The video gamer’s guide to personal finance

A personal finance blogger on why unlocking the next level is good motivation when it comes to your finances

The world of financial investments is daunting. The fear of getting started, along with the seemingly insurmountable learning curve, prevent many of us from saving our money. If you are feeling overwhelmed, here is a handy tip: treat the process like you would a video game. Solve the challenges and problems sequentially, one level at a time.

Yes, the ‘levels’ are not so clearly defined when it comes to personal finance, and you might have a lot of questions (like, ‘Should I invest in stocks or mutual funds? How will the elections impact the equity market? Why do debt funds sometimes yield negative returns?’).

But you do not need to have all the answers before you start investing, just like you do not have to worry about clearing level eight of Dungeons and Dragons before you even start playing.

Level 1: Spend less than you earn

This is a pretty straightforward point. If you cannot save enough, nothing else really matters. Spend after you have put aside your monthly savings, and not the other way around.

Level 2: Maintain an emergency fund

Put away approximately six months of your monthly expenses in a stable liquid investment option (think fixed deposit or a liquid mutual fund).

Level 3: Get insurance

This includes health insurance for you and your family, and life insurance.

Level 4: Identify your financial goals

Make a calculation of how much money needs to be saved by listing out your goals (such as early retirement, buying a house, children’s education) and the timeline by when you need to achieve them.

Level 5: Get your short-term plan out of the way

For the near future (anything you might need in less than five years), shield yourself from the ups and downs of the equities market by investing in other financial instruments. Some good options are debt and arbitrage funds.

Level 6: Focus on the long-term

Whatever money you can afford to put away for a long period of time (over five years) is well-invested in an equity heavy portfolio. This means that your money will see a lot of ups and downs as the market goes through its cycles. On average, you can expect a 10% fall annually, 20-30% fall every couple of years and 40-50% fall once a decade. But your money will grow over time.

To get started, set up a simple SIP (systematic investment plan), where you automate your monthly investments into a small pool of hand-picked funds.

Some apps to get you started are Kuvera, Scripbox, Goalwise, PayTM Money and Zerodha Coin.

As told to Sindhuri Nandhakumar

Why you should pay for quality journalism - Click to know more

Related Topics
Recommended for you
This article is closed for comments.
Please Email the Editor

Printable version | Apr 8, 2020 12:37:21 AM |

Next Story