Let your money make more money for you.
I was around 4 years old when I was given a pink coloured plastic piggy bank in a shape of a pig (obviously). There are a lot of theories on how the term piggy bank was coined but there’s no evidence to prove it. Some say it goes back to Germany in the 13th century where ‘pig’ was a symbol of good luck. However, some say it was made out of ‘pygg’ — an affordable clay. Whatever the roots may be, the pink plastic piggy bank was the first thing I learnt closest to investment, like many of you! Quite honestly, do they even exist anymore?
My father learnt investment pretty late according to him. I think we both learned about investment around the same time — I learned it through my famous pink piggy bank, and he learned it by investing in properties and stocks, banks, etc. While pursuing my undergraduation, he encouraged me to take up subjects related to finance as he wanted me to learn about investing on the go and not struggle as he did. While my father’s approach towards investing is in the favour of SIPs, stocks, and mutual funds; my mother has a more ‘Open an FD/RD in the bank’ approach. Being raised in a household with two different outlooks for investing, I try to bridge it out now that I understand both investing worlds’ pros and cons.
Why invest? For the very simple reason of earning more money. Keeping your money in the bank is only going to create so much wealth for you. It’ll give you a return of 3.5%-7% only. But you can put the same money into an SIP or a MF and earn mostly double. This is how I look at it. Keeping money with the bank will help me to simply get through the day w.r.t. new purchases; but investing will help me buy the expensive shoes I always wanted. It’ll make you financially independent. Risk and Returns are directly proportional BTW.
I was 24 when I started officially earning. That’s when I opened my first RD, wanting to save up for travel. However, a lot of people earned much before I did and are much more knowledgeable than I am, so please feel free to chip in the comments if you are one of them. This article is for those who have just started investing or are yet to invest. It provides very basic know-how of investments operations. Here are some of the tricks that helped me understand how to invest and save —
- Starting as early as you can. I would have started investing before the age of 24 had I listened to my father. Alas, I was just another naughty rebellious kid of the house. I only realised it after I started earning that compounding can do wonders for your bank account. Of course, there will be ups and downs in the market; but starting early only means it will give you enough corpus for a mayday and the wisdom to navigate through the downs.
- Writing down all the expenses I made. I got myself into the habit of noting every tiny expense that I incurred — from a 10 rupee chocolate to a 10k plane ticket. This habit is good as it comes with additional perks- you know exactly where you are overspending, planning your budget, and also allocating money for investment. There are several applications you can use, the one I use is called ‘My Wallet’.
- Investing 30% of your salary in MFs/SIPs. Say you earn 1 lakh per year. 30,000 INR should be the ideal amount to invest in whatever Mutual Funds/SIPs you like. To begin a mutual fund or a SIP you need to have a clear goal as to why you want to save that money. Please understand 30% is a luxury which I didn’t have when I started out. I would save around 20% which gradually increased to 30% depending upon demographics and increase in salary. Remember it doesn’t matter how much you’re saving unless you ARE saving. I am currently saving for three major goals — for retirement(long term), for misc. (mid-term), for travel/emergency(SIP which can be liquidated quickly). You can invest yourself or go through an agency. You need to make a trade-off on which way works for you.
- Losing money in the stock market. So this is something I am still trying to wrap my head around. As a person, I am not a risk-taker when it involves financial decisions. But I still want to learn and invest in the stock market, speak the bullish and bearish language. So I began by seeking help from friends who are too good at investing in the market. Opening an account with Zerodha was my first step!
- Real estating your way to investment. I don’t think I am ever going to invest in a house or a car unless absolutely necessary. What I have realised is that millennials are looking to collect experiences and not assets, much unlike the previous generation. Going with the trend, I find myself as one of those who want to spend on experiences but save enough to be collecting them even when I don’t earn in my old age. However, if you feel investing in real estate is good for you, then, by all means, go for it.
- Gold is not old. Being the most primitive form of investment there has been, gold is something that goes beyond investment. Gold has always been used in the form of ornaments that were only sold as a last resort when you didn’t have any other option of earning money. It’s the only form of investment that you enjoy till you can, and then either pass it on to the next generation or sell for a higher value tomorrow. I personally haven’t invested in gold yet because primarily I ain’t fond of wearing gold at all. So it’s totally up to you. The only thing to remember here is; it’s extremely volatile.
- Not hatching all eggs in one basket. Your portfolio should be a mix of different eggs —a snake egg(debt), a hen egg(equity), and so on because if one egg basket crashes, the other basket keeps you in the game. Similarly, it is also a good idea to invest in different industries which have like no link with each other.
- Insurance is not an investment. When you invest (in) something, you expect some monetary value back in your pockets. From my lens, it is an expense. You will not earn money; your family will get this money if you die; the money that you could be earning had you not died. If you don't die; you will receive a lump sum amount; maybe with some interest which you would have incurred had you invested the same amount elsewhere, or you may not receive the money at all.
To begin investing, carry out some self due diligence. I will split it into three sections for your ease — Personal Style (how much time and knowledge you hold), Budget (how much money you can set aside), Risk Aversion (how much financial risk are you willing to take). It can seem daunting if you are doing it for the first time. Be clear with your goals and let trusted people handle your money if you are still learning. After all, you have nothing to lose, you will always be better positioned- with money or with enough experience with handling money.
