June 3, 2013
If you have continuous flow of cash for your life time, you don’t consider saving money. When you don’t have regular income throughout your life, you try to save money in order to meet various expenses come at various stages of your life. You require money especially for your children’s education, their marriage, any other contingent expenses like health issues and most importantly for after retirement life.
The value of all the goods and services appreciates every year, called Inflation. When inflation goes up your saved money may not be enough for meeting all the expenses at that time as the price of all the goods and services increases day by day. In order to overcome this problem you need to invest your saved money wisely. Your money should either beat or at least match the inflation so that you can meet all your expenses without any shortage of money.
Today you have various options for investments. There are various ways you can accumulate fund for any need. It depends on your goal, time horizon, Risk bearing capacity, etc.
For any parents bringing their children to higher positions is always a dream. They want their children to become what they once dreamed of. So parents never mind to spend for the children’s education. But all the parents cannot afford the fees in the current growing economy. Most of them tend to borrow and suffer later for not being able to pay off them. So it is essential to save for our children’s education earlier itself. It is better that you start saving for your child’s education once he or she turns one year. We can fund for Primary and Secondary Education from your regular income only the higher education needs huge amount of money.
Since the time horizon for higher education of your child have at least 15 years, you can consider investing your money in Equity with more than 60-70% and the remaining portion in Debt and other safe instruments. The current fees for Engineering course in India are more than Rs.50000/- per annum and it increases every year. So investment in equity is the only option to meet the higher educational expenses. The current fees of Rs.50000/- with 8% inflation per annum, believe it or not, will cost Rs.158000/- after 15 years. So you need to invest in those instruments that not just beat inflation but also earn at least 2% more than inflation.
The most important investment is for after retirement life. Most of us work in private sector and they don’t give any pension after retirement. So it is important you save enough money to meet your after retirement expenses. The expenses after retirement certainly and hopefully lower than the expenses before retirement mainly because of your children will be grown by that time and you need not to take care of them once they started earning. All you need is to fund your day-to-day expenses and most importantly your medical expenses if you’re not so healthy. You may also plan to visit holy places for what you need to consider while investing.
You have to start investing so early in your life; the best time to start investing is the time when you receive your first salary. If you start earning at the age say at 25 and plan to retire at 55 you have 30 years to accumulate a corpus from which you can get income by investing in safe investments. Since you have 30 years you can bear the short-term risks and invest major part of your saved money in Equity. Remember the above said rule of Inflation eroding your investments is applicable here also. Your returns from the investments should beat the inflation.
Don’t worry if you don’t have planned earlier, if you don’t have 30 years. You can follow the thumb rule of investment, it is 100 minus your age, say suppose if your age is 40 you can invest 60% (100-60) of your saved money in equity and rest in safe investments. It is better late than never.
Other Contingent Expenses
There are other expenses which simply erode all your saved money at a time. One is Health expenses, many middle class families are suffering from not being able to afford huge medical expenses. You may not know how much money you will need in this case. So you need to take Health Insurance policy to cover the expenses. If you’re healthy, happy, invest your money in your health; spend for Gym, Yoga and healthy foods. It will surely help you from medical expenses.
Other major expenses are your child’s marriage and building your own house. There is a proverb in ‘Tamil’ which says it is difficult to build a house and to meet marriage expenses. Both the expenses are huge in one’s life time. So, considering these expenses are very important when planning for investments.
Always remember you have to invest in safe instruments for short-term needs and can consider risky investments for longer periods. List down your needs and number of year available and plan your investments.