We all intend to make that investment decision one day. One day when we will sit down with our finances, make our plans, and begin our investments. But while we wait for that fine day, our money lies idle in a savings bank account. We console ourselves that at least it is earning some returns, and not being lost in a risky investment. But not all investments are risky. Even shifting that money into a one-year fixed deposit might be a good idea. Why do we let money lie unutilised?
Often, we don’t have an estimate of our monthly expenses and we keep any surplus in the bank — just in case we need it sometime. Or we baulk at the paperwork it takes to shift the money into a FD when there’s an insurance payment coming up in just three months. Or we intend to repay a loan, buy something nice, take that holiday, and we leave the money in while we make, or don’t make, these decisions. Or we might actually want to invest but don’t know where or how. While we are undecided, the money simply sits there. At 4 per cent.
By leaving that money idle in the bank, we have actually made an investment decision. To keep it invested at 4 per cent with high liquidity to withdraw at any time we need. This decision also hurts our wealth, just like those shares that are losing money. The shares are losing actively; the savings account is losing passively. That’s the only difference. We need to make sure our money works for us, just as we have worked to earn it.
Every investment decision need not be a big one. Yes, investments should be accessible in times of need, but we should not overestimate our liquidity needs. We need a system to identify how much we are likely to spend, how much we can save, how much we can invest, and where. If these decisions are made once a year, say, after we have got our annual increments, we will be able to implement them easily.
Mutual funds and online trading accounts can be linked to our bank balances. All we need do as soon as the salary comes in is to invest the previous month’s balance in the pre-identified investments. Since the folios are the same, it’s a simple matter of a few clicks. We could pre-choose the funds and shares, and simply accumulate whenever we have the money.
We can also put the money in a liquid fund and withdraw it at a day’s notice, for an urgent expenditure, or switch to an equity or debt fund, as and when we decide to invest.
Being passive and not acting may make us comfortable. But inaction means either ignorance or fear. And it costs. It’s time for a reality check. How much is the balance in your bank account at the end of every month? If you find you have more than 5 per cent of your income lying idle most of the time, it’s time to review your finances.
Taruna Changulani, a chartered accountant, is Director and Co-founder of the Centre for Investment Education and Learning, Mumbai. Mail her at taruna.changulani@ciel.co.in
