The wealth earned by us is indeed determined by the quality of our health. The increasing medical costs makes it extremely difficult to sustain the corpus acquired by us throughout our life if we do not make adequate planning for health insurance. This is why financial planners focus on the importance of health insurance in retaining the viability of your long run financial goal. For benefitting out of the same, you will have to select the right health insurance plan which can last throughout your retirement life and hike up the value of your financial plan.
Importance Of Having Medical Insurance In Place
All of us yearn for a secure future both in terms of financial and health-related matters. A medical expense might seem manageable in your 30s with a regular income source for adding to your corpus. But the entire story changes once you enter the golden age of your life. With limited or even nil income sources, you need to bank on your earlier saved corpus to mitigate the rising medical costs. This is why it always pays to have health insurance in the first place.
Medical emergencies do not come with a prior warning. It also has a tendency of increasing with every passing day. Keeping such things in mind, it pays to have a health insurance policy in place. You can ensure the same by ear marking a certain portion of your savings to pay the premium starting today itself. A sound health insurance policy can assist you in handling all unannounced health expenses in a smooth fashion without causing a dent in your regular finances.
Purchasing a health insurance plan and aligning the same with your financial goals can be of great assistance in shielding you from unannounced medical expenses that can arise during your golden years. With a limited income source, it becomes extremely difficult to cater to the same. This is where a health insurance policy comes in as a complete blessing by providing for treatment expenses and hospitalization charges. Some of the policies also offer comprehensive plans to cater to a more versatile set of requirements.
Let’s see health insurance benefits in detail:-
Health insurance plans also serve as an important tax saving tool. An assessee can claim deduction under section 80D on the premium paid by him for securing the health of his family and parents. This deduction can be claimed as follows:
- For Self & Family – Maximum deduction of 25000 INR per annum on health insurance for self and family. Maximum deduction of 50,000 INR per annum if you are a senior citizen.
- For Parents -Maximum deduction of 25,000 INR per annum on health insurance premium paid on behalf of parents. Maximum deduction of 50,000 INR per annum on premium payments incurred for senior citizen parents.
- A deduction of 5000 INR can be claimed per annum on health check-up related expenses. This is applicable to all the family members of the taxpayer including his/her spouse, children and parents. This deduction is part of 25000/50000 as the case may be.
It takes years of hard work to gather adequate corpus which can bring you in line with your ultimate retirement goal. However, a sudden medical emergency can squeeze out all your hard-earned funds at one go. Nothing matches up to the importance of human life and that is why we try our level best to provide ourselves and our loved ones with the best of medical treatment.
Having a medical insurance policy can guard your back in such a case by preparing you to face all sorts of emergencies without worrying about the financial setback caused by the same. However, this is possible only when you opt for a health insurance policy which has adequate cover size and tenure to render protection against all sorts of illnesses.
Real Life Examples
Let us take the example of a middle-aged man in his 30s who falls ill and has to spend 10 lakh INR on treating his illness. He does not hold a health insurance plan and finances his expenses partly from his savings and partly by taking a loan. Once he recovers from the illness, he needs to start paying back his bank debt. This will be followed by saving money to primarily meet the earlier gap in savings for fulfillment of his ultimate financial goals.
Had he taken a health insurance policy which could cover his entire medical costs, then he wouldn’t have had to face such a scenario in the first place. The premium for gaining coverage worth 10 lakh INR would have varied somewhere between 10000-15000 INR per annum approximately. He could have even got a family floater policy covering two adults and two children by shelling out a little more yearly. Spending this nominal amount could have buffered him in times of medical emergency without derailing him from his ultimate financial objective.
Read More :- 6 Retirement Planning Mistakes To Avoid
Health insurance comprises the lion’s share of retirement planning and it is time individual investors understand the same. Increasing medical expenses and future uncertainty is making it mandatory to have a medical insurance plan in place for buffering you from further troubles.
It is also necessary to maintain good physical and mental health in order to attain your ultimate financial goals. This is why financial advisors advocate these medical insurance plans to individual investors from a very early age so that they can gain more coverage by shelling out a relatively smaller premium.
Savings and investment can be boosted up easily either by increasing your income or cutting down on expenses. Whether you are on the brim of retirement or a fresher who has just started with his work tenure with a big MNC, savings remains to be the ultimate goal during all stages of our life. Contrary to popular belief, even 100 INR saved today can go a long way in adding to your corpus if invested properly. Today, we are going to take you through some expert recommended tips for hiking up your savings, boosting up income, reducing debt and investing wisely.
