Note: This answer has been written with my own experience and keeping the Indian reader in mind.But the basic skeleton will remain the same almost everywhere.
Okay, now Not 1 month but 1–2 Days.
I have tried to give you a complete blueprint to automate your finances completely.This way, you won’t have to do the same thing over and over again every month. Instead, what you do in these 2 days will take care for the rest of your life.
But first, understand this.
It’s important(At least that’s what Warren Buffet says) :
DO NOT SAVE WHAT IS LEFT AFTER SPENDING, BUT SPEND WHAT IS LEFT AFTER SAVING.
Essentially, Savings ≠Income — Expense
Instead, Expense = Income — Savings
So, first of all when your salary or whatever your income source comes, distribute it to various channels which will beat Inflation and eventually give you profit.(The best thing money can buy is more money)
Note: I have used only free resources and those which consume the minimum time.I personally follow these steps and you can trust me that it works.
Also, for the sake of calculation and familiarity, i have assumed an example of a guy named Manish, whose age is 25 and earns around ₹25,000. Manish is also a Korean film star with a French accent.And Manish is also the Batman.(2 out of the last 3 statements are false)
1.) PAY YOUR DEBT/LOANS.
I cannot emphasize it more.
If you have a loan on your head, start paying it immediately.Keeping a blind eye would only hurt you.
Manish has no debt currently and he would also take care about not accumulating debt in the future.
Note: If your First name is Vijay and the last name is Mallya, you can skip this step.You don’t care anyway
2.) Send 15–20% of your salary into a Dummy Savings account
What I mean by a dummy savings Account is that make an Account in a bank whose only function would be to store your money monthly, without any fuss.
Now, if things are bouncing around your head, just follow these steps
1.) Download and make an account in Kotak 811/Paytm payments bank(Kotak preferred)
2.) Go to your primary bank account and set up Auto transfer(for ICICI Bank, see this) to your Kotak account. This will ensure that a certain amount transferred every month automatically.
For Manish, he will set up auto-debit and transfer 10–15%(i.e around 3500) into the Kotak account.
Note: If you want to follow a conservative route, start a Recurring Deposit(RD will have minimum lock-in period, Dummy account won’t)
3.) Invest 10–15% in Direct Mutual funds
Now, so you have saved a certain amount risk-free.But then how will you let your money work and beat the Inflation. That’s where Mutual Funds or any other Investment scheme comes.
Now, returns will come at a risk, and Mutual funds are a risky business.There are a lot of Mutual funds out there in the Market(and then they have Direct/Regular, Growth/Dividend options) which confuse many.
I would suggest you open an account in Jama/Invezta because they provide Direct Mutual Funds i.e. they don’t take a commission from your earnings.
Manish will probably go with Jama because it has a Mobile app and also it’s easier to pronounce.Also, for funds, because age is on his side, he can survive initial losses, and hence he will invest in Small-cap/Mid-cap funds, which although are risky but also have a potential for higher returns.
These are the basic steps which one should take.Also, you have PPF’s, Insurance(Life and health), retirement funds etc.But that is for some other day.
And if you follow this, whatever you have left after savings would be what Ramit Sethi terms as Guilt-free spending.Want to drink that hazelnut coffee, sure.Cheese burst instead of Pan based Pizza, why not!
The bottom line is, you don’t need to spend hours and hours every week to save and invest. Just a few right decisions at the right time(which is now), a little bit of conscious spending, and trust in the system.
And you will be well ahead of most people, financially.
