5 benefits of investing in auto mode at the start of each month
There are two types
of investors.
·
Category 1 – Those who invest
their money manually at end of each month
·
Category 2 – Those who auto invest at the
start of each month.
Today we will
discuss which option is better than other and what are the benefits of choosing
the auto investment mode in start of the month
While investing at
the end of the month manually is very intuitive and sounds comfortable to most
of the investors, we think that investing in the auto mode at the start of the
month is much better and beneficial for an average investor.
Now let’s looks at
benefits of investing on auto mode at the starting of each month
Benefit #1 – You
can manage your lack of discipline
Can you trust
yourself in investing each month manually for next 5-10 yrs?
If you decide to
invest Rs 10,000 on 25th of every month for next 10 yrs, will you be able to do
it consistently for next 120 months (10 yrs X 12 months)?
Trust me, it’s a
lot of work and very hard to act in a robotic fashion.
·
Sometimes, you will postpone it
·
Sometimes, you will feel – “Lets do it next week”
·
Sometimes, you will skip it for the sake of other expenses
·
Sometimes, you will just be involved in some other tasks
·
Sometimes, you will actually follow it
·
And most of the times, you will just forget it
Compare this will
an auto mode, where you have setup your SIP (automatic monthly deduction in
mutual funds) or a recurring deposit (for those who don’t think mutual funds
are their cup of tea), and the money automatically gets deducted from your bank
account (considering you have the balance) and then gets invested without your
intervention.
Which one of these
options do you feel will be in your interest?
Most of the people
think that each month of a certain date they will invest some X amount on a
regular basis, but they are not able to do it on consistent basis. They either
lack in discipline or they are so consumed in other areas of life, that they
are not able to follow what they promised themselves.
Due to this, their
financial life suffers. The money does not get transferred from bank to the
investments and eventually gets spent.
Trust me, even if
you are the KING of indiscipline, the auto investing will create wealth for
you!
Benefit #2 – You
avoid unwanted expenses
“Supply creates its
own demand” – a classic principle of economics. If you have money lying
available in your bank account, you will find enough reasons for spending that
money.
Hence, if you think
– “Let me first spend, if anything is left, I can always save/invest it
at the end of the month” , it’s almost guaranteed that you will not
find any money at the end (unless your income is very high compared to your
expenses)
This is the reason
why you should create a structure that takes away some part of your salary from
your saving bank account to somewhere else which is not easily visible to you
(like PPF, RD, or mutual funds).
I have devised
something called “10% margin system”, which can truly transform the way you
manage your cash flow. It’s one trick which will help you save more money each
month.
Under this system,
you only keep your monthly expenses + 10% more in your bank account and invest
everything else at the start of each month
So if you invest in
the start of this month, you will shop only limited to your needs, you will not
over eat out side, and to a great extent you save on the unwanted expenses.
The whole idea is
to “cut” the excess supply of money to yourself by investing it at the start of
the month itself.
Benefit #3 – It
develops the habit of Saving
One of the biggest
challenges for new investors is to develop the “habit of saving” in them.
The world these
days is such that its every easy to SPEND money on things you don’t really
need. You spend on mobiles, gadgets, parties, travelling and consuming various
things (nothing wrong in these things). However beyond a point, you start
crossing the limits and you start “wasting” money at the cost of future.
Most of the
investors find themselves not saving any money and living paycheck to paycheck
for the simple reason that they never develop the saving habit and eventually
end up in the never ending cycle of earn -> spend -> earn -> spend
If a person sets up
the auto investing at the start of the month, then at some level the habit of
saving starts. If one is able to continue that for few months, the overall
expenses will get adjusted with the leftover money in the bank account. If you
are a new investor, the primary reason to start your SIP or RD is not to save
money, but to develop the habit of saving.
Benefit #4 – You
reduce the risk of investments
If you do not
spread your investments across months, then there are a good chances that if
the markets fall suddenly, its impact will be high on your wealth. In the same
way the upside potential is also high. But let’s focus on the risk part here.
If your investments
are happening each month on a regular basis, then your investments are spread
over all kind of markets like bull and bear market (assuming your investments
are happening in mutual
funds SIP)
So if you want to
control the risk part, it’s a good idea to let your investments happen on
monthly basis and not one time basis. The good example for this is SIP in ELSS
vs. One time investment in ELSS for 80C.
For example,
consider two friends Ramesh and Dinesh
Case 1 : Ramesh invests Rs
1.5 lacs in one go for tax saving during the month of Feb, but the markets in
next one year go up and down and eventually go down by 10% . In this case, the
investment done will be having high risk, because all money was invested in one
go (which also means that potential returns can also be high if markets do
well) and all the ups and downs impact will be on the total money.
Case 2 : However, Dinesh
does a SIP of Rs 12,500 per month in ELSS, and in 12 months he invests total of
Rs 1.5 lacs. In this approach, the investments are spread over 12 different
months and risk (and returns) will be more controlled. If markets go down in
the first few months, then it’s only for the amount invested before that event.
Benefit #5 – Guilt
free Spending
This is one benefit
which is often not appreciated enough.
When you save your
money at the start of the month, then rest of the money is available for your
expenses. Now you can spend it freely, without any guilt.
Most of the people
who do not save enough or save at the end of the month, keep worrying and
thinking while spending their money. They keep feeling “Bahut
Kharcha ho gaya is baar” while going for outings or movies etc.
This is because they have not allocated money for future.
So you should start
your auto investing (SIP is one of the best way of doing that) and once you
have done that, I suggest you adopt the envelope style of expenses where you
create few envelopes for each expenses category and put the cash in the
envelope and use only that till the end of the month.
However once you
setup your automatic investments at the start of the month, you then just have
one agenda – “Spend rest of the money” guilt free.
Are you starting
your investments in Auto mode Now?
So what are you
waiting for?
If you have not yet
started your investments in auto debit mode, you should immediately start your
investments. You can either start your SIP with our team or reach out to UIV CONSULTANTS PVT. LTD.
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