Best savings and investment plans to get good returns

To be financially independent and have a peaceful life, money always matters and is essential for survival for each person irrespective of what s/he earns. Thus, financial management to save and invest is needlessly a basic thing in a person's life and in addition to the growth of the nation's economy. This article narrates the best savings and investment plans to get good returns.

Savings, playing a vital role in a life of an individual helps to build wealth, to improve the quality of life, and to provide financial security during emergencies. In the olden days, women (mothers/grandmothers) did save an amount of money kept in a small box that had an opening at the top and encourage children also to put some coins (paisa) into the box to save money. They could be opened whenever necessary. This has been followed even now in our country's small households. This kind of savings indirectly helps the economy to grow.

Importance of savings

Now in this digital era, financial institutions both in the government sector and private sector offer various schemes to save money as savings accounts, fixed deposits, recurring deposits, PPF, long-term mutual funds, etc. The savings can be short-term for small budget goals and long-term for real estate, higher education for kids, and post-retirement living. The interests, be they cumulative or noncumulative, accumulate the individual's finance and support the education of children, improve the livelihood, entertainment, peaceful life after retirement, and financial security for the family during financial crises/sudden death of the earning member.

Invariably, people tend to spend more due to lifestyle changes while they earn more money as per the statistics. This is erratic, just enjoying life to the core, but restricting their ability to save to accumulate wealth accordingly. This mindset would get them into a huge financial setback. Hence, it is essential to plan how to make savings and investments in a more disciplined and sincere manner to lead a peaceful and quality life at the same time, whatever their earnings would be.

Initially, let us focus on tips on how to enable our savings profitably.

Kakeibo, the Japanese art of saving

The Japanese never spend on unnecessary luxuries or any debt until they reach the goal of self-sufficiency in their life. Japan's economy has been entirely on cash and the Japanese do not swipe credit cards frequently wherever they have been. The Japanese households have been still following their traditional physical budgeting method, known as Kakeibo, an age-old method of bookkeeping accounting technique we followed conventionally. Kakeibo is a financial ledger kept by the households/women in Japan to figure out their income vs expenditure alias credits vs debits. They categorize their spending into four and they are needs (housing, groceries, education), wants (not essential but enjoyable like entertainment, hobbies), cultural expenditures (books, visiting concerts, museum), and unexpected (medical expenses, house repairs). The unwanted expenditure can be easily figured out in this method to enable more savings in the future. So, budgeting the total earnings and expenditures is the best tool to have an idea about how much one can save after making necessary expenses. In modern days, there have been automated analytics to track spending to have an insight into financial planning.

Following the Golden Rule

In the management of personal finance, an individual needs to adhere to the "Golden Rule" that explains not to spend more than the earnings but to focus on how much to save and then spend. Warren Buffett, the famous American investor and the CEO of Berkshire Hathaway quotes, "Do not save what is left after spending, but spend what is left after saving." For example, if a person earns Rs. 50,000, he is required to keep a sum of Rs.10000 as savings, Rs. 15, 000 for lifestyle expenses, and Rs. 25,000 for living expenses. If earnings have gone up savings should be more too. This is the general rule of thumb that indicates 20:30:50 for savings, lifestyle, and living expenses. It varies depending on the income of the person but savings to be prioritized.

Minimizing the monthly expenditure wisely

As sorted out by the Kakeibo art of saving journal, an individual may divide their expenses into four categories. Essentials like housing, food/groceries cannot be reduced apart from the fact of skyrocketing commodity prices. Avoiding outside food, and entertainment to some extent, reduced electricity bills, and smart grocery shopping, eventually may be redirected to savings and to investment.

Usage of credit cards and personal loans sensibly

Despite the credit cards do provide financial relief temporarily, they have an impact on savings with surging interest rates at times. The same is applicable to personal loans. Once savings keep intact to grow, credit cards and loans can be availed sensibly to attain certain goals of higher education for children or home repairs.

Thinking out of the box to reduce spending on entertainment

This area is the most crucial part of spending that we need to take care of while saving. Instead of watching movies in the theatre, there have been many OTT services available such as Amazon Prime, Hot star, Netflix, etc., to have entertainment with cheaper annual subscriptions. This might slash expensive bills for watching movies on a big screen. Socializing outdoor activities such as group camping and hiking may be inexpensive in addition to entertaining oneself. Eating outs at restaurants also tend to spend more but hosting a party at the house or potluck lunch/supper is cost-effective.

Effective low-cost fuel bills

It sounds good to cut down expenses on fuel for transportation. Carpooling or sharing between friends/colleagues for transportation reduces fuel bills to a certain extent indeed. Walking or cycling is inexpensive to go to the nearer shops or places instead of using a vehicle and a healthy habit too.

Investment is as essential as savings for an individual to be financially secure. It helps to achieve the dreams or goals and the nation's economy to grow and stabilize inflation as such. Instead of the money kept as savings in a bank, s/he should diversify the investment in multiple avenues like FDs, RDs, mutual funds, SIP, and shares that would yield good returns. There have been short-term and long-term investments that carry risks and potential good returns out of the investment. Mostly, investment for a longer period has more benefits and lesser risk factors. It is more challenging to choose the best since there are different investment plans to get good returns available in the financial market.

Various investment options

An investor always needs to be prudent to keep savings untouched for their livelihood and part of the savings alone should be invested in the above-mentioned avenues.

Basically, fixed deposits, recurring deposits, PPF, NPS, sovereign gold bonds, etc., are the best options yielding marginal returns for investors who do not like to take risks. While investing in stocks/shares or mutual funds, they must consider the market risks and volatility, the risk may be low, medium, or high depending on the funds/stocks. The REIT (Real Estate Investment Trust) and InvIT (Infrastructure Investment Trust) governed by the SEBI raises funds through stocks for the investors and the companies issuing the units have been in the real estate sector.

In view of the escalating health expenditure during illnesses/emergencies, the investment in life insurance/health insurance for every individual has been undoubtedly a prerequisite. Never before the Covid outbreak did we give importance to taking care of our health? Nevertheless, we have come across several global threats because of which we realize the importance of taking up health insurance or life insurance coverage. Though we are physically good it is essential to plan for unexpected medical crises/accidents and planned surgeries as well.

With the availability of various health insurance plans and specific requirements, one must choose a suitable policy according to his/her financial ability. These policies provide optimum coverage to include treatment, surgeries, hospitalization charges, etc. The insurance companies tied up with certain private hospitals to offer cashless claims as a benefit of the policies. There have been some tax exemption benefits. If the annual income of the policyholder comes under the taxable income since the expenditures incurred for health insurance are eligible for tax deduction under the Income Tax Act. Keeping health intact is the priority, however.

In a Nutshell

To quote, "An investment in knowledge pays the best interest." Saving money from what you earn is sensible and investing, the second source of income changes your life peaceful and healthy.


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