How to manage your money? Maybe you're in 20s, just started earning, just started making a little excess income. You are asking people about what to do? Invest in FDs, mutual funds, or stocks at all. For this there is just one simple perspective that you need to know, and this is whenever it comes to money and managing and growing money. The most important element is time.
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| How To Manage Money |
It is not necessary where you are putting your money or how much money you're putting in. However, it is important how long you have been putting in the money. And if you want to make a lot of money in a very short time, then that invariably will hurt you. Because you will play like a gambler in it. You will feel that you should put all the money in the stock market at the stock tip. I should buy the lottery; I should do something because of which one fine day I will have so much money that I do not need to do anything else. However, that happens only in films, not real life. In real life, managing money and growing it is a matter of time, and to do that, here are my 2-3 tips.
Number: 1. Start as soon as possible.
It does not matter how much you are starting with, only where you start. The best investments are those where you have liquidity that means you can withdraw money whenever you want. If you invest money in real estate or startups, then it is not liquid because you cannot generate the money when you demand it.
If you buy a house, no matter how big or small. You cannot get back your money instantly by selling it in the market. But if you invest in stocks, mutual funds, or gold, then you can get that money in a maximum of 2-3 days. So the first thing is to invest in liquid elements, invest in liquid asset classes, because that will maintain your liquidity. Whenever you need cash, you can instantly withdraw it.
Number: 2. Time
Like I said, the time frame is important. There is a concept of compounding that says if you were given the same rate of interest every year, then the money grows slowly initially. However, after that, it will start to build up very quickly. Compounding is not a straight line. It is a slow curve and then rises high quickly. However, when it rises slowly, when you cancel your mutual funds, or when you sell off your stocks, then you will never see the effect of compounding.
If you started very early or even if you have started very late, give it some time: 5, 10, 15, or 20 years. Just keep investing that money and tell yourself that if you keep earning 8%, 10%, 12%... whatever it is, then it will compound it gradually and give me even more money. This is very important. Understanding compounding is very important.
Third and final thing: Loan Free
Whenever you are investing your money, you will never get in debt. You will never tell yourself that because I have invested my money; if I am earning more return on it, then I can take a loan at the smallest rate of interest, and that is not correct. Loans are a reality. Whatever happens to you, whether the market is up or down, you have to pay its EMI. But the return on investment will always keep fluctuating. It can be higher or lower.
Sometimes the stock or the market is higher or lower if you are putting all your expectations onto your future. You are saying you do not have money right now; however, it will come tomorrow, and because of this, I will buy something today that I cannot afford. It could be a car, could be a bungalow, could be a phone, could be clothes—it could be anything. The more you get into loans, the more you use your credit card and pay not in full, but partially. You will keep getting encircled in this vicious circle of loans.
The most important thing in your life should be that you are loan-free. You do not own anything. There are just two loans that I feel perhaps are right. One that you take for your education, for your studies, because that investment is genuinely for your future. So for your future earnings, you are having future investments; that's cool. And the maximum you could take a loan for is the house you live in. Even that is not favorable; however, buying a home is a big thing and uses so much liquidity. So much cash does not come in one go, so avoid it as much as you can. Pay upfront as much as you can, but if you have to take a loan for your house, then to a certain extent, it is a good thing.
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However, beyond that, there is nothing for which I would recommend a loan, be it a car or anything else. The banks, the entire world, will try to sell you loans. Do not get those debts. Everyone will try to sell you credit cards; do not get into that loan. Please keep yourself loan-free because when you keep yourself loan-free, then whatever compounding your money is having, it is genuinely increasing. It won't be stripped off because you are bound to pay off a loan. You are earning 12% on your money; however, you have a debt with a 10% interest. And your net return is simply 2%. Because of this your money will never grow to a level that you want it to grow. If you keep these three things in mind. You will be able to manage your finances beautifully.
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