5 Essential Investment Mantras

Investments are something which not everyone is an expert at. Truth be told, 8/10 people might not have the slightest idea about what to invest in and how. Luckily, investment experts and gurus have, for centuries, come to the rescue of all those may not be as investment savvy. There are several rules or guidelines which have not only been established, but also tried and tested by financial and investment experts, in an effort to help millions of others to multiply their savings.

One of the most important rule of investing is to plan before you invest. Those who fail to do so are potentially putting their hard-earned money at risk. Another important thing to remember is that investments take time before they reap benefits, which makes it necessary for the investor to exercise patience. The rules of thumb which we have compiled for you will not only help you kick off your investment journey and but also aid you in managing your finances.

Life insurance

Getting a life insurance policy is a necessity for a large number of people who financially support dependents. According to experts, your life insurance cover amount must be at least 7 to 10 times that of your total annual income. However, you must also take into account any debts, loans or liabilities that are yet to be paid, and add that amount to the coverage amount. Depending on your need, you can choose from a wide range of life insurance policies such as term plans, endowment plans, annuity plans, ULIPs and more.

Budgeting  

The 50-30-20 rule is a popular one which comes highly recommended for budgeting your income. As per the rule, your income is divided into 3 parts wherein 50% of the total goes towards necessary expenses such as house rent, utility bills, groceries, and the like. From the remaining 50%, allocate 20% towards financial goals like investments, savings, repaying debts, etc. Finally, spend the remaining 30% to fulfil your own wants and needs like eating out, going to the movies, taking a weekend trip, etc. However, save as much as you can. This rule can obviously be tweaked based on your actual expenses. Not everyone may be using up a half of their income on housing, utility bills, and the like. In such a scenario, it is always advisable to limit your wants and needs, and allocate the excess towards your savings or investments.  

Bank account balance  

Many of us who are working, salaried professionals forget that out salary or savings accounts barely yield any interest. The current rate of interest offered by a salary or savings account ranges from 4% to 6%, which is grossly insufficient to combat the ever-increasing inflation. Considering this, it is financially harmful if you simply let your salary account balance grow year-on year without investing it elsewhere. According to experts, your savings/salary account must have a balance which is twice the amount of your average monthly expenses. So, for example, if your monthly expenses come up to Rs.25,000, your bank account must have a balance of approximately Rs.50,000. Invest the remainder of your income into investments such as mutual funds, PPF, or any other scheme which you think is in line with your financial goals. That any other avenue would yield higher interest as compared to a regular salary or savings account, is automatically understood.
 

Health Insurance

A trip to the hospital to get a minor injury treated is sufficient to give you a good idea of exactly how expensive healthcare has become. An occasional bout of flu can easily set you back by a few thousands, thanks to the cost of blood tests, doctor’s consultation, and medicines. God forbid if you have to get treatment for an illness that is more serious in nature and requires hospitalization. Rising costs of healthcare are enough of a reason to purchase a health insurance plan. Those who do not support any dependents can make do with a cover amount of Rs.2 lakh. However, for those supporting dependents like their spouse or children, would require a higher amount. In this case a cover of at least Rs.5 lakh should be considered. Lastly, those who are supporting aged parents must realize that with age, one’s health can rapidly deteriorate. In case of aged parents, one must consider taking health insurance cover for at least Rs.10 lakh.

Mutual Funds

In the past few years, mutual funds have emerged as one of the most profitable investments which don’t require one to be an investment expert. They have become quite popular due to number of reasons such as being affordable while also yielding attractive returns, thereby helping you reach your financial long and short-term goals. One of the most popular types of mutual fund nowadays is a SIP or systematic investment plan which allows investors to invest small amounts of capital on a timed basis instead of having to invest a larger sum. SIPs are affordable and can be started with a minimum investment of just Rs.500. From the ideal investment perspective, if you have the bandwidth, invest a minimum of Rs.5000 in a variety of mutual funds to diversify your portfolio and watch your savings grow. 

Managing your finances is tricky business. You may be earning like a king and living the high-life, but if your finances are mis-managed, it won’t be long before you fall to the ground. Always remember, if you take care of your finances and they’ll take care of you.