This post is inspired by Rohit’s brilliant post on how to manage your money. I am borrowing a few of his ideas & adding a few myself.
- Never depend on just one source of income.
- Save at least 20% of what you earn from all sources. (Also read why saving a percentage of salary may not be enough).
- Buy a plain Term Life Insurance of Sum Assured amount equal to at least 30 times your annual expenses.
- Buy health insurance for yourself and those who depend on you.
- Create an Emergency Fund equal to 6 months worth of your expenses. Till the time you have not created such a fund, don’t think about investing or buying luxury items.
- Start Monthly Recurring Deposits of 6 months. At the end of 6 months, use the maturity amount to create a Fixed Deposit for 1 year. Repeat every 6 months. To start with, use 20% of your savings (in step 2) to start Recurring Deposits.
- Use the remaining 50% of your monthly savings to invest in Stock Markets via SIP in Index Funds or well-established, diversified mutual funds. Do not go for sector funds.
- Use the remaining 30% of your monthly funds to create a Market Crash Fund (use another RD). Keep saving money in it till the market crashes. When it does, buy quality stocks at low prices. To know which are quality stocks worth buying in market crashes…
- Gold, silver and precious stones are good for social or religious requirements. These are not investments. These are insurances against bad times. (To understand this point, just think for a moment that will you sell gold or silver in case prices go up? The answer would be a No. You sell these only when everything else is lost. Period.) Do read Using Gold ETFs & Gold Bonds for Long Term Portfolio.
- And always remember that: i) Investment & Insurance are different things; ii) Investment & Savings are different things, & iii) Do not consider Insurance as Investment or Saving.
Above might work for most of us and does not require any complex rocket science to be implemented.
So go on….say goodbye to your brokers and financial agents. 🙂