Use these tips and key steps to help find a Money investment that’s right for you.

Review your needs and goals: It’s well worth taking the time to think about what you really want from your investments. Knowing yourself, your needs and goals and your appetite for risk is a good start, so start by filling in a Money fact find.

Consider how long you can invest: Think about how soon you need to get your money back. Time frames vary for different goals and will affect the type of risks you can take on. For example:
• If you’re saving for a house deposit and hoping to buy in a couple of years, investments such as shares or funds will not be suitable because their value goes up or down. Stick to cash savings accounts like Cash ISAs.
• If you’re saving for your pension in 25 years’ time, you can ignore short-term falls in the value of your investments and focus on the long term. Over the long term, investments other than cash savings accounts tend to give you a better chance of beating inflation and reaching your pension goal.

Make an investment plan: Once you’re clear on your needs and goals – and have assessed how much risk you can take – draw up an investment plan. This will help you identify the types of product that could be suitable for you. A good rule of thumb is to start with low risk investments such as Cash ISAs. Then, add medium-risk investments like unit trusts if you’re happy to accept higher volatility. Only consider higher risk investments once you’ve built up low and medium-risk investments. Even then, only do so if you are willing to accept the risk of losing the money you put into them.

Inflation presents special challenges to investors. Even if your investments are growing in value, inflation is still reducing that value on the backend. The only way to deal with it successfully is to be sure that your money’s in investments that are likely to benefit from inflation, while avoiding those that tend to be especially hard hit. Here are some ways to brace your investments for this situation.

Keep Cash in Money Market Funds or TIPS – With inflation now being officially invisible, interest rates are downright microscopic. If you suspect that inflation will be a factor in the future, it’s best to keep any cash type investments in money market funds. While it’s true that money market funds currently pay next to nothing, they’re the cash investment of choice during periods of rising inflation. When inflation hits, money market funds are interest-bearing investments, and that’s where you need to have your cash parked. Still another alternative is Treasury Inflation Protected Securities, or TIPS, issued by the US Treasury. You can buy these online through Treasury Direct in denominations as small as $100.

Avoid Long-term Fixed Income Investments – The worst investment to put money into, during periods of inflation, are long-term fixed rate interest-bearing investments. This can include any interest-bearing debt securities that pay fixed rates, but especially those with maturities of 10 years or longer. The problem with long-term fixed income investments is that when interest rates rise, the value of the underlying security falls as investors flee the security in favour of higher yielding alternatives. That 30-year bond that’s paying 3% could decline in value by as much as 40% should interest rates on newly issued 30-year bonds rise to 5%.

Emphasize Growth in Equity Investments – Many investors try to balance out their equity portfolios by investing in high dividend-paying stocks, or in growth and income funds, and this can work especially well during periods of price stability. But when inflation accelerates, it can hurt your investment returns. This is at least in part because high dividend paying stocks are negatively affected by rising inflation in much the same way long-term bonds are. The better alternative is to invest primarily in growth type stocks and funds. You should also emphasize sectors that are likely to benefit from inflation. These can include energy, food, healthcare, building materials and even technology. Since all are likely to rise in price with inflation, they’re likely to perform better than other equity sectors.

Commodities Tend to Shine with Inflation – While there isn’t an exact correlation between price levels and commodities, certain hard assets have traditionally been favoured by inflation. Precious metals come to mind immediately, particularly gold and silver. You can hold precious metals in direct form, with coins or bullion bars, but you can also invest indirectly through ETF’s that hold actual gold. You can also invest in gold mining stocks, or in funds comprised of these stocks. However, these are stocks, and not the actual metal itself. They also tend to be extremely volatile, even during times when gold prices are rising. A more predictable hold on the stock side will likely be energy stocks and funds. This is especially important since rising energy prices are often one of the primary drivers in inflationary environments.

