WE often wait for an opportune time to invest, and my experience indicates that such opportune time never comes.
As a result most of the time we fail in our savings pursuit during the lifetime. On this I remember a famous saying which states that-‘tomorrow never comes’ and this literally applies to the subject matter in hand.
By taking a cue from the above statement one needs to comprehend two important things in order to achieve the goal of attaining self-sufficiency in financially matters. The first thing goes with the discipline, which on our part necessitates the creation of savings or a disposable surplus consistently which in turn have to be taken up for onward investments.
The second equally important element is to determine the quantum of a disposable surplus. Though there is no clear cut parameter for a person to gauge what is a perfect sizeable or the so called respectable amount as needed for investment. However one needs to understand that a beginning can be made with any amount in hand, howsoever small it may be.
The phrase–‘small amount’ is a quite subjective term which again differs from one person to another. For someone 21m/- may fall under the category of a small amount, while for another segment it may be a very big amount to invest. So depending on one’s income as well as expenditure levels, we can easily comprehend the quantum of investable surplus which is required to be created for onward investments.
Having discovered an easy answer on the quantum of one’s investable surplus, the next equally difficult question [as it appears] is to determine the periodicity or what do we mean by the phrase - regular interval. This again depends on many factors e.g. for a daily wage earner the periodicity needed for savings/ investment can be taken on a per day basis, while for a regularly employed person the same could be on monthly basis.
Similarly for a farmer, such interval will be determined based on the nature of crops he/she is growing and the timings i.e. when of its output ready for sale, which may lead us to an interval of quarterly or half-yearly basis. When we apply the same principle to a business entity, this periodicity may finally drill down to be on yearly basis i.e. this is when the entity finalizes its annual accounts and arrives at a surplus or a deficit [whatever the case may be].
A disciplined approach of investing small amounts at regular intervals can be achieved by joining various kinds of ‘Systematic Investment Plans [SIP’s]’ as prevalent. Some notable examples of ‘Systematic Investment Plans’ are as follows:
(a) Savings accounts with banks
(b) Recurring deposits with banks
(c) Postal Savings Schemes
(d) Monthly Income Plans [MIP’s]
(e) Open end ‘Collective Investment Schemes’
(f) Saving Schemes operated by Community Banks etc.
You may be surprised to know that currently there are many well-regulated schemes available in the country where money as low as 5,000/-can be invested by a common man on a daily basis pattern or at any other periodicity of their choice. At this juncture if somebody puts forth an argument that for many even creating an investable surplus of 5,000/-is beyond their reach.
But one need to understand a simple logic that such amount can still be created by making a paltry saving of 500/-for 10 regular days. Therefore do not bother about the quantum of investable surplus, which in any case will get created if one is determined to do so. But what you really need to bother is to follow a disciplined approach religiously while investing.
By following the above stated approach, one is privy to an important advantage of getting ‘averaging of returns’ on their investments, as average rates of returns are averages of periodic percentage returns. We all know that the movement of most financial markets is quite cyclical as well as unpredictable and thus one may end up timing its investments wrongly.
However the impacts of such adverse market movements can easily be warded off, if one adopts a disciplined investment approach. Investments made at regular intervals make the volatility in the market work in your favour, as over a period of time these market fluctuations are generally averaged out.
Moreover it is a proven fact that over a time investors who had followed a disciplined approach are the ones who normally reap the ‘maximisation of returns’ on their investments. Even in a downward spiral market trend, these are the same category of investors who are impacted least. This is due to the application of ‘averaging of returns’ principle on their investments.
Additionally this approach will also derive the benefits of ‘Magic of Compounding’ to the investors, as this is one of the potential ways to magnify your small savings into a size-able amount. The ‘Magic of Compounding’ is a wonderful tool and I promise to do justice with this subject by writing an exclusive article on it in the days to come.
Remember, financial planning is not about having financial expertise and intense hard work. Similarly you don't have to match the calibre of Warren Buffett to determine–when, where and how to invest. All it needs is the right approach and a bit of discipline on your part. So take the first step now by investing small amounts at regular intervals, which I am sure would lead towards the fulfillment of your dream of achieving ‘financial independence’ in every pursuits of your life.