The ongoing recession has made both of us reconsider the way we handle our cashflows. Every month money comes in, we spend, we save and maybe we save. But now more than ever as incomes and inflows become uncertain there is a need to ensure that to whatever extent possible, regular investments don’t suffer. You will have to worry about investing less for this reason, however, the result over a period of time would certainly have a positive effect on your future financial life.
One way to ensure that your regular investments are the last to suffer is automating them.
How does automation mean?
Automation of your investments will already be part of the routine. In basic words , it means that you put a program in place such that every month the daily investments happen without a need for any manual interference. The choice to invest, the sum to invest and the time to invest will all be automated. Mutual funds provide a very simple way to do so through systematic investment plans (SIPs). You will optimize your long-term savings, your short-term saving and donations to the emergency fund.
A systematic investment portfolio is a fixed amount that is spent per month in a fund of your choosing. Depending on your long and short-term financial targets you can select one or more schemes and grant SIPs of a desired sum per month. You can also pick the number of months you want this to begin.
1. Render saving a habit
Left up to your discretion, you may not end up investing the same amount every month. There are greater temptations and far more nudges for people to spend their money than there are for investing. Hence, if you think that at the start of every month you will decide how much to invest after you have made some purchases, you will probably find that you have varying amounts each month and probably nothing left at the end of some months.
By scheduling a SIP for the first week of each month, you will have put aside an investment for an amount that you can afford to spare each month without giving up essentials, utilities and some entertainment. If you don’t schedule it, spending say Rs 5,000 in a weekend it not a big task and you have already let go of your investment in doing that.
2. It reduces emotion
An automatic investing discipline, helps you to keep up your savings in volatile markets and periods of panic, when you otherwise can become too cautious and not want to invest. In auto mode, you should let it pass rather than thinking too much about temporary failures and corrections. Ensuring that you also invest in lower-price growth assets, which helps build future value.
Plus, if you are worried about cashflows, you will more likely cut back on expenses rather than cut back on the automated investment. Hard times are usually not permanent and if you can go through these times by being tight-fisted rather than compromising on future financial goals, then that’s a benefit you should take up. Automated investments will help you do that.
This is not just a solution for hard times or market uncertainty, it can help you build your investments in a systematic way that will benefit long-term wealth creation.