Savings refer to that part of our monthly income which is left after paying back all expenses. But this needs to be computed the other way around. You should first keep a portion of your income aside before deciding on the things to do with the rest. For example, if you are earning Rs.40,000 then first keep aside around Rs.10,000 for investments and then manage your expenses in balance 30,000. This way you will be more disciplined towards savings. For achieving this, you can opt for automatic transfers to an investment or savings account directly.
Creating A Buffer For Rainy Days
The first priority of all individuals should be to create a fund for rainy days. This serves as the basis of creating a sound financial plan. Once you have accumulated enough to mitigate about three to six months of expenses, you can shift your focus to future savings and debt reduction.
But for benefitting the most out of the same, you need to decide on the type of expenses which can be classified as emergencies. For starters, job loss or a major illness can be considered as a true emergency. Infrequent expenses such as purchasing a new car cannot be classified under the head of an emergency although you also need to save for the same.
Save More By Spending Less
You can trim down your expenses in a variety of ways be it by cutting down on the consumption of the daily premium coffee or multiple online channel subscriptions. But while cutting back on the spending, you need to ensure that it doesn’t get spent on any other unimportant avenue. If you are not sure about investing the money, then you can make a pending payment or simply transfer the fund to your savings account.
Bid Adieu To Expensive Habits
If your day just doesn’t start without a Frappuccino from Starbucks and maybe a costly dine-out at posh restaurants on weekends, then it’s time to cut down on the same. Apart from the obvious health benefits of starting your day with a home-made black coffee and ending it by munching on house cooked food, these small steps taken can inflict great differences in your ultimate savings figure at the end of the fiscal. Once you direct this money towards other sources having higher potential, such as paying off bank debt, you can free up your money faster. This in turn can be redirected towards further investment. You can make a list of all the debts which need to be paid back and start with the ones having the smallest balances or the highest interest rates.
Unleash Your Creative Potential To Increase Earnings
You can increase your regular income by either selling off redundant things or maybe getting a part-time job for utilising the time you otherwise spend lazing around during lockdown. Taking up full time work can seem burdensome especially when you are working round the clock for the weekdays. It is thus advisable to take up short term projects which can align you towards a specific savings goal. You can also generate extra cash for savings by selling off artifacts and belongings you no longer require such as collectables, designer clothing, jewellery, musical instruments etc.
Proper Asset Allocation
While some investments rank high in the department of volatility, others are comparatively tame on the risk-reward scale. Younger people are advised to proceed with aggressive investment options whereas older people approaching their retirement age should stick to the conservative avenues. A direct correlation exists between risk and return. Thus, if a particular investment house is promising you sky-high returns with equity linked funds, then you should also be adequately prepared to suffice the bloodshed if the market crashes.
Baby Steps Towards Savings
If savings seems like a difficult challenge for you, then you should start off with smaller targets of maybe 100 or 500 INR daily. Once you have saved adequately and spent it for realising a particular aim, you can continue with further savings so that you can slowly meet all your debts. If you feel that your savings are not sufficient for meeting long-term investment and major purchases, then your standard of living is definitely higher than what it ought to be. Such a scenario makes it necessary to make major adjustments such as shifting to more affordable housing or even trading your new car for cheaper public transportation.
Sticking To An Investment Plan
Steady investors who wish to diversify their portfolio should actually shift their attention towards purchasing more shares whenever the stock market takes a dip. You need to review your investment strategy on timely intervals and remain unperturbed by newspaper headlines during the allocation of funds. The ultimate aim here should be to continue with the investment pattern irrespective of what the newspapers are hinting at.
Seeking Out Help
Investors often feel confused about which stocks to select and how to optimally balance their portfolio. In such a case, they can readily seek out the assistance of trained professionals. Contrary to popular misconception, financial advice is not earmarked against the wealthy strata of our society. It can benefit everyone who wishes to increase their savings and safeguard themselves from the uncertainties of the future.
Read More :- Financial Planning – A Need not a Choice
It is impossible to create a promising future unless you learn the means of prudent investment and judicious savings. Money has a big role to play in regulating the flow of our lives. While it serves as an essential wealth creating tool on one hand, it also acts as a transaction instrument which can satisfy our present requirements. Proper financial planning empowers individuals in meeting their ultimate goal by creating a trade-off in between current and future consumption along with other variables such as savings and investment.
