You need to save money before investing it. Find out top 5 tips on how to invest your saved money to maximize your returns from it.
In one of our latest articles “Try the cookie jar way if you don’t know how to invest with little money” we showed you that the first step to investing money is to save it. In this article you will find five tips that should help you receive maximum returns after you invest your money.
When a person begins to earn and becomes financially independent, he begins to spend and save. However, spending and saving habits vary from person to person. While some people overspend when they achieve financial freedom, others become more responsible and begin saving and investing at a young age.
Starting early is one of the secrets to getting higher returns on investments. The investment amount might double with just a 5-year variation in investment duration.As a result, it is always advised to begin early and create the habit of saving and investing – whether modest or huge – in a systematic manner.
If this is your first time investing, here are five tips on how to invest your saved money.
1. Before you begin investing, make a plan. This is significant because you will understand why you are investing. If you know why you’re investing, you’ll know how much and where to put your money. According to experts, investments should be made after careful research and in instruments that are simple to understand and have long-term growth potential. Before beginning to invest, first-time investors can seek advice from a financial advisor to create a strategy.
2. Start investing early if you want a handsome amount at the end of it. When you begin investing early, even with tiny savings, you maximise the benefit of compounding and generate significant wealth. If you start early and use compounding, you can accumulate money even if you don’t have a large investment or savings. To begin, setting aside and investing even 5-10% of your paycheck can go a long way.
If you make Rs 30,000 per month and aim to invest 10% of it, you will be investing Rs 3,000 per month.If you begin investing in mutual funds through SIP in your late twenties, you will have invested Rs 12.6 lakhs over a 35-year period. With an annual return of 12%, your money would have risen to around Rs 1.9 crores.
3. Take measured risks – In order to maximise your returns, you must be willing to take certain risks. As a result, in order to attain your financial goals, you should take certain reasonable risks, but not excessive risks. Low-risk assets, such as bank FDs, will always provide lower returns.
Despite the fact that these investments are safe and secure, when adjusted for inflation, they have provided negative returns, which means that in the long run, you may simply lose the value of your money.
4. Learn to differentiate between short and long term investments. Short-term funds should be considered for smaller and more immediate financial goals, such as generating an emergency fund or purchasing a two-wheeler/car. To reach substantial and long-term goals, however, you must make long-term investments to overcome inflation. As a result, when investing, avoid combining investments because you risk missing out on both goals.
5. Stay out of the debt trap. Most people are now seen buying everything and everything on EMIs rather than saving up for expensive items.
It is important to note that failing to properly maintain these EMIs can lead to a debt trap. Most people succumb to the temptation of borrowing money, oblivious of the hefty interest rate that comes with it. This involves the excessive use of credit cards, even for minor purchases.
Remember to pay your credit card bills and loans on time while utilising credit. Also, make sure that your entire credit, including EMIs, credit cards, and so on, does not exceed 40% of your total income.
