5 Best Ways to Invest Money & Start Saving from this new year

Are you looking for investment options through which you can start saving for your future? Read this blog to know the best 5 ways to invest your hard-earned money.

Investing is crucial for achieving financial security in the long term. By saving and investing in financial options that work for you, you can grow your wealth and prepare for unexpected expenses. Investment plans offer the dual benefit of increasing your wealth while also providing life insurance coverage.

Financial advisors can provide a wide range of investment options tailored to your financial goals, risk tolerance, and budget. Saving and investing can help you meet your short and long-term financial responsibilities, such as funding your children's education, planning for retirement, or preparing for a wedding. In addition, investing can help you save money on taxes.

How to start saving and investing in 2023?

In order to understand the best ways to invest money in 2023, you must first understand the following:

a. How to Understand Your Finances and Create a Budget?

The first step towards financial health is understanding your finances and creating a budget. Often, people are unaware of where their money is going and fail to create a budget to control their spending. By gaining control over your budget, you can take control of your financial health.

Start by analyzing your cash flow, including incoming and outgoing money, monthly bills, subscriptions, debt repayments, and savings contributions. This will provide you with a complete understanding of your finances.

Here are some tips to create a successful budget:

1. Create a list of all your income and expenses for a month.
2. Compare your monthly income against your expenses to determine your savings.
3. Categorize your expenses into fixed and variable expenditures. Fixed costs include expenses that are difficult to reduce, such as rent, utility bills, and EMIs. Variable costs, such as entertainment, groceries, and shopping, are expenses that can be adjusted.
4. Identify the variable expenses that can be reduced to increase your monthly savings.
5. Follow your plan and begin saving. Track your progress to ensure that you are meeting your savings goal.

By understanding your finances and creating a budget, you can take control of your financial health and ensure that you are on track to meet your financial goals.

b. How to Pay Off Your Debts?

Paying off your debts should be a top priority before you start saving money. The longer you take to pay off your debts, the more interest you'll have to pay, which will increase the outstanding amount. Therefore, it's important to clear your debts as soon as possible, including mortgages.

Follow this monthly plan to pay off your debts:

1. Allocate 50% of your monthly income to fixed expenses, such as rent, utility bills, and EMIs.
2. Allocate 30% of your income to variable expenses, such as entertainment, dining out, and subscription services.
3. Save the remaining 20%.

By following this plan every month, you'll be able to pay off a significant amount of your debt by the end of the year. This will help you reduce the outstanding amount and decrease the amount of interest you have to pay. Once your debts are paid off, you'll have more money to save for your financial goals.

c. How to Earn Interest on Your Savings Account?

If you want to boost your savings, one way is to earn interest on your savings account. Here's how:

1. Open a savings account with a reputable bank or financial institution and start depositing your savings into it. Ensure that you can access this money in case of an emergency and use it as your emergency fund.
2. Check the interest rate offered by the bank when opening a savings account. Always choose a bank that offers a good interest rate.
3. Some banks offer higher interest rates on current accounts as well, so you may want to consider this option as well.

By earning interest on your savings account, you'll be able to increase your savings over time. It's important to monitor the interest rate regularly and switch to a different bank or account if a better interest rate is available.

Automating Your Savings Contributions

To avoid spending your monthly savings, consider automating your savings contributions. This involves setting up an autopay method to transfer a fixed amount to your savings account at the beginning of each month. This helps you maintain your monthly budget without losing your savings.

To automate your savings contributions, you can use various bank and third-party apps that facilitate automatic transfers between your accounts. This allows you to easily and consistently save money every month. By making it a habit, you'll be able to grow your savings over time and achieve your financial goals.

d. How to Automate Your Bill Payments?

In addition to automating your savings contribution, you can also automate your bill payments. This not only helps you avoid paying hefty late fees but also saves a lot of time and hassle.

To automate your bill payments, you can set up automatic payments through your bank or third-party payment apps. This ensures that your bills are paid on time every month, without the need for you to manually remember and pay each bill. By doing so, you can avoid late fees, improve your credit score, and simplify your financial management.

e. How to Set a Spending Limit on Your Cards?

A great way to save money is to set a limit on all of your credit and debit cards. This will encourage you to be mindful of your spending and help you avoid overspending. While this may sound like common sense, it can go a long way in helping you build a habit of saving.

Setting a spending limit on your cards can be done by contacting your bank and asking them to set a maximum limit for your account. This can help you stay within your budget and avoid unnecessary spending. Another way to limit your spending is to use a budgeting app that tracks your spending and alerts you when you reach your limit. By being mindful of your spending, you can save more money and achieve your financial goals.

Top investment plans for 2023

If you’re planning to start or enhance your investment journey this year, you might want to consider investing in some of the top investment options in India. These include:

1. Direct Mutual Funds

SEBI (Securities and Exchange Board of India) mandated a few years ago that mutual funds must offer direct investment options, which are investments that do not go through an intermediary. These direct plans have lower expenses since there is no middleman involved. They have proven to be profitable investment options. In comparison, regular mutual fund plans have an expense ratio that is 0.5% to 2% higher than direct plans. While this percentage may seem low and negligible, it can add up to a considerable amount for large investments.