To lead a comfortable life and have a financially secure future, you need to exercise financial discipline and have a well-defined financial strategy. This includes saving more money, making informed investments, and cutting down on your expenses. But all these efforts would count for nothing if you do not factor in the inflation rate while planning your financial future.

Let’s assume that your age is 30 years and your monthly salary is Rs. 100,000. Say, you spend almost 60% of your salary on your regular monthly expenses. This will leave you with a spare amount of Rs. 40,000. Now, assuming that you want to keep Rs. 15,000 for emergency purposes in your bank account and can spare Rs. 25,000 for investment. If you have an investment horizon of 15 years and the expected rate of returns on the investment is 10%, then by the time you are 45 years old, you will have a corpus of Rs. 1.02 crores. Thus, it is evident from the above example that you need to invest Rs. 25,000 per month for the next 15 years to meet this goal. This time horizon might change based on the rate of returns your investment generate as well as the amount you invest. It is safe to assume that your income will increase with time and you will have more spare funds to invest. So, you can achieve this target sooner than expected as well. Here are some essential points that you need to consider while developing a financial plan to make 1 crore from your investments in 15 years.

Manage your expenses: It is crucial for you to honour your present financial commitments as well as save for the future. You must, therefore, cut down on unnecessary expenses and try to save as much money as possible. Cutting down on wasteful expenses will allow you to spare more money for investment.

Having money in the bank is great because you can see yourself making progress towards your goals. It’s also a nice buffer for absorbing shocks and surprises without taking on debt. So, how do you increase your bank account balance maybe even double your money? We all know the formula: Save more and spend less. But that knowledge alone is usually not enough to change your behaviour without concrete action steps. Before you get started, it’s wise to think about your goals the things you want, and why you want them so you will be more motivated to do it.

Switch to your library for reading material: Books, magazines and newspapers soon add up if you’re buying them a lot. By borrowing reading material more often, you can put the money saved straight into the bank instead. Some libraries allow you to download e-books to an electronic reader. If you have an electronic reader, use the library’s borrowing rights rather than purchasing your own copy.

Start your day with breakfast and coffee at home: If you have been in the habit of grabbing a latte and cinnamon bun on the way to work, it’s time to stop. Eating on the run is unhealthy and if you’re eating fatty and sugary foods, you’re not giving your body good fuel for the day. Save money by eating a healthy breakfast at home and enjoying your coffee there too. If this means getting up a bit earlier, then do so the extra sleep will have to come from an earlier bedtime, which won’t hurt you!

Over the years, we have talked a lot about passive income. For the uninitiated, passive income refers to the money you earn from sources like dividends, interest, and rents. It is the money that your money earns for you and is deposited in your family’s bank account whether or not you get out of bed in the morning. The ultimate goal of most investors is to generate enough passive income that they can live a comfortable life upon retirement when they are no longer able to earn a paycheck. When building an investment portfolio, one trick you can use to stay the course and get rich is to measure your success by the amount of passive income you are generating in cold, hard cash each year. Following this philosophy is simple because you can see tangible proof of your progress as checks are sent to you in the mail or directly deposited into your bank account.

One of the hallmark traits of a good passive income portfolio is that the cash-generators it holds, whether they are stocks, real estate, equity stakes in private businesses, intellectual property, mineral rights, or anything else you can imagine that throws off funds. They grow each year, so they are throwing off more money than they were the prior year. It is important that the growth rate in cash distributions exceed the inflation rate, so your household income is always expanding, giving you more capital to give away, reinvest, save, or spend.

The major advantage of focusing on annual passive income as a metric for success is that it can help protect you from overpaying. This is a function of basic math. As prices rise, cash yields fall. An investor focusing on increasing his passive income isn’t going to find these low-yield investments nearly as attractive, providing a countervailing force as optimism sweeps the stock market or real estate market. He or she has inadvertently protected his or her family’s investments.

