When we hear the terms ‘savings’ and ‘investments’, there are two things that may come to mind –
B) How to save or make a wise investment?
But how many of you are aware how to save money or how to invest money? Which are the safest sources of savings and investments in India, and the risks involved in doing so? As understood, to make an adequate savings or investment, you must have clarity of what a saving and investment is beyond the general understanding of these terms. Thus, let us drive to the point without a delay.
Saving vs. Investments
Basically savings is when you keep aside a monetary amount whenever possible, to accumulate wealth. Intention of creating a saving is usually to meet financial emergencies such as a sudden job loss, medical treatment, sponsor travel or vacation, make big-ticket purchases, etc. Savings usually are not with the purpose of generating high returns. However, some returns are expected, like on term deposits, savings bank account, etc.
Investment on the other hand, is putting money into financial products with expectation of multiplying money, usually for a higher return than on savings. Thus, the risk factor is greater in investment than that on savings. Both savings and investments may attract tax liability depending on the resource chosen to save or invest money into. To get a better idea on how to save/invest money and importance of both in your life, read the post below.
How to Make Monetary Savings?
To make maximum savings, you need to firstly draw a monthly budget by understand how much you earn and what are the expenses. To start with, list down the sources of income, and the things you spend on (priority spending as well as additional expenses).
- Priority expenses are the ones that cannot be avoided, such as – education costs for children, instalments towards debts, rent payments, insurance instalments, medical expenses, etc.
- Additional expenses are the ones that can be curtailed, such as expense on shopping, entertainment, leisure, vacation, travel, etc.
- Now, you cannot restrict the priority expenses, but you can definitely cut down on additional expenses. It is here where you can create a room of expanding savings.
- Any money you save from cutting down on unnecessary expenses or consciously putting aside an amount every month towards savings, will gradually help build a mass of funds.
How to Invest Money?
The purpose of making an investment is to have the money grow exponentially over a period of time. For instance, if you invest money in mutual funds or shares, you can expect greater returns than the original investment made. Similarly, if you invest money in gold, then you can expect a return when the value of holding increases over a period. Gold also helps in giving you a financial support in time of monetary emergencies, without liquidating the asset, as several financial institutions are prepared to offer a loan against gold asset.
- There are other investment products other than gold as well that can be used to take a loan against – such as life insurance policies, mutual funds, equity shares, NSC (National Savings Certificate), KVP (Kisan Vikas Patra), etc.
- Some of the places where you can invest other than ones already mentioned are: real estate, bank deposits, public provident fund, national pension scheme, stocks, bonds, derivatives, etc.
- To begin with an investment, firstly, define your financial objectives and goals. Understand your risk capacity, and how much you are willing to invest, keeping aside money for existing financial liabilities.
- Analyse and determine the tenure of investments. Are you looking for a short-term or a long-term gain, and understand the associated tax implications.
Importance of Savings and Investments
Both, investments and savings require financial discipline and patience. To make the most of savings and investments, start with these at early stage of life, right from the day you start drawing an income. Especially, compounding effect on investments can offer great appreciations on invested capitals, thus, investing early in life for longer tenures can help a lot. On the other hand, making savings early in life can make you more financial independent and prepared for any fiscal crisis.
Also, you do not have to take loans or at least reduce the amount of funds taken, if you have sufficient savings that you can use. To conclude, savings give you a stress-free life in terms of financial responsibilities, while investments allow you to maximize funds, and keep your financial journey smooth.
Below-mentioned are a few other reasons as to why savings and investments are important in your life:
- Only saving money and not making investment can be detrimental to your finances. With rising costs the value of savings will reduce. You can check for any practical example – the cost of a pack of biscuit a decade ago, and the cost of the same now, can be significantly more.
- Making simultaneous investment will help cover for inflation and keep your finances in tandem to the current market scenario, providing you the capital surplus to survive in the present, and the future.
- Regular savings and investments are important, as only then your capital will increase. Thus, never lose any opportunity in increasing your wealth. It starts firstly with creating wealth i.e. with savings, and thereby keeping amount for wise investments.
- Savings and investments offer several tax benefits. Check for the tax saving investment and savings tools available and as suitable for your income.
When deciding on how much to save or invest, analyze your risk capacity and the need of funds over a period of time. There are certain expenses for which you must not wait for investments to give you returns, but depend on savings – especially during a job loss, wherein you need funds immediately to take you through the period of unemployment, it is best to use up savings than disturb existing investments. Similarly, you must have enough savings to pay for school fees, make emergency purchases, and take care of everyday needs.
But, to fulfil long-term goals such as funds for retirement, purchase of a house, wedding, etc, you can start investing early in medium to high return investment tools. Basically, anything which may require a great amount of funding can be garnered through stable and profitable investments. Chalk out your financial goals, and decide if you wish to invest or save to meet any of the short-term and long-term financial objectives and you shall sail through every fiscal up and down, smartly.