Are you among those people who have been waiting for that ‘extra’ income to start saving? If yes, then you may be among those that have always felt that savings and investments can only be done when you earn a lot of money? This is a misconception. Every small drop contributes to making the ocean. You also can make a small adjustment to your thought process and start saving and investing. However, you must also make sure to pick the right investment and savings options commensurate with your financial goals.
Step #1: Before you choose your investment and savings options, make financial goals
Make short-term, medium-term and long-term financial goals. Decide what is the amount that you need to fulfil these goals when the time comes for it. Read the list of goals daily. Slowly, the thought of fulfilling these goals will percolate down into your psyche and you will be geared towards meeting those goals. Also, invest in instruments that have less risks attached to them. This will inculcate the habit of investing in you.
The different Investment and savings options you can consider
Here, we’ll discuss the top 5 investment plans that will help you in making saving and investment a habit.
- Invest in a systematic income plan(SIP). Start small. If you are earning Rs.15000/- a month, start the month by putting away Rs.2000/- aside in the plan. Mark an auto-debit in your a/c towards this SIP so that you do not get tempted to spend this money. There are various mutual funds that allow you to invest even smaller amounts. Slowly, you’ll observe your money increasing in value and will feel good about it.
- A recurring deposit or R.Dis also an instrument where you can invest a small amount every month and can get a return greater than savings a/c. An RD is of a fixed duration, but unlike a fixed deposit, there is no lock-in period. If you are unable to continue investing after a certain period of time, you will get lesser interest, but there will be no penalty as such. A good instrument for small investments.
- An D or Fixed Depositin a bank a/c keeps your money locked in for a certain period of time and in return, pays you interest for the same. If you are comfortable with the idea of letting your money locked in for a year or so, F.D is the best instrument for you.
- Invest in endowment plans like Edelweiss Tokio Life – Wealth Builder. With early investments, the chances of you reaping the benefits of compounding are very high. Compounding is the principle wherein your money multiplies more than the aggregate of principal and interest because of the interest earned on the added interest. So, for instance A invests Rs 10000/- today at 10% p.a for 10 years and B invests the same amount after five years from now at the same rate for 5 years, both won’t receive the same amount of money at the end of the term. This is due to the compounding principle. ULIP is Unit Linked Insurance plan which is offered by a Life Insurance company. In ULIP, some part of the premium that you pay goes towards investments in equity, government bonds and other market-linked investments. The other part of the premium goes towards covering risk towards your life. This instrument provides both death as well as maturity benefit. The lock-in period is 5 years after which you can withdraw money. You will rceive the amount as per the market value of the underlying instruments where your premiums are allocated. ULIP’s are ideal for meeting your long-term goals like buying a house, car, renovating your present home etc. The ULIP vs fixed deposit benefits are varied, in case you were wondering whether you should opt for an FD instead.
Start getting into the habit of investing early so that you can reap the benefits of compounding.