Writer: Roxanne K. Tarapor ~
This topic has been spotted on financial publications, lifestyle blogs and other media sites lately, and just like using anti-aging creams, now even investing is something you start doing when you’re younger. I was lucky enough to interview Mr. Aneesh Day – CWM® and Founder of Fincubator Consulting to get more insights into this very sought-after subject.
“You work for your money, so let your money work for you!”
If this isn’t the first time you’re reading an investment related article, you already know that “compounding” is the main reason why investing young gives you an edge. There are immense benefits when you have 30 years to reach your investment goal as opposed to a 20-year time frame or less. Aneesh gave us a simple illustration to understand the same:
A is 25 years old, he wants ₹3 crores by the time he retires (presuming that is at age 55). He must make an investment of only ₹9,700 a month in a Mutual Fund that gives him a 12% return.
But, B a 35 years old with the same retirement goal, must invest ₹32,600 a month with a similar rate of interest.
To emphasise the importance of compounding, even more, let’s look at C who is a 45-year-old with the same retirement goal – he must invest an amount of ₹1.34 lakhs in a similar Mutual Fund.
Yes, when you’re in your 30s and 40s your earning capacity goes up, but so do your expenses, (expected and unexpected) don’t wait, do your future self a favour by starting now! If you’ve ever been apprehensive about investing, Mutual Funds are a safer option for you to start off with.
According to the Economic Times: “A mutual fund is a professionally-managed investment scheme, usually run by an asset management company that brings together a group of people and invests their money in stocks, bonds and other securities.”
They are known to be low risk, easily liquified and well-regulated forms of investment.
“First save, then invest”
Before jumping on the investment wagon, learn self-control and save your money, this will encourage you to spend money on the right things and will make you accumulate less rubbish (something most of us suffer from today). Things may look attractive online and in stores or even on supermodels but you may not really need it or even get much use out of it.
If you don’t have the means to invest, get a part-time job. Do something you love doing and are already good at, if that is not possible, sell clothing items you no longer wear. This will not only give you that additional money, it will take the load off big brands who are producing clothes unethically and will give others an opportunity to buy trendy clothes at a cheaper price. Invest that money, and watch it appreciate. If you get an income every month, the recommended starting point would be to save a third of your salary. Another tip Aneesh gave us before investing is to make sure you have the next six months of expenses liquid (or easily accessible).
“Every individual must keep a record of their expenses and then assess it at the end of a certain time period.. he must realise whether he is deficit or has surplus wealth.”
If you’re in deficit, that means you are using too much credit and must work to reduce spending on nonessentials or change your lifestyle in some way. On the other hand, if you have surplus wealth, you must invest it instead of using it for regular consumption and set up a target based investment plan so you’re money is not sitting idle.
A good way of tracking your expenses is by maintaining an excel sheet (my preferred method) of all your daily expenses for a month. Break it down into all the main categories like travel, eating out, clothing, miscellaneous etc. After you’ve done this you will be able to see how much of your money is going towards each thing and perhaps where you could cut down. To take it one step further, write down what you bought or which restaurant you visited next to the amount. That way when you’re analysing your sheet, you can see what items added real value to you and what items were a waste of money.
Swiping your credit card is easy, but why pay interest on grocery shopping? Aneesh said: “over-leveraging too much has to be avoided or your consumption goals must be cut down if they are wasteful. Take on personal loans rather than using a credit card” and look for the best schemes for you before buying expensive items is also recommended.
“Gold is a fear asset, not an investment…”
Many of us, (women at least) love the sound of gold and jewellery as an investment. Owning this can be useful (pass it down through generations, use for weddings and other related functions), however, it’s now no longer considered an investment. Aneesh said: “Gold is a fear asset, and it appreciates when there is negativity and fear in the economy or when a person is in fear of default or that their financial assets might lose value. Therefore, gold is bought on the basis that the next person will be more fearful than the earlier person. It is a hedge against inflation, however, in a growing market, equity will outperform gold.” The disadvantage with gold is that it has high storage costs and no interest or income generation. Aneesh advised that gold should not be more than 5-8% of a persons portfolio even then, opt for Sovereign gold bonds because the government gives interest and there is no capital gains tax.
“There is a lot of speculation when it comes to Bitcoin”
This seems to be the trend at the moment, with more and more people interested in this topic. However, we already know that this form of investing is not recognised by the central banks and laws regarding bitcoin could also change at any time. Aneesh said: “It is a high-risk investment option. There is a tremendous amount of money laundering that takes place through bitcoin. Further, there is a 30% fluctuation within only a few days”. If you must, invest a small amount and keep this as an “alternative asset”, as liquidity is also a problem here.
No matter how little money you make, some amount of charity is a must, in a place like India even 10 rupees to a person can make a huge difference. Helping your community to grow and spread a general feeling of love and care for one another is also important.
I hope that after reading this, you realise the importance of investing your money. Whatever form of investment you choose to go with, get interested now, contact Aneesh, or anyone else who would be able to help you build a portfolio and get started.