How to create wealth from your savings?

 How to create wealth from your savings?

We have a place with a moderate culture where saving propensities are incorporated into our DNA. As a country, we prefer to save rather than spend, unlike advanced economies that are driven by the spending demand of their domestic economies. Saving is natural and each of us will save for the future in our way. Whether we put our savings in a bank FD or contribute to PPF or reduce the EMI management cost of a home loan, saving is all we do. But how about turning your money into something beyond savings that can give you an 8% to 9% return at best, half of which is swallowed up by inflation?

That's when savings and investments come together to help you build wealth and feel financially secure. Having a job isn't enough to make you feel financially secure, because what's left of your salary after paying all your monthly expenses isn't enough for future one-time expenses that will sink in over time. Salary-to-salary savings cannot cover major life items such as children's college education, their weddings, medical expenses in old age, and expenses for the long, retirement phase of life when a salary would no longer hold you back. It is necessary to invest your savings in investment routes, where they can grow many times over the long term.

You need to understand the difference between short-term and long-term investment decisions to take a holistic approach to build financial security and wealth.

Set short-term goals

Transient objectives are generally characterized as achievements you need to accomplish in the following 1-3 years. If there are any short-term goals that you can't afford to miss, go for savings options like bank FD or better yet invest in suitable debt mutual funds if you are comfortable with mutual funds. Fixed-income mutual funds or debt mutual funds are safer than equity mutual funds and have the potential to offer you higher returns than bank FDs. However, you need to research well or take the help of an investment advisor to select the right funds that are well suited to your financial goal and risk appetite.

Try not to allow your cash to sit inactive in the bank

Most people will just let their money sit in a savings account, even if the amount is well more than what is needed to manage day-to-day expenses. Don't let excess cash sit in a savings account. Rather, invest it in a liquid mutual fund, which can potentially offer you a return higher than what the bank would offer you. Liquid funds are easy to manage as they have no entry and exit loads and the cash for withdrawal is available the next business day you want to sell your share in the fund. Liquid funds are best suited for investing excess cash for 1-90 days and are the least volatile of all mutual funds.

Put resources into adjusted shared assets for medium-term objectives

If there are any receivables that you expect to mature in the next 3-5 years, choosing a balanced mutual fund or a suitable hybrid mutual fund can be a good option. Balanced funds, which are a kind of hybrid mutual fund, invest in a mix of equity and debt securities. They capture the characteristics of both equity and debt funds while offering their investors a moderate risk and return proposition that is suitable for those who prefer to play it safe while looking for some growth potential in equities.

Invest in stock-oriented options for the long term

When the financial goal is far away, say your retirement life starts in 15 years or your daughter's college education matures in 7 years, a well-diversified equity fund would be the best option. Equity funds are best suited for long-term investments of more than 5 years, as stocks are prone to higher volatility in the short term but can provide good returns in the long term. Invest wisely in multiple equity funds that suit your personality i.e. your risk appetite. You can also consider direct investment in shares, but mutual funds are more suitable for those who do not like to take risks with shares. Always try to understand all the risks of mutual funds before investing in them.

Be adaptable, screen and rebalance your portfolio routinely

Once you invest your money in various Mutual Funds, FDs, Shares, ULIPs, PPFs, etc, the job is half done. You must monitor your portfolio regularly and make changes if necessary. Rebalancing is necessary to reflect any changes in your life circumstances. For example, you change work from a multinational company to a start-up, where the risks are higher. In such a situation, your portfolio's exposure to stocks should decrease because your human capital is now invested in a high-risk stock. Working for new companies is on par with claiming high gamble capital.

Seek professional advice

It is best to seek professional advice from an investment advisor or enlist the help of mutual fund distributors to navigate the paperwork and transaction requirements. Before recommending any investment plan, the investment advisor will carry out your risk profiling and suitability analysis. It can be helpful to take such help when you are putting your hard-earned money into a long-term plan. Take time to understand.