When it comes to assessing our financial strength and weakness, many of us just remain clueless. It is partially because we are not aware of the importance of such an evaluation. Another reason for such ignorance is probably that we do not know where to begin with. Before everything else, we should know the consequences of not doing an analysis of our financial strength and weaknesses.
Just consider a situation when your income suddenly stops due to a contingent situation such as an accident, a shutdown of your company, a nationwide financial slowdown, or major turmoil or just your inability to work due to deteriorating health. We can even consider the current situation of people losing their job due to Coronavirus. This leads to unemployment for millions. In such situations, your financial strength is tested. Even when you have large liquid savings in a bank account or similar common accounts that do not offer any substantial growth for your money, they do not save you from utter financial crisis for long since the growth of money is not enough to make you stay afloat above the depreciating value of money.
So, you need to achieve financial growth with steady investment and corresponding financial planning. How can you know you have done it the right way? Well, this is why it is important to go through a time tested procedure to assess your financial status.
Here we introduce a must follow the checklist to assess where you stand financially.
Read More :- Financial Planning – A Need not a Choice
- How Much Insurance Do You Have To Meet Contingencies?
This is arguably the most important consideration when it is about evaluating your financial status. In case of death, disability and disease of the earning member of a family, a compensatory sum of money is immediately needed to meet the contingent situation. Your financial planning should begin with this. Before making investments that provides you growth, you need to make provision for assured financial support for your dependents in case of any contingency.
- Is Your Investment Returns Secure From Inflation?
If you have put all your money in a regular bank account considering your money to be safe and growing with the regular interest rate, you are actually killing your hard earned savings.
Yes, money not achieving growth over and above the inflation is actually a degrowth of money.
So, What is inflation?
To explain it in common man’s term, inflation is the depreciating value of money which in regular life reflects the rising cost of goods and living. Thanks to inflation, what your money can buy now may not be enough to buy the same thing a few years down the line. Naturally, the financial growth you achieve should beat this rate of depreciation of money.
If with stocks, PF, bonds, Mutual Funds, annuity schemes and other investments together you achieve a growth of 10% per annum, while the inflation rate is 8% for the same period, your actual growth of money boils down to only 2%. Now you need to evaluate the return of your investments against the projected inflation rate.
- How Secure Your Financial Instruments Are?
Now you need to evaluate the security of your money with the chosen financial instruments. Obviously, you neither can gamble with your hard earned money by investing all your savings in stocks nor can remain satisfied with the depreciating growth of very secured financial instruments like bank FDs, PF, etc.
You need to take the best of both worlds while avoiding the negative factors from both ends. While your money in selected stocks and MFs can earn a better return year on year, your secured investments in other instruments help you keep your investment portfolio secure. Thus with diversification into various instruments, you can achieve both security and growth.
- What About Liquidity?
What happens when you need a few thousand rupees in hard cash? Obviously, in emergency situations nothing comes as immediate help as the hard cash. So, beside securing growth and ensuring security for your money over a period of time, you need to make provision for liquidity.
In case of emergency you should be able to withdraw cash to meet your immediate and emergency needs. Savings and investment instruments vary in their liquidity. Savings bank accounts, some bonds, some mutual funds and stocks offer high liquidity while endowment policies, unit linked insurance plans, many mutual funds, annuity or pension plans are low on liquidity.
- How Much Shortfall Is There To Achieve The Financial Target?
Like everything in life, success with your financial planning obviously requires fixing your objective for the long term and targets for a shorter span. Now as per the target you can easily assess the shortfall in the required fund.
For example, if you need to buy a property, you constantly need to evaluate and keep a close tap on the growth of your investments and accordingly measure the value against what you need.
So, evaluate this Checklist at regular intervals to be sure that your goals are met without much hiccups in between. These are just the immediate steps to keep you on track in your financial journey. For any further advice, you can get in touch with our financial advisors who will guide you to achieve all your goals effectively.
Financial planning paves the way to achieve financial independence and plan a smooth retired life while one is still earning. Early planning provides a long horizon to multiply the investment. People of different age groups have different priorities, hence, each of them needs to plan accordingly to achieve their financial goal. Financial planning can have varied horizons and purposes for varied individuals; say, X is planning for his retirement by 40 while he is still 26 and Y is planning his child’s MBA program abroad after 16 years. Financial planning is a very thrifty affair. Proper financial decisions can result in amass disposable income.
