Save It And Grow It Smartly!
If you expect that this article will make you a millionaire without working hard, without earning or saving anything then you are at the wrong place. But if you are like those people who are disciplined and can save at least Rs.500/- per month then today by the end of this article you will know exactly what to do to make your money grow.
So it doesn’t matter if you can save Rs.500, Rs.5000 or Rs.50,000 per month because in today’s article we are going to see.
#1: The top 5 investment options.
#2: How to pick the BEST investment option according to you.
#3: But most importantly, towards the end, I’ll give you a Bonus Tip which is the number one rule to make your money grow.
Let’s begin. To really understand what will happen to your money, let’s analyse each investment option based on these 3 parameters.
- Liquidity: Suppose you have an emergency and need money right away. How easily can you get your money back from that investment is called liquidity.
- Risk: It is the possibility that you’ll lose your money.
- Returns: i.e. how much can your money grow. Let me give you an example. All of us like to save money in the form of cash. Cash’s liquidity is high because when you need it, it’s right there. Risk is low. It’s not zero because somebody can still steal your cash. And returns are negative. See, if you leave your cash in your locker or under your mattress then it is not going to grow. Prices of items will increase, inflation will happen but your cash will remain the same which is why, returns of cash is negative. Understood?
With that understanding, let’s now analyse the following 5 investment options.
1. Savings Account
A savings account is a basic bank account that allows you to deposit money and withdraw money all while earning interest. It is very easy to withdraw money from a bank but because of that, we often get tempted to spend which is why with a savings account, long-term investments become a challenge. Liquidity is high because you can take out your money any time you want. But every bank has a set number of financial transactions you can do per day. Risk is zero. Your money is safe with the bank if you pick a trusted bank. But returns are low. SBI gives an interest rate of 3.25% to 3.5% on Savings Account. Now, how to invest? Just chose a bank that you like or trust the most, walk-in to their branch that’s near you and they’ll help you open your Savings Account.
2. Fixed Deposit
A Fixed Deposit is when you give a certain amount to a bank for a fixed period i.e. I am not going to touch this money until this period ends and in return you will get higher interest rate than a regular savings account. For example, SBI FD interest rates range between 4.5% to 6.25%, depending on how long are you giving your money for. Are you giving it for 7 days, 3 years or 10 years? Higher the tenure, higher the interest you will get. Now coming to the parameters. Liquidity is medium because there are some banks that don’t allow you to liquidate your FD online. Plus, if you withdraw your money before your maturity ends then you have to pay a penalty fee. Risk is zero. The bank has to return back all of your money after your maturity ends along with the interest. Returns are low. It is between 4.5% to 7% depending on the bank and how long are you giving your money for. But the main problem with FDs is tracking. Suppose, one month you can save Rs. 1000/- and another month you can save Rs. 2000/- then you have to start 2 new FDs.
So every time you save, you have to start a new FD and it becomes difficult to track all of these FDs. But to tackle this problem, we have something called Recurring Deposit. Suppose you can save Rs. 3000/- per month. So, Rs. 3000/- every month will go to that deposit. So there is just one Recurring Deposit that you need to maintain. But again, if you miss your monthly installments with Recurring Deposit then you will need to pay a penalty fee. Even though your money will be safe, the problem with FDs is the penalties you have to pay if you withdraw your amount before maturity or if you miss your monthly installments. Now, how to invest? If you are okay with these drawbacks then all you need to do to set up an FD is to use net-banking or just walk-in to your bank branch.
3. Health Insurance
Okay. So this is not a typical investment option, but it kinda is. Here’s how. Life is unpredictable. Tomorrow, if God-forbid you meet with an accident or are recovering from an ailment then the hospital bills are going to be crazy. In such a scenario, you don’t want to beg for money and spend the rest of your life in debts which is why, a health insurance becomes very important. The risk is zero and the returns are enormous because it can save your life or it can save you from debt. All you have to do is pay Rs. 4000/- to Rs. 8000/- every year and in return, you will be insured a sum of Rs. 2-5 Lakh to pay your medical bills depending on the policy you take.
Now, how to invest? There are multiple websites like PolicyBazaar, Coverfox etc… that will help you compare health insurances so that you pick the best health insurance according to you. All you have to do is call the executive and they’ll come to your office or your house to get the registration done.
If you are like me then you’ve stayed away from Stock Market most of your life, thinking.. ‘But I am not a CA, what if I lose my money?’ And you are right. Some people have lost everything in the Stock Market but it has also made some people very rich. Stock Market as the name suggests is a market where you can buy and sell shares of publicly held companies. It will be your job to analyse which company might do well in the future and then place your bet by buying the shares of that company. So the risk associated with stock market is high because if your analysis is wrong and the company does bad then you can lose your money.
