Given life’s uncertainties, all of us would like to save and invest our hard-earned money to take us through bad days, and the occasional black swan events, when they come. When it comes to money matters, we do not have action plans to create wealth over a period of time. Investing before planning and saving is similar to building a house without laying a proper foundation. Do you really want your savings to be washed out in the market turmoil? I am sure you would refrain from making investments in instruments that are extremely volatile. When you invest always keep this mantra in mind: Savings are for short-term goals. Investments are for medium and long-term goals. Savings always come before investments.
Ideally, any savings or investments that one keeps marked as short-term would be less than a year and any savings or investments between one to three years would be marked as medium-term. More than three years would be treated as long-term. Once you have master the technique of allocation of funds based on your requirements, you are well set for a bright and prosperous financial future.
With wide variety of savings and investments options available at your fingertips, it becomes difficult to decide where to save and where to invest. During emergencies, when you require instant access to your money, and full safety of principal, bank savings accounts and liquid or ultra-short term mutual funds are perfect options. Medium-term goals require safety of principal and a small amount of growth which are offered by recurring deposits, fixed deposits, and typically short term debt mutual funds. Long-term goals require sustainable growth for which, both direct equity and equity mutual funds are great options.
In this context one should not forget the importance of having an insurance policy. It deserves a special mention considering the fact that there are uncertainties that are faced during unfortunate times. It is prudent for individuals, both young and old to plan for term insurance. Health insurance can also be explored as a future investment that shall ensure safety and security of you and your loved ones.
Once you walk the path of personal finance and financial planning, the very next question that would come to your mind is “Am I saving and investing enough?” Really a tricky question to answer because, as John C. Bogle has rightly asked “How much do you think is enough for you?” My advice to all is to ask this question: Write down the short, medium, and long-term goals. Write down how much money you specifically need to set aside each month for each of these goals. This would be the surplus to Save, Invest or Splurge. The choice is fully yours to make.