Everybody has a desire to earn high, spend high and live a lavish life, but only a few can actually make that happen. Seriously, living a lavish and elegant life is not just a matter of destiny, but a result of proper financial planning and effort made to make it possible. Financial planning is very much necessary for an individual in a similar fashion as much it is for any business. It is simply about analysing where one is currently standing and then determining how he would like his future financial condition to look like. It is simply because of unending financial obligations and unpredictable journey of life, financial planning is required to be set in priority.
Why must Financial planning be taken as a need not a choice?
Financial planning is crucially required as there are limited sources of funds that need to be diligently allocated towards necessities and luxuries, also setting aside savings and paying off the debts from the same source. Since sources are finite, thus, financial independence can be achieved through routing the idle or accumulated funds into a proper channel which can help it multiply. It is always better to start early so that the benefit of compounding can be availed which acts as a driver in enhancing the investments with multiplying the effect.
One needs to be fully disciplined towards the financial planning mechanism. Developing a habit of regular savings and investment through proper planning is very essential for building a strong financial foundation.
Financial planning must be done with the view of achieving social security and financial independence even after retirement. Since nobody is aware or has the least hint of what is going to happen in the future, hence, financial planning can prove to be a favorable tool for tackling such unpredictable and dynamic phases of life. Proper planning can help one make provision for contingencies and build a sturdy financial status for oneself and family.
Read More :- Financial Planning For Newlyweds
How to start planning?
While planning for a delightful financial future, it is advisable to take help of a professional financial planner who has handsome experience and expertise in providing such services. Proper consultancy can lead to an effective plan. Financial planning can be done by making an investment in mutual funds, fixed deposits, endowment policies, equity and debt securities etc. Foremost thing in financial planning is setting the financial goal in accordance with the purpose and investment horizon; then comes the most critical part which is the risk profile of an investment; then choosing the investment avenues which can serve the purpose of such a plan. It is always safe to develop a diversified investment portfolio which can provide balanced risk and return. The financial objectives and investments need to be perfectly synchronised to avoid any financial distress.
Save yourself from manipulators- Do a reliability check
Financial planning, nowadays, is becoming popular among the younger generation who have just started earning with the vision of gaining independence and a bright financial future. The crowd of daydreamers has also resulted in an evolution of self-proclaimed financial planners who seek the most prominent opportunity to quench their unethical thirst. An investor shall use his discretion while hiring his financial planner who can keep his investments safe and secured. He should not fall easy prey to the mean-minded vultures that set up a pompous financial consultancy business to attract innocent investors. Most of them just turn out to be salesmen or agents who have the least knowledge about what they are selling and aim to earn part-time income. An investor should try to discriminate between a real and a fake financial planner by comparing the way each of them interacts with him; their counselling attributes; manner of gathering data; clarity in concept about financial planning; how prominently they are able to present the technical comparison between various financial plans, etc. Efficient and effective counselling can be done by market research and understanding the financial goals and requirements of a particular investor.
In a growing and rapidly evolving economy like India; financial planning by its citizens can be an aid to economic development. At least it is better that the economy receive funds internally than borrowing funds from foreign investors. Financial planning by people from all walks of life should be encouraged so that even the person who has the minimum can also feel the vibes of financial independence and security. A persisting myth among the masses today is that financial planning is only for those people with higher income or who have wealth in abundance. People from generations have been a victim of this misconception and grow older with the same mindset. Financial planning has nothing to do with the rich or the poor, one who has a surplus or one who has minimal; it’s all about managing what you have. Financial planning provides an opportunity to take control of your financial life, make diligent decisions and achieve desired financial goals.
What is wealth management?
Wealth management has a wider scope and has long term wealth creation as its primary motive. As such, wealth management can be described as a wealth creation process where a team of professionals analyze the financial needs of the client and suggest the appropriate financial products. Such a process would include wealth protection (risk management), accumulation of wealth (growing asset base), putting your wealth to work (creation of income from such asset base) and later wealth distribution (post-retirement and succession planning).
What constitutes wealth management?
1. Identification and analysis of values and financial goals
This step consists of various other sub-steps as below.
- Asking appropriate questions which will yield what actually the client expects in the long term and also financial goals of the client.
- Testing and understanding the risk appetite of the client.
- Understanding the liquidity needs at periodic intervals or at a particular point of time.
