How to Save and Invest Smartly with your Salary?

There was a study conducted on people who won the lottery. It was found that approximately five years after winning the lofty amount, 90% of them end up in a worse condition than where they were at the point of winning the lottery. Why this happens is a different subject altogether, but the point to understand here is that sudden cash flow is not the solution to your problems.

Before I discuss how to save or invest your salary, let us understand the WHY. Why do you want to better utilize your salary? To be rich? To save for the rainy day? For your travels? To buy the MacBook? (or whatever) Let us delve deeper into the WHY, but here is one primary take away - "Financially successful people (read - rich) not just earn more money, but have a different take on finances. It’s a mentality shift. So one of your primary objectives, whether you earn 20K or 50K, should be to understand this Financial-wisdom or money-mind and try to imbibe it.

Now, for your salary! Whatever your salary, first thing you should do is save a tiny portion of it. I do not care if it’s a FD or PPF or your piggy bank, but I just want to save a part of it. This needs not be huge, say a thousand bucks a month will suffice. If you need motivation or reason, think of this as 'saving for the rainy day' However, the only reason I want you to save this amount is just to get into the discipline of taking a part of your salary and earning and putting it away. This is one discipline which will go a long way into paving the way of your financial freedom.

The next thing you can do is invest. Do not expect a return from this. Invest in a small business of any form. May be pay some developers to design a site for you, then sell a service in the site, something you are good at. Maybe photography. May be content writing, go figure! Unless you are a Steve Jobs, it is highly unlikely that your business venture will be a hit. But you will learn the nuances of the trade. This knowledge will later pave the way for a more successful business, one that will make you money.
Money does not appreciate in Bank, it depreciates. Money appreciates in trade and commerce. So do not give your hard earned money to bank at this point. Instead, use that money to build skills or invest in some business so you earn more. Saving is not the trick, earning more and wise investment is. And by investment, I don't mean you put all the money in a bank account as FD. That is not investment. That is gift. You are gifting the money to bank so that they become rich with your money. Don't do that. Learn a course which might give you a better paying job. Take a foreign internship and add it to your portfolio. Start a small business. These are better and long term investments compared to bank FD's. Of course, you should have some "buffer cash". This is the cash you will have in your bank for 6 months survival costs. That is it. Not a penny more you should give to anyone. Invest in yourself.

The third thing you can do with your salary is spend it. I know some people who deprive themselves to save a dime from a rupee. Such practices rarely prove to be of any worth. If you believe you must save all you can because you will never have enough money, such will be your reality. So spend what you must. Do indulge in the occasional parties with your friends. Buy that pair of moccasins you like. Go for that trip you have been planning to. After all, what are you earning for?

Finally, there is one last way for you to utilize your salary. Once in a while, give back. It may be a piece of bread to a beggar, an ice cream for that slum kid, or a book for your friend, or may be some extra tip for the one who washes your car. Whatever it is and whoever it is, you need not plan it out. Though this piece of advice sounds like a chunk of gyan, but trust me, it works in compounding your finances. I don't know how this works, but it does.

Let's take an example by the advise of Li Ka-Shing (Richest Man in Asia):
Put money into five sets of funds. The first $600, second $400, third $300, fourth $200, fifth $500.
The first is for living expenses (food, electric, water, etc). But since you don't have that, put it into savings.

The second is for making friends. Use this to make phone calls (calling costs in India right?) And to also treat your friends out for lunch or dinner. But who among your friends do you treat? Friends who are much more knowledgeable than you. Friends who are smarter and knows things that you don't. Or someone who can/has help you in your career or richer than you. By doing so, you will have a network of friends that precedes your reputation.

The third is to learn. Life is a neverending school of things to learn about. And it doesn't have to be about your job either. Learn lifeskills like proper communication, or CPR and first-aid. Whatever it is, spend this portion to learn.

The fourth is to use it for holidays overseas. Travel at least once a year to new places. But travel with an open mind because as you move about, you will learn other cultures and gain experience of how business or people interact with each other. Bring that experience back as a passion to your work and recharged!

The fifth is to invest. Put it in a bank, or invest into mutual bonds/stocks, etc. If invest is out the question, save it. Rack up capital so that you may start a business of your own.

Since the first set of funds is not used, this will double your savings.

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