There are many life skills that are important and one that is normally not on the top of mind is personal finance. It is sometimes considered “cool” if you are not very sure about your personal finance and one saves on very last day of investment deadline. This post is reflection of what I feel is right way getting started with managing your personal finance.

There are lot of young folks who start making money through their salaries and are able to spend them on slew of things from mobiles, clothes, travel, parties and what not. But it is important to start looking at way to save some sliver. Here are some of my recommendations

Don’t put all your eggs in one basket

It is one of the most important understanding that one needs to develop, always diversify in your investment choices. Don’t hold your saving in one instrument. There are many instruments for savings like bank deposits (recurring, fixed or some version of it), provident fund (one that company opens for your by default, another that can be opened in the bank), insurance schemes from firms like LIC and other array of insurance companies, mutual fund (equity, debt, bonds), index investing (Nifty, Sensex, Nifty Next 50, S&P BSE 500), individual shares, gold or any other valuable metals, real estate or rent seeking properties, multi level marketing (Amway, Tupperware), angel investing in startups and there may many more. Don’t concentrate on one kind of investment scheme rather try to split across based on investment horizon and risk appetite

What is a good return on Investement?

Many multilevel marketing schemes claims a return on investment based on number of people one can get under the tree as this binary tree explodes sky is only the limit as far as returns are concerned. Most of the MLM turns out to some kind of ponzi scheme (as long as new investors are joining the virtuous cycle of returns. Generally be wary of any investment that promises crazy return month on month or year after year. Nobody can give guaranteed returns except banks on their deposit schemes. Any return on investment greater than 15% YoY is questionable and needs to delved in deeper details. Always have suspicion and think twice before getting into such deals.

How much to save?

This is one question that will depend on personal obligations and family background. The idea of saving is that your are sacrificing your today to enjoy at some time in the future. The problem is that in today’s world there are bunch of stuff that gives an individual instant gratification. Its is not the easy to delay that gratification. Saving is not going to get your rich and wealthy but it can help you live your current standard of living if one does it for a long enough time. But how much to save, the answer is start small that doesn’t hurt. Get in the habit and start increasing as and when you can. Make use of compounding which means that you stay put for long term. Impulsive buying is something one should avoid which in today’s world is not that simple. You will be bombarded on all means possible to buy the next prized possession. Sometimes it is important that one indulges otherwise present becomes somewhat difficult.

Avenues to save?

For Retirement (These rules keep changing and are valid in 2019)

If you get a salary please enrol to PF and make sure atleast 12% basic is being deducted from your CTC. There are some firms that deduct only the minimum PF of 1800 in order to get more money in hand. Please make sure you move your PF account whenever one changes jobs.

One can also open PPF account in any bank and invest upto 1.5L every year and get tax benefits in 80C. This has a lock in of 15 years

NPS is another plan where even you firm doesn’t have, one can go ahead and register. If you are doing on your own one can get extra 50000 saving apart from limits on the 80C. Also NPS is lowest expense and only retirement fund where you can invest in equity.

Bank Deposits

Bank provides term deposits and recurring deposits and give interest of 6-8% depending on RBI Repo rates. This can be done for liquidity and due to inflation the the returns that we get after tax ensures that value of the money remains constant and doesn’t really grow. You would also be surprised to know that if economy is really going down in dumps and banks are collapsing you are guaranteed to claim only INR 1L which anyways wouldn’t mean much if we get into that situation anyways.

Equity

For starters investing in single equity is very risky. Investing on firms whom you have never heard is also damn risky. Investing by following rockstar investors like Jhunjhunwala or anyone else is also damn risky. Start with a mutual fund by choosing a large cap fund or any other fund from a AMC like SBI, HDFC, Axis, PPFAS etc. Investing in broad market indices like Nifty, Sensex or S&P 500 thorough mutual fund or ETF route can also be considered. Depending on how much of money one is investing there can be multiple funds or ETFs. Single stock picking is skill that needs lot of investment of time. Always buy on your own and think that you may lose all your money but there is a upside.

Gold

Buying and keeping physical gold is a challenge but many it is one of the way to hedge against money based instruments. If one wants coins can be bought for investment purposes. There is possibility of buying digital gold as well. Please note that there is always a higher buying price and much lower selling price from the customer’s perspective. This difference is about INR 400 in 2019.

Real Estate

Real estate is a good idea if you already have enough cash in hand. Also the EMI amount should ideally not exceed 40% of your monthly salary. If you are DINK, DIOK or DITK at some point then it is also a good idea to invest in real estate.

Insurance Schemes

Never mix insurance with investing. ULIP schemes are not a good way on investing. It neither gives you the insurance coverage neither the returns. So never buy a Insurance scheme and think of it as a worthy investment.

MLM

MLM is not really a investment but a business. If you would like to spurn your relationship with friends and family you may try it out. Brands like Amway and Tupperware may be a worthy business to try out but only if you have time to grow it like a business. All other rare coins or holiday planners or just grow your tree stuffs are fake and keep away from them.

Hopefully this gives you first hand idea to start saving for the future. If you have any questions or suggestions or feedback please comment. I will be very glad to take them.