It’s a bright Tuesday morning and you were very productive at work yesterday. You feel elated. You reach office, and as soon as you start your work, you start feeling lethargic. The whole day is unproductive. In the evening, you kick yourself and promise that this will never happen again. You will not miss a full day of work by being unproductive.

Let’s jump to another thought. How much cash, on average, is always lying in your bank account? Do you get the same empty feeling when you keep it for days, months or in some cases for years lying idle in your savings bank account? If you don’t, here’s why you should! If you do worry about it, but have not been able to decide what to do with it, as you may be fearing losing your capital or don’t have sufficient knowledge, whatever may be the case, here’s your quick and simple guide on what you should do, right now!

Before I let you know about a few smart options to start making your money work for you, let’s look at what difference it will make when you make these changes…

Assume that your name is ‘Mr. Idle‘ and your friend’s name is ‘Mr. Informed‘. You will end up keeping Rs.5 lacs on an average (this figure is likely to be more, considering your cash flow will increase with time) in your savings bank account and cash balance for the next 30 yrs and your friend, Mr. Informed makes a few smart moves and keeps only his emergency fund in the SB account and cash balance. It might not make difference immediately, but if I take both of you 30 years later, i.e., in the future, it will be upwards of a whopping 15 lakhs, considering an extra return on investment of 4 % with smart and simple choices made. The difference most probably will be much more considering much higher cash flows and other factors, as you move up your income ladder, in many cases close to half a crore or more…

If this difference doesn’t seem to be alarming, here’s wishing a good night’s sleep to you as well as your money. JK.

Step 1- Calculate how much you need to maintain as contingency/emergency/liquid fund. If your total monthly expenses are ₹50,000 then, your contingency fund can be at least 6-8 months of that, which is around Rs.4 lacs. This amount needs to be invested in liquid assets, leaving a small amount in your SB account and some cash, a major portion can be invested in liquid/debt mutual funds. These carry almost fixed interest rates like fixed deposits and are more tax effective, also they can be redeemed in parts or full, at will, without any interest penalty. Thus giving a better tax-adjusted return. So the difference will be substantial to keeping it in an SB account and higher post-tax when compared to an FD.

Step 2- Now you need to invest the residual amount that you have, into investments that can range from fixed returns instruments to equity products to real estate, gold and so on. Having the right mix gives the right risk-adjusted returns. We call it asset allocation, for example, I am 42 years old and my financial planner after checking on various parameters like my risk profile, financial goals, current assets and liabilities suggested this –

P.S. Your Asset allocation will vary as per parameters unique to you.

When the rest of the idle funds get allocated to goal-based investments in the above avenues, it is bound to fetch a massive difference to your return on investment.
I will cover what are the best investments within the various instruments available in my upcoming blogs.
You would have heard this famous line “Money never sleeps.” – well it does in a lot of our wallets and savings bank accounts. From today let’s all say “I work for my money all day and it works for me in the night and day”.

Author: Mr. Nirmal M Jain | Mr. Nirmal M Jain is a Co-Founder at HappyWise Financial Services. He has helped over 100 Families over the last 15 years of his services in the Financial Planning Sector. He has been a mentor to several people to help them better understand investments, stocks, mutual funds, financial planning, personal finance and above all his favourite term “The Power Of Compounding!”.

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