2. Gold Bonds

Gold Sovereign Bonds (SGB) are widely regarded as a top investment choice as they provide the combined benefits of gold assets and the fixed income feature of a bank fixed deposit. This ensures that the value of the investment continues to appreciate even during times when gold prices dip. The fundamental principle of wealth building is to minimize losses and maximize gains. Recently, the value of gold has remained stable and has been a reliable asset during market downturns. With the potential for future appreciation, investing in SGBs offers both fixed interest rates and the possibility of higher prices. For long-term investments, SGBs can offer a much larger return than other investment options like physical gold or gold exchange-traded funds, which do not guarantee fixed returns.

3. Real Estate

In recent years, the real estate industry has been in a slump, disappointing many investors. Controversies, corruption, and malpractices have plagued the industry, causing many to lose faith and sell assets at lower prices than expected. This state of affairs can be attributed to widespread scepticism and slow economic growth, with no signs of imminent recovery.

Thankfully, the market is showing some signs of improvement and may become a more attractive investment option in the future. The government has taken corrective measures to address economic growth and the real estate sector, which has led to a slow but steady recovery. However, investors should be cautious of certain bad actors in the industry who are involved in legal battles with the government and consumers alike.

4. Public Provident Funds (PPFs)

If you are risk-averse and want a safe investment option, consider Public Provident Fund (PPF) and Employee Provident Fund (EPF). These funds provide returns of around 9% and are guaranteed1 by the Government of India, making them a secure investment. Moreover, the interest earned on these funds is tax-free under Section 80C. The maximum investment you can make in these funds is ₹ 150,000.

EPF deducts a portion of your earnings, and your employer contributes an equal amount to your EPF account. On the other hand, you can open a PPF account in any bank, and the maximum deposit per year is ₹ 150,000, which can be made in a maximum of 12 deposits during the year, not necessarily each month. The minimum deposit for this fund is ₹ 500, and it has a maturity period of 15 years, subject to certain terms and conditions. You can withdraw the funds after the mandatory lock-in period, and this withdrawal is also tax-free.

Financial advisors usually recommend these risk-free investments, particularly for retirement goals. Investors who have limited or no retirement benefits should opt for these types of plans as they offer flexibility to withdraw money after the mandatory lock-in period and are also tax-free.

5. Post Office Monthly Income Scheme

The Post Office Monthly Income Scheme is a popular investment option in domestic households, especially among those earning passive income and seeking to generate returns. The Indian postal service offers single and joint accounts (up to three adults), accounts opened by guardians or parents for minors or persons of unsound mind, and accounts opened under the name of a minor above 10 years of age.

A minimum investment of INR 1,000 is required to open an account, with a maximum balance of up to INR 4.50 lakh and 9 lakhs for single and joint accounts, respectively. Accounts can be closed after five years from the date of opening. Premature closure is not allowed before one year. If the account is closed between one and three years, 2% is deducted from the principal amount, and 1% for three to five years. Nominees can file a claim if the depositor dies before the maturity period.

The scheme offers a monthly interest rate of 6.60% per annum. Interest earned can be credited automatically to the depositor's savings account or through an electronic clearance service.

Importance of Diversification

Diversifying your portfolio is an essential aspect of investing. It involves spreading your investments across different assets and sectors to reduce the risk of significant loss. The concept of diversification is based on the premise that no investment is entirely risk-free, and different types of investments react differently to market forces. By spreading your investment across various assets, you can lower your overall risk, as the performance of one asset class is unlikely to impact your entire portfolio.

The importance of diversification lies in minimizing the impact of market volatility on your investments. The stock market is notoriously volatile, and it can be challenging to predict which investments will perform well in the future. By diversifying your portfolio across multiple asset classes, such as stocks, bonds, real estate, and commodities, you can reduce the risk of significant loss if one asset class underperforms. If one investment performs poorly, the other investments can still generate positive returns, thus minimizing your overall loss.

Diversification also enables you to capitalize on various market trends and economic cycles. Different assets and sectors perform differently depending on the economic environment. For example, when interest rates are low, bond prices tend to rise, while stocks may perform poorly. By investing in different asset classes, you can take advantage of the trends that benefit specific assets and protect your portfolio when market conditions change.

Moreover, diversification is crucial for long-term wealth creation. Investing in a single stock or sector can be tempting, especially when the market seems to be doing well. However, putting all your eggs in one basket can lead to significant losses in the event of a market downturn. By diversifying your investments, you can mitigate the risks of a volatile market and potentially increase your overall returns over time.

In conclusion, diversifying your portfolio is a crucial aspect of successful investing. It can help minimize risk, capitalize on market trends, and generate long-term wealth. By spreading your investments across different asset classes and sectors, you can reduce the impact of market volatility and protect your portfolio from significant losses.

Final Thoughts

In conclusion, starting your investment journey in 2023 can be an excellent decision for your financial future. By following the steps outlined in this article, such as setting investment goals, understanding your budget, automating the payment for different investment options, and diversifying your portfolio, you can make informed decisions and build a strong investment strategy. Remember to stay patient, stay focused on your long-term goals, and continuously educate yourself on the latest market trends and investment opportunities. With dedication and the right mindset, anyone can become a successful investor in 2023 and beyond.

References: https://economictimes.indiatimes.com/mf/analysis/direct-plans-of-mutual-funds-complete-10-years-are-they-better-than-regular-plans/articleshow/96759717.cms?from=mdr3 https://www.forbes.com/advisor/in/investing/best-investment-options-in-india/4