Where to Invest and How Much - Are you Losing Money?

The Million Dollar Question? Where to Invest and How Much..!

Yes, this is one of the biggest question everyone has and probably the most complex solution that anyone can think of. Or is it?

It's as easy as making a 2 min Maggi..! All you need to do is Plan..! But plan what?

Planning your Personal Finances and Investment strategies as well as the exact amount is too easy but you just need a Click to understand the knack of it..! And for that I am here..! before we go ahead, I request you to Subscribe ? this newsletter on the top so that you don't miss out on anything..!

Understanding Your Monthly Salary

Let's start step by step and first get to understand one's Monthly salary. What we need to focus is the amount you receive after deducting tax, EPF and all that. Too complex already? Just take the amount you receive in your Bank Account as your salary.! Easy Peasy ??

Note: This should be your whole salary you receive monthly, and you should not deduct your monthly SIPs, investments, yearly investments, or anything else. Start raw..!

Now let's say that this amount is X. I will assume it to be ?1,00,000/- (1 lac rupees) that you get as your monthly salary after cutting tax.

Understanding Your Bills and Expenses

Next, let's first start by seeing much you spend on a monthly basis. This includes -

• Your monthly rent + maintenance, your electricity + water + gas bills.
• Your telephone / mobile bills, food bills.
• Travel and all other bills / expenses which are considered as a Need, that means which is important and compulsory every month - medicines, education, fuel, etc.

Let's term this cost as needs.

Understanding Your Luxury, Fun and Wants

Now everything that you spend on which does not come under the above categories are your "luxury" spends. This includes -

• Shopping - Clothes, Mobile Phones, fun items, etc.
• New Cars
• Parties, etc

Let's term this cost as wants.

Total (expenses) = needs + wants

Understanding Your Salary Distribution

Now, once you have your Monthly Salary (?1,00,000/-) and your monthly expenses (let's say ?40,000/-) ready, we can now start to plan your Investment strategies.

You are now left with ?60,000 every month which is just getting wasted in your Bank Account. Now, you have to have 2 components from your left over salary -

Your Emergency Fund - Priority 1

This is the first priority you would need to complete. An emergency fund is essentially 6-12 months of your needs not your wants. Let's say your monthly needs are ?30,000/- so your Emergency Fund should be at least 3-5 Lacs which you'll keep in a mix of Savings Bank, Liquid Mutual Funds and Credit Cards. Detailed description on how what and why you can find in my previous post on Emergency funds.

If you already have the said amount ready in Bank Account, don't put more in..! Invest THE MAX you can..!

Your Investments - Priority 2

Let's say you have already had your Emergency Fund ready. Now you have the whole ?60,000/- available for you to invest, and this is the ideal amount which you should invest. Keeping any more money in your Bank Account just makes you loose money..! How? Let's see..!

If you know about Inflation, it is what makes your money loose value over time...! So if India has an inflation rate of 6-10 % every year, this means you need to pay 6% extra to buy the same thing the next year, or the other easy way -- It decreases the value of your money by 6% every year (just easy understandings).

Now, if you need to be at par, you need your money to grow at least 6-10% every year just to beat inflation and keep it's value constant. Remember, we are still not earning / getting profits.

To multiple your money, or earn from your own money, we need to beat Inflation and get at least 10-20% interest every single year. Looks tough, but is it really?

Fixed Deposits, Recurring Deposits, PPF, Gold

Now you might have heard people saving invest in a FD (Fixed Deposit). But is it really worth it? An FD gives you around 5% of interest which is lower than that of inflation, which means you are still losing money..! Keep in Savings Bank? Absolutely not..! It gives you 3% or less..!

Are RDs or Gold worth it? Nope..! Google the CAGR (Cumulative Annual Growth Rate) or saying rate of interest of these tools..! It's well below 6%.

PPF of Public Provident Fund gives you 7% interest which is either at par or just a tiny bit more than inflation. Still not worth the growth / time to invest in.!

Then Where To Invest?

People would now think - Stocks? Ummm no. Let's go step by step again and see when and where. Stocks is a bad term for people thinking "fast growth". Opening a Demat, directly investing in stocks, taking risk is probably not worth it for people not having time to understand / follow it.!

The proper term we are looking for is Equity. Now, to invest in equity we have so many options but at the end of the day Equity means Stocks, though buying stocks directly is just one way to invest in Equity.

Boss Enters - Mutual Funds

This is one of the most beautiful, safer and awesome way to invest in Equity. What is a Mutual Fund?

Mutual Funds are "companies" which take your money and invest in Stocks, ETFs, Bonds, etc and return you the profits they make.

This is the MOST SIMPLIFIED, probably not technically perfect or not full definition of Mutual Funds, but it's totally enough for us to get started.

You should invest the BULK of your investments in Mutual Funds (Equity Mutual Funds) which simply take your money, invest in stocks / ETFs, earn profits and give back profits to you after cutting a negligible fees (say 0.5-1%). This is one of the most safest way to invest in "stocks" or "equity" and can easily earn you anything from 12-20% every year.

You will never earn 15-20% every year. Sometimes it would be +30, sometimes -10. But after 5-10 years, you would see a CAGR (avg) of 15% on the Mutual Funds.

So, from our ?60,000, you should invest probably the whole amount or at least ?50,000 in Mutual Funds using SIPs. Which Mutual Funds and from where? DM me on LinkedIn and I'll tell you..! ??

Obviously I kept ?10,000/- aside, or you can keep more, to invest in other such things such as Direct Stocks (Zerodha, Upstox), in US Markets - NASDAQ / S&P (though INDMoney or Vested) and in Crypto / other things. But remember, understanding on these tools are a MUST and for which I will be coming up with more articles soon..! Subscribe this newsletter on top to get all alerts..! ??

Some Number Game

Investments are mostly for Long Term, and generally if you get 15% CAGR for the next 10 years -- which means after 10 years if your money grew at an average of 15% every year (some year +20, some -10) you have a very very good investment plan..!

Let's say you start SIPs with just ?30,000/- per month divided in a few Mutual Funds which average out 15% CAGR, at end of just 10 years you would have invested 36 lac whereas the total value of investments would be 82.5 lacs. That is approximately 2.5 times!

Now see the power of compounding -

In 10 years period

• Total Invested value = 36 lac
• Total Value = 82.5 lac

In 20 years period

• Total Invested value = 72 lac
• Total Value = 4.5 crore

In 30 years period

• Total Invested value = 108 lac
• Total Value = 20.75 crore

In 40 years period

• Total Invested value = 1.44 crore
• Total Value = 93 crore

All this with just 30k investment, even after 40 years..! How much value will 30k have that time?

Imagine this is only with 15% CAGR, but you can get much more about 18-20% on Equity MF for a longer period of time, and there are much more tools which give you more (obviously they are having lots of risk). Mutual Funds are risky, but this risk is worth it and over a long period it doesn't even matter if one year we have a small loss or something.

Conclusion

Be disciplined, invest EVERY SINGLE MONTH by starting SIP and you can start as small as 500 or 1k. Where to invest and in which exact Mutual Funds, you can reach out to me on LinkedIn ??

Without Investing, you are just burning money.

I hope you got the basic essence of this, from a very simplistic view. If you like this article, do Like ??, Share ?? and Comment ?? and don't forget to subscribe ? to this newsletter..!