Liquidity is medium because it will take around 2-3 business days to get your money back. But the returns can also be high. Warren Buffett, the 3rd richest man in the world has generated his wealth by investing in Stock Market, long-term. It is difficult for me to explain all of this in such a short article which is why I have made 3 separate articles about what is Stock Market for beginners. So if you want to make money in the Stock Market then I’ve left the links of the articles in the description. Do check them out.
5. Mutual Funds
We just discussed that Stock Market is a one-person show where you have to make all the decisions. But Mutual Fund is a team-work because a Mutual Fund collects money from people like us. Rs. 500/- from me, Rs. 500/- from you and creates a money pool. A fund manager then uses this pool to invest in stocks, bonds and other assets. We don’t have to worry about where it is being invested because the fund manager takes care of all of it for a commission of 0.05% to 2%. You can invest in it one-time or start a SIP (Systematic Investment Plan) where you can transfer a fixed amount to the mutual fund every week, every month or every quarter…your wish. There are a whole lot of mutual funds. Some are good for short-term investments and some are good for long-term investments which is why the liquidity ranges from medium to high because in general it will take 1-3 business days for you to get your money back but if you invest in Liquid Mutual Funds then you will get your money back instantly.
Relax! I will tell you what a Liquid Mutual Fund is, in a minute. Risk. Mutual Funds are subject to market-risk, please read the offer document carefully before investing…is correct. There is a little bit of risk associated with Mutual Funds but as long as you do your research, you should be fine. And returns are medium. On an average in the past returns have been between 7% to 14%. Now let’s get back to what is a Liquid Mutual Fund. A Liquid Fund is a low-risk, medium-return Mutual Fund that does not invest in high-risk shares but in low-risk bonds or debt securities. One such example is ICICI Prudential Liquid Fund which has been around for the past 13 years and has earned close to 7.2% pa in returns which is slightly more than the returns of an FD.
Till date, since the past 13 years it has lost money only on 2 days and hence it is not very risky. So, if you don’t want to take too much risk that comes with a Mutual Fund, don’t want to pay the penalties of an FD or an RD and still want to make more returns than a regular bank account then I recommend you check-out this app called EasyPlan. This article is brought to you by them because it is a smart-way to save money that I also use. This is how it works. On the app, you can add a goal. Whether it is saving for a vacation, a phone or an emergency fund. I want to save for a vacation. So I will enter the amount I want to save. I want to save it monthly and it will suggest me how much I should invest every month. I will chose the option that works best for me. And then it will tell me how long it will take for me to achieve that goal. And that’s it. After that, it will send me reminders to transfer that amount every month. Now, where is this app sending my money? My money is being invested in ICICI Prudential Liquid Fund which is a low-risk Mutual Fund that we just discussed. What I like about this app is that I can pay Rs. 500/- one month and Rs. 2000/- after 2 months.
You have the flexibility to pay whatever amount you want and whenever you want it, without having to pay any missed penalties. Liquidity with this app is also high because you can withdraw 90% of the amount any time you want and the rest 10% within 2-3 business days. Now, how to invest? You just need to download the app and complete your KYC which is all done on the app without any paperwork. So use the link in the description to download the app, play with it a little bit and figure out if it’s the right investment for you. The best investment for you depends on what your needs and requirements are. Do you want to buy a bike? Do you want to buy a house? Save for your children’s education? Save for an early retirement? We just discussed 5 investment options.
How soon do you need your money back will help you decide which of these 5 investment options is best for you. But in my personal opinion, you should not keep all of your eggs in one basket which is why you can divide your investments like this. So, first in your Savings Account you can keep around 20K – 50K INR for your monthly expenses and to keep some liquid cash handy. Next, maintain an emergency fund which is 2-3 months of your salary. For your emergency fund, chose a low-risk medium-return investment option. So you can either chose an FD or invest through Easy Plan if you don’t want to pay any missed penalties and want an instant withdrawal. You can even use it for any short-term investments. After this, if you still have money to invest then chose a Mutual Fund that offers high returns at high-risk or invest in the Stock Market. In this 3rd category, you should only invest money that you don’t need immediately and are okay to be invested in for long-term. I have made articles explaining in depth about Mutual Funds and Stock Market Investments for beginners. Their links are in the description, do check them out.
Ofcourse, this is just a suggestion. Ultimately, you will only decide what you want to do with your money. But remember, with time and age our requirements will keep changing. So, ensure that you review and adjust your savings say once a year to meet your goals.
Bonus Tip is this.. Don't make instant buying decisions.
If you have to spend then instead of spending your money on materialistic things that give you momentary happiness, spend on things that make you grow like that coding course, public-speaking club membership, travelling or just a good book that teaches you something. Because investing in yourself is just like investing in Mutual Funds or Stock Market.. Long-term, they’ll always give you returns. I seriously need a break. So the next thing I am saving for is a vacation at a cool place because I believe that every vacation is an investment. Comment and tell me what you are saving for… Education, camera or your own house? I’ll be waiting to read your comments. Also, share this article with people you know who have no money left at the end of every month so that even they start investing.