One of the biggest risks for men and women focusing on passive income investing is falling into a so-called value trap or dividend trap. As a general rule, if an asset is yielding 3x, 4x, or greater than the 30-year United States Treasury bond, be wary. Most “cheap” assets are cheap for a reason. In today’s world, if you see a dividend of 6%, 8%, 10%, 12% or greater, you are probably walking into one of these so-called traps. It might be a company that had a special one-time dividend from the sale of an asset, such as a subsidiary, or the settlement of a lawsuit that won’t repeat. It might be a pure play commodity business structured as a master limited partnership that had record earnings from high prices, which the market knows cannot be sustained. It could be a cyclical business displaying what value investors call the peak earnings trap. In any event, be careful. Passive income investing can serve you well but don’t get greedy and overreach for yield. As Benjamin Graham reminded us, more money has been lost by investors reaching for an extra half point of passive income than has been stolen at the barrel of a gun. He was right.

Stop Buying Stuff You Won’t Remember in a Week: If it’s an item or an experience you won’t remember in a few days, you shouldn’t be spending any money on it. If it’s completely forgettable, then any money you spent on it is basically just lost. The only completely forgettable things you should be spending money on are your most basic life needs – basic food, basic clothing, and shelter.

Use Credit Card Statements, Bank Statements, and Receipts to Track These Down: The trick with forgettable purchases like these is that, well, you forget about them. That’s the whole problem – they just fade away. The solution to that problem is to simply dig through your credit card statements and bank statements and receipts every once in a while and look for these kinds of purchases. Look for the places where you spent that money and recognize that those are pretty wasteful places for you to go. You don’t get anything lasting out of your money spent there.

Avoid Convenience Foods: There’s nothing wrong with going out to a restaurant as long as it’s a memorable experience. The problem comes when you go to a restaurant as a pure “time saver” and the food and experience are completely forgotten in a few days. Fast food almost always falls into this category, as do many chain restaurants. The meals are completely forgettable, relatively expensive, unhealthy, and actually don’t save much time, either.

Some of the things we want to achieve in life come with a hefty price tag (think: buying a house, starting a family and retiring). Becoming a parent or homeowner is exciting, but in order to get there you have to plan — and save. So as you go through life dreaming about reaching your next milestone, review your budget and make sure the numbers add up.

Buying a house: Before shopping around for a home, check your credit. Your mortgage terms will depend on it. Order a free copy of your credit report and make sure it’s accurate. You don’t want to be penalized for errors. You should also avoid applying for new credit before you buy your home and pay down as much debt as possible.

Retiring at a decent age: Whether you plan to hit the links or spend more time with family once you stop working, retirement is rarely as affordable as you think. Do your best to determine what your income and expenses will be after age 65. Think about your spending habits now and in the future. Then, determine how you’ll cover your cost of your living expenses before you buffer in additional budget for things on your bucket list. You’ll need to factor taxes, health care, Social Security and pension plans into your budget, too. READ MORE

Bank fixed deposits: Bank fixed deposits are secure investments and you can park your money in a fixed deposit anywhere from 30 days to 10 years. While you have the option to withdraw the money before the maturity date it’s advisable to withdraw it only after because this instrument is not very liquid in nature. For example, if you invest in a two-year fixed deposit, which yields a 10% interest rate and you decide to withdraw the funds after six months then the bank will pay you an interest rate that was valid for a six-month fixed deposit, which could be 6% at the time you had invested. Plus, if you withdraw money before the maturity date, depending on the bank, you could end up paying up to 1% of the interest charged as penalty.

Money market accounts: Popularly known as liquid funds, money market accounts are a special category of mutual funds, which invest in several money market instruments such as term deposits, commercial papers, etc. The underlying assets in liquid funds usually have maturity periods of less than 91 days enabling high liquidity. The tenure of a liquid fund is always less than a typical mutual fund and offers higher interest than savings accounts. Usually, large institutions invest their money in liquid funds but as an individual investor if you want to earn above-average returns and beat inflation then this is a good option. READ MORE

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— Oscar Wilde.

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