospitalization and medication. Covers and facilities which you will be getting depend upon the premium you are paying, and what riders you are taking.

Again which is the best mediclaim policy or which is the best life insurance policy is the out of the scope of this article, and I am really not an expert to advice on them. I am not even going in to detailed description, advantages and disadvantages of life insurance policies or health insurance policies. I am just trying to make you aware how important it is. I hope you understand the need of having such policies. Start with it.

Once you secure yours as well as your loved ones lives, you can play on a front-foot, with out any risk, as you have already covered the various risks. Now you don’t have to worry about money which may require in any unforeseen case.

After following above very important steps, you can move ahead with other savings and investments.

Saving is the best Earning!

Really! If you start savings early, very soon you will feel that you have considerable amount of corpus, which in turns can build better prospects for you in future. You can use this corpus whenever you will find any opportunity.  Always many of you must have experienced that there is good opportunity coming along but you don’t have money in hand at that time. If you start savings early, you can use the accumulated corpus whenever any opportunity comes across. So it is 100% true that – Saving is the best Earning.

Before going further, please refer the warning given below. If you bypass these warning, you may very soon loose your fortune.

1. Stay away from borrowing

Borrowing a loan is not at all recommended, so please strictly try to stay away from borrowing money. How can you enjoy on borrowed money? If you know this money is not yours, and you have to give it back with interest, can you live happily under this burden? I can’t. And I am sure you also can’t. Am I right?  So it is not at all advisable to buy joys and fun on others money. Control your heart. [In some genuine cases you can think on borrowing loan like Home Loans and Education Loans, as the interest rate may be quiet low as compare to other loans like personal loans. We will discuss later on this.]

2. Control the use of your credit/ATM cards.

Few decades ago, people used to shop occasionally or as per requirement. They used to go to market only when they fill the genuine requirement of any particular thing. But now the scenario has changed a lot. Today, Credit Cards and ATM cards plays an important role in your life. You fill disabled if you don’t have card in your pocket. Am I right? As we have cards in our pocket, and there are lots of retail markets and shopping malls everywhere, we hardly came with empty hands from the mall even if you are not in any urgent need. I am sure you also think the same. Don’t worry! You can use card while spending money and we have talked about this in last article. This article is about saving money and not about spending! Again control your hard. If you can control, you can carry multiple cards in your pocket.

Remember! Warren Buffet still stays in his 3 bedroom flat and he doesn’t have mobile in his pocket. He owns a Berkshire Hathaway, one of the topmost fortune companies. 

Now let’s talk about various saving and investment ways. 

Your investments and savings should be broadly classified in to the following. There may be other options and sub-options, but following are the major options.

Bank and Post Office Saving Schemes
Bank and Post Office Fixed deposits
Corporate Bonds
Govt. Securities

Precious metals like Gold and Silver
Mutual funds
Equity
And last but not the least Land and House Property

Explanation and description of above terminologies is out of the scope of this article, and I don’t think that these are new terminologies. Everyone knows about these terms. The purpose of this article is just to suggest diversification in your savings and investments. Well balanced savings and investments portfolio is the key to create the wealth in a long run.

Let’s see an example of your monthly salary break up

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Total In Hand Salary: 20000.0/Month
====================================================
Self Expenditure: 10000.0/Month
====================================================
Savings and Investments         : 10000.0/Month

Savings and Investments Distributed as follows:
Pension Plan: 2000.0
Life Insurance: 2000.0
Health Insurance: 1000.0
RD: 0.0
FD: 2000.0
Saving Certificates: 0.0
Mutual Funds: 1000.0
Equity: 1000.0
Gold: 1000.0
====================================================
  
If you see the monthly break up, it is not so difficult as you have already taken 50% for expenditure. If you do it continuously for 1 year, see below.
  
====================================================
Total In Hand Salary: 240000.0/Year
====================================================
Self Expenditure: 120000.0/Year
====================================================
Savings and Investments         : 120000.0/Year

Savings and Investments Distributed as follows:
Pension Plan: 24000.0
Life Insurance: 24000.0
Health Insurance: 12000.0
RD: 0.0
FD: 24000.0
Saving Certificates: 0.0
Mutual Funds: 12000.0
Equity: 12000.0
Gold: 12000.0
====================================================

Do you see? By the end of the year you have good investments and savings, and well diversified in various options. I can
see smile on your face.
  
Now if you do it continuously for 5 years, what will happen, let’s see below. 
====================================================
Total In Hand Salary: 1200000.0
====================================================
Self Expenditure: 600000.0
====================================================
Savings and Investments         : 600000.0

Savings and Investments Distributed as follows:
Pension Plan: 120000.0
Life Insurance: 120000.0
Health Insurance: 60000.0
RD: 0.0
FD: 120000.0
Saving Certificates: 0.0
Mutual Funds: 60000.0
Equity: 60000.0
Gold: 60000.0
====================================================
  
Now for 20 years 
====================================================
Total In Hand Salary: 4800000.0
====================================================
Self Expenditure: 2400000.0
====================================================
Savings and Investments         : 2400000.0

Savings and Investments Distributed as follows:
Pension Plan: 480000.0
Life Insurance: 480000.0
Health Insurance: 240000.0
RD: 0.0
FD: 480000.0
Saving Certificates: 0.0
Mutual Funds: 240000.0
Equity: 240000.0
Gold: 240000.0
====================================================

So now you have good reserves of savings and investments. I can hear your great laugh. The values shown are just the spent and invested money in the span of 20 years. We have not considered the added credited interests on your deposits which go on compounding every year; we have not considered the dividends and bonuses which you will be getting on your equity and mutual funds. Very important thing is your monthly income is also going to be increase year after year. We have considered just 20,000/Month.

In the next articles, we will see the various aspects which we have not considered by some more examples. Till then good
bye.