- Understanding family values and issues thereof
- Lifestyle enhancement and maintenance concerns
- Wealth transfer and succession plans
2. Recommendation and devising plan of action
Based on step 1, where the needs and objectives of the client are analyzed and identified, the wealth manager will devise and recommend the plan of action. Such a plan will entice an appropriate mix of assets, which will be recommended for generating income as well as for long term wealth creation. This step also digs deep into the actual asset creation and allocation of these assets seeking diversification for inherent risk management. Wealth manager also analyses the position of current investments and assets of the client. The wealth manager then will address any tax or liquidity concern and will also check if there appears any gap between plan of action and current investment scenario. This plan is then consulted with the client and if he is satisfied, then the wealth manager will go on to the next step. The different wealth managers will employ different techniques and models for devising the plan of action like after tax profits model, or discounted cash flow model etc.
3. Implementing the wealth management plan
Once the plan is approved by the client, then the wealth manager documents the plan of action along with the investment strategy and asset allocation strategy. This manual also explains the income generation pattern and long term wealth creation strategy. It will also throw light on succession plans and transfer of wealth and assets. Implementing the wealth management plan will require a little while. However, this plan is revisited several times by the wealth manager to match the plan real time with happenings in the economy and financial markets.
4. Continuous evaluation and consistent communication with client
The Efficient wealth manager will evaluate the way the plan responds to the current market scenario and will try to modify it to remain updated and reap benefits from the current scenario. It may require to rebalance the portfolio and ascertain changes to the tax structure and its impact on the wealth creation. This step would ensure uninterrupted communication and consistent support to the client, which will help build rapport and trust.
Now let us see some Wealth management mistakes which you should be aware of and should avoid.
Selection of right wealth manager
Where the wealth manager is assigned portfolio management and not the whole wealth management, then he would be responsible for only that part. This will harm the synchrony and synergy effect, which would have resulted if whole wealth management was carried out by a single wealth manager. While you select the wealth manager, keep in mind to select the one who has the ability and willingness to answer the questions asked by you.
Revisiting the wealth management plan
Once implemented, your wealth management plan needs to be modified and revisited periodically. This will include asset allocation pattern, restructuring decision and liquidity analysis on the basis of the current economy and financial market status.
Asking questions and ascertaining the position of your assets at any point of time would be your duty. This will allow you to monitor and evaluate the asset allocation and accumulation. Wealth manager has to ensure that he is delivering updated information about client’s wealth by maintaining confidentiality.
Retirement or succession planning
This is a delicate issue which involves a lot of family trouble, because the property and wealth quarrels may turn bitter once the client is gone. Hence, it is important to pay attention to succession planning and retirement planning.
Now you must have got a clear idea as to what Wealth Management all about. It combines both financial planning and specialized financial services, including investment planning, estate planning, legal and tax advice, and investment management services. Better late than Never. You can now get in touch with our financial experts for your wealth management needs.
I still remember my childhood days, when my mother would give me pocket money only if I did the house chores. She would tell me that half of it, I could spend, while the other half, was put in to my piggy bank or should I say ‘KHAZANA’. Well of course, now we have banks for that. Yes, those were the good old days.
I think everyone knows how important it is to save and invest, given the current situations, where anything is possible. Though some people still think that, just because they save, they are investing, so the real question that needs to be asked is, ‘Are savings and Investment, the same thing?’
Savings and investment are 2 completely different meanings. Most of the times, people spend first and then save, so whatever remains from their income, they save it by keeping it in their bank accounts. Savings have to be the other way round. Look at the below 2 options:
- Income earned – your expenses = Savings
- Income earned – your savings = expenses
People always prefer the first option, sometimes no money is also left, after spending. Today everyone wants to live a lavish lifestyle and keep up with the current status, be it gadgets, clothes, accessories, etc. The logic behind the second option is, you get your income, you save it and then you can do whatever you want with the remaining money. So this way you are saving and not throwing away all of it.
Income earned –> savings made –> savings invested will give you wealth creation.
It is one thing to start saving, but what do you do with the money you save? That’s where investments come in. You can expect a 3.5% to 6% returns on your savings account, but do you think that’s enough?
Of course not!
Especially when you have goals that need to be achieved over a long period of time. When you have so many other options out there, why would you settle for such a low return. You have to invest your savings if you want your money to grow over a period of time. People have goals, it could be short or long term, they also have risk appetites which could be aggressive, conservative or even balanced, so depending on that, they have various investment options available to them, also keep in mind that savings is a type of investment. It is used to fund goals that come in the near future, we will look at some circumstances later.
So all your savings are not just meant to be kept in your account, if invested correctly, they can reduce the burden, of you worrying about reaching your future goals in time. And it also will help you create wealth. People have this very wrong idea, that financial planners can help them reach all their goals, which is not true, financial planners, help you create wealth, with the resources you have. Sometimes the resources that you have, may not be enough to fund your goals, that’s why you need to invest it, to create those funds.
