HOW TO UTILISE YOUR INCOME (PART 2 OF 3)
3. Money grows in value over time if invested
· Therefore, leaving money undeployed erodes its worth.
· The golden rule is to pay yourself first out of your income, which is called saving.
· A 10-20% allocation to saving, which you put in an investment of choice, grows in value with time and builds an asset for you.
· Building assets can help you in managing your future cash needs better.
· You can derive an income from your investments and assets, sell when in need, offer them as collateral for loans, liquidate them partially or even offer as a guarantee.
· With the strength of your investments and assets, you can manage any risk to your income from job changes, or your need to part-fund a higher education, or even take a break to raise a family.
4. Align your money decisions to your specific situations
· Don’t expect to compulsorily save an amount you may find tough to sustain.
· Don’t commit a long-term large premium just to save tax in a particular year.
· Buying a house may save you the rent, but you may pay an EMI which can be burdensome if your job is risky and result in relocation to a new city
· If you plan to get married soon, taking on a car loan, home loan and a personal loan, all in short succession, will leave you with little to spend on your spouse and yourself in the early days of your married life.
· If you have just started earning and have no dependants, you may not need insurance.
· The best way is to start with simple bank fixed term deposits, buy a few tax-savings bonds, then a few mutual funds, and open a Provident Fund account.
· Once your investments have grown to cover at least 2-3 years of your annual income, you are ready for illiquid, large assets, such as a house.
to be continued...