Not enough to earn and save, you have to invest too

Say you want to lose weight or stay fit. You have decided to get up and go for a run every morning. As part of the plan, you order sportswear, a pair of good shoes and a water bottle. You are all set to start your running routine from Monday, or the first of the month—most people pick one of these two options. On the previous night you set your alarm to wake you up at 5 a.m. And then the day arrives.

But something inside you says, ‘I am so sleepy. I have to sleep or else I won’t be fresh for the rest of the day.’ You procrastinate and go back to sleep. All that you planned for the day has gone to waste and you find yourself lying in bed till 8 a.m.

For most of us, the first step is the hardest. Similar fate befalls many of our best laid plans. This also often happens when we first take up money management. A lot of people find it difficult to begin their financial plans. If you are one of those who is finding it challenging to start planning your finances, here is how you should start.

Right now is the right time

There is no need to wait for a Monday or the first day of the month. Any day is a good day to start focusing on your finances. You may argue that you need to have a substantial amount in your bank account or you have to wait for your salary or that the markets are too high to enter at this point.

However, if you look closely, you will understand that there are plenty of excuses to not start looking at your finances. And the reasons to start investing right now are 10 times more than the excuses to not do so. For instance, if you start saving and investing right now, you will have money to fulfil your needs such as retire comfortably, buy a house, upgrade skills to pursue a new career, travel the globe orbuild a corpus to start your own venture. Focus on the long-term goal and realise that if you start right now, you will be closer to achieving your goals. Hence, get on with it right away. First, check the money you have in your account and see where you can deploy it. If you don’t have any money left in your account, figure out why you are unable to save. Are your monthly expenses more than your income? Try to solve the problem right away.

Start saving first

The first step to get your finances in order is to start savings. Unless you have the money with you, how will you invest? How do you start saving? If you are a salaried individual, you know your income.

How much should you save? Though there is no perfect answer to it, at the bare minimum, you should keep 10% of your monthly income aside when you are just getting started in your career. The more the better, if your income is considerably higher than your expenses. If you are unable to keep aside any amount, you should evaluate your expenses and see if you can cut down some of the expenses to meet the savings goal. The easiest way to save is to keep money aside from your salary as soon as it comes into your bank account. For instance, if your income is Rs50,000 per month, just keep Rs5,000 (10% of the income) aside. It may look like a small amount, but in a year you will have an amount of Rs60,000—and this is assuming you earn no returns on these savings. You can either leave this money in your existing bank account or open a new bank account and move it there, if you fear that you may not be able to stop yourself from dipping into these savings.

“The basic rule is to save first, then invest. To get a sense, you can start saving for something that you want to buy in the short-term, say a phone or a car, and build a corpus for it. Through this, you will get a sense of how you can fulfil your desire through saving regularly,” said Dilshad Billimoria, director, Dilzer Consultants Pvt. Ltd.

Start investing the money you save

Once you are on track with your saving habit, the next step is to start investing. There are many who find it easier to save but difficult to invest. If you are at this stage of your finances, start looking for investment products immediately.

If you are a first-time investor and think that managing deposits would be easier for you, then open a bank fixed deposit or a recurring deposit (RD) at your bank.

Many banks give you the option to transfer money to your fixed deposits through net banking. Such deposits are the easiest to start with. Now, if as a first-time investor, you want to invest in mutual funds, the first thing to do is to not get overwhelmed. “There are two parts to investing in mutual funds—procedural and investment. Today the procedure to start investing is easy due to Aadhaar-based KYC. If shopping in Amazon would take you 1 minute, the procedure to start investing will take you 5 minutes,” said Srikanth Meenakshi, co-founder and chief operating officer, FundsIndia.com.

When it comes to investments, he says to keep it simple for the beginners. “Say if you are able to save Rs5,000 every month. Use 50% of the money to invest through a systematic investment plan (SIP). As you gain confidence, you can increase your SIP. To begin with, you can look at balanced hybrid fund. The reason—it will give you the required exposure to equity and you should treat it as an educational endeavour rather than an investment,” said Meenakshi.

Start setting goals

It is understandable that in your early 20s, when you are starting your career, as a first-time investor you may not have concrete goals such as buying a house or investing for your children’s educational needs. In such circumstances, you can look at investment and savings for wealth creation.

Though you may not have goals now, later on you will have some larger goals to meet. To face such situations, you would want to discipline yourself and inculcate the habit of investing. To do this, you can start with setting small expense goals, and setting money aside, say for buying a phone or going on a vacation in the next 6 months.

Don’t wait anymore

Get started with the money that is available in your bank account. Treat the procedure of investing and saving as something that you would do to shop for a nice dress or a good pair of shoes for yourself, so that you would look great in the future.