Let us get a better understanding of this difference, by the help of some examples. We shall now take the examples where savings are concerned. The below points will help you understand, ‘WHEN’ it is important to save:
Buy a laptop or a phone or any gadget:
You do not need to save for 5 or 10 years, just to buy a laptop or a phone. You will obviously buy one if it falls in your budget. You may keep a certain amount of money aside every month, so you can collect enough funds within the next few months to buy that laptop or phone. That certain some of money that you’ve kept aside is known as ‘SAVINGS’.
This fund is a very important one. I would suggest that, all of you keep or maintain an emergency fund. This fund is maintained so that, people do not have to run about, asking for money or borrow or take a loan. You should ‘SAVE’ a certain amount every month (apart from your investments) and put it into your savings account, because in future, if any emergency occurs, like you met with an accident, or loose your job, or any such similar incident that could occur, you are going to need funds to help you cope with that loss. Now the main question is, why does an emergency fund need to be in a bank? This is because, when an emergency occurs, you need the money on the spot and it should be easily accessible. The emergency fund should contain at least 6 months of your monthly expenses. So a savings account is the right place for your emergency funds, as you can withdraw the money at any point of time.
Must Read: 9 Reasons To Buy Life Insurance Now!
Your best friend’s birthday is coming up, what are you going to buy her?
Don’t have enough money?
Well you should have started saving up in advance to buy her/him a nice gift. This is just an example, but it is also a reality. That is why saving is equally important as investing. You never know when you might need it. It is not necessary to save for a purpose, except, in the case of an emergency fund, but having goals to save for, the better it is for you.
So now this is how you should handle your income:
Income earned – Savings – investments = Expenses
Now let us take examples of why people invest. Some people invest just to inculcate the habit of saving and some invest to reach a specific goal or invest for a specific purpose:
Buying A House
It is not easy to buy a house with one’s savings. Unless you are a millionaire or ‘Crorepati’ or a very rich man or woman, you cannot buy a house without taking a loan. Even while taking a loan, there is a down payment that you need to make. Where or how are you going to accumulate that amount. So if you are still young and want a house of your own, then start investing now, it will help build up a corpus to achieve that goal.
Let’s face the fact, education is not getting any cheaper, and I think all the parent’s of India will agree to that. They are your children after all and you will want what’s best for them, i.e. to give them the best education, but can you afford it? Of course you can! But you have to start investing now. Always remember the earlier you start, the bigger corpus you grow. So you can afford to take risks, as your goal is a long term goal, but you need to change your asset allocation, when your goals is near, i.e. shift your money more into debt, so as to keep your funds safe.
Here is another long term goal, that people don’t think about. You may feel that for reaching the retirement age, there’s a long way to go. But what about the retirement expenses?
Do you still think you have a long way to go before you start investing for your retirement corpus? Just think about this scenario, 10 years back what were your household expenses and compare it with your current household expenses. Do you see the difference? And that’s exactly why you should start investing for your retirement now.
As mentioned before, the earlier you start, the bigger your corpus will be. One has to also keep in mind, the inflation and you will not be earning any income, during your retirement period. Also ask yourself, what if you live longer? How are you going to fund those years of your life?
A lot to think about right?
That’s why the earlier you start to think about funds for your retirement, the better for you.
So, these are the differences in reasons, as to why you should ‘SAVE‘ as well as ‘INVEST‘. And for those of you, who are still searching for reasons to start saving or investing, I think you’ve got quite a few of them, that will boost you, to go ahead.
One important point to keep in mind that, for long term investments, you can invest in risky instruments, like equity funds, but remember that when you are nearing to your goal, the funds should be shifted from risky to safer investment instruments, like debt funds. For example, you want to achieve a goal in 10 years, So for the first 5 years, you can start with 80:20 in equity and debt, then shift to 60:40, then after 3 years, shift to 30:70 and in the 9th year, you can shift to 10:90. This way you are minimizing your risk, when you reach closer to your goal. So that’s how you need to plan for your investments.
For all you parents out there, instead of giving your children that hefty pocket money, save it and invest it for them or at least inculcate the saving habit in them. They may feel the pinch now or maybe too small to understand it, but will realize it and thank you later. This will also get the burden of their future off your shoulder and will also help you reach your goals in time. So save and make the savings work for you through investments. As you can see, savings and investments both are important, but knowing the difference is what matters more. So use your income wisely!