Every second post/video on social media is about how a certain stock made 100%+ returns in the past 6 months or how you should invest your money. You might even hear your friends talk about how they are making wads of cash in the stock market, and you’re hit with a little FOMO. If you’re wondering how you can get started and get a piece of that action, here are some videos that will get you to get started with financial planning.
But before we start this list, there are a few things that I want you to keep in mind. The creators of these videos are providing information to us. This should not be looked at as investment advice. Use the information and knowledge from these videos to do your own analysis and make investment decisions. The cardinal rule of investing is that only you care about your money so make your own investment decisions. If making money was as simple as following these videos, there would be way more rich people than there are now.
Also read: 8 Books You Can Read To Improve Yourself
The difference between investing and trading
Before we start talking about the various instruments that you can invest in, we should get this topic out of the way.
The key thing I want you to keep in mind from that video is that investing is for the long term gains, and trading is for short term gains. This article will have videos that cover investing, because if you’re here then the choppy waters of the trading world will do you more harm than good. So let’s get started with your financial planning journey.
How do you start saving?
Now how do you get started with financial planning? Some of you might be wondering how you can save from the little salary you get. The truth is, you can start saving no matter how small your paycheck is. The ideal book to get you into this mindset is The Richest Man In Babylon.
The two main things that I want you to take away from this video is to save 10% of everything you make and invest your money so it works for you (i.e. grows in value). The first one is self-explanatory and is purely within your control. It is the second one where you’ll need guidance, so the rest of this article will focus on that.
What if I have debt?
But before that, if you’re someone who has debt, then The Richest Man In Babylon advises you to split your salary in the following way – 10% saving, 20% debt repayment, and 70% expenses. And here’s a video that talks about a way you can rewire your brain to get out of debt sooner than you would otherwise.
Renting vs. buying a house
Another thing the The Richest Man In Babylon summary video mentioned was that one should buy a house. They did mention that it was a debatable topic, but leaving it at that would be a huge disservice to you. So here is a video that will give you more insight.
Rachana talks about CAGR in the above video. Think of it as Return on Investment for now.
Asset and Liabilities
Before we dive headlong into the different asset classes, you should know the difference between assets and liabilities. The following video explains it the way the book Rich Dad Poor Dad explains it. If you’re just getting started on your financial planning journey, I cannot recommend a better book! Anyway, here’s an explainer video that almost picks up where the previous video left you.
Types of Assets
We’ve laid the groundwork to begin your financial planning journey so let me introduce you to some popular asset classes:
- Real Estate
Technically cash is an asset class too, but sitting on cash for the long haul is not a great idea due to inflation.
This is one thing that is part of every Indian’s financial planning handbook (the one that’s been passed on from our forefathers). But still, here’s a refresher.
Think of bonds as advanced FDs. Here’s all you need to know about them (for now. More to come in the next part of this article).
In the video above, Rachana talks about how a company can raise money by issuing equity shares or taking a loan. If a company takes the first route, then people who buy the equity of the company become partial shareholders of the company and hold the company’s stocks.
Don’t worry about the market fluctuations part for now. The idea is to get you familiar with what the term “stocks” mean. We’ll get to market cycles, assessment of stocks, etc. in the second part of this article.
You might think you know gold. But gold, as an asset class, is not just about jewellery. This video will give you an idea of what the different gold investment options are, and help you choose one that suits your investment appetite.
Ok, so before you watch this video, it is not about physical real estate. It is about a type of fund that lets you invest in real estate projects.
Ah, the new kid in the block! Everyone is talking about crypto. But do they know what cryptocurrency really is? Here is a video that will give you some insight.
That’s about all the crypto we’ll cover in this article as it is extremely hard to find an influencer/channel that isn’t shoving a coin/token down the viewer’s throat. Also, the crypto market is unregulated and so is susceptible to pump and dump schemes. Hence, it is hard to find reasonably good investments in this space at the moment. But if you really want to get into crypto, you should check out this playlist.
You now know what the various asset classes are, so let’s look at how you can invest in them. As a beginner, it might be ideal for you to start with mutual funds. “What on earth is a mutual fund?”, I hear you ask. Well, here is a video that gives you a brief intro.
There are two more things that you should know about mutual funds. They can be active/passive and regular/direct. Here are two videos that explain the difference.
Active and Passive Mutual Funds
Regular and Direct Mutual Funds
Income Tax planning
Now that we’ve covered the various asset classes, let’s have a look at income tax planning as it will play a major role in how you plan your investments (if it doesn’t already, it should).
One thing that you should pay attention to is the deductions that come under 80C. Here is a video that covers 80C in detail.
Here is an income tax calculator that will come in handy in your tax planning. This calculator will give you a fair idea of how much money you can save from income tax. But don’t click the “invest now” button just yet! Remember the difference between Regular and Direct funds? Scripbox offers Regular funds. They do so because they believe the service they offer you will more than make up for the increased expense ratio. So you might want to consider the implications before you make the decision of going with them.
If you want to check how the money you invest in the various investment vehicles will perform, you can use the following calculators:
- ELSS Calculator
- Sukanya Samriddhi Yojana Calculator
- PPF Calculator
- National Savings Certificate Calculator
- Tax Saving FD Calculator
You must’ve also heard about the New Tax Regime and Old Tax Regime, and even wondered about which one you should pick. Here’s a video that might help answer that question.
Before you proceed, you should have a clear idea of how much money you’ll have to invest in these tax deductions and what you’ll have leftover for other investments. Once you have this number, you’ll have to do three more things before going headlong into wealth-building.
Creating an Emergency Fund
You should start off with an emergency fund.
Ideally, I’d say that your emergency fund should be 4 times your monthly income. You’d want to put this money in a vehicle where the principal (money) is safe, so it might be best to choose FDs or an overnight liquid fund.
An overnight liquid fund is a type of mutual fund where the fund manager invests in assets that mature overnight and so the risk of losing your capital is low. That said, the risk is still higher than it would be in the case of an FD.
A medical emergency is a major wealth destroyer and can set your investment journey back by years. So you should get yourself (and your loved ones) a health insurance policy asap!
Term Life Insurance
What happens to your family if something happens to you? Your family will receive the coverage amount if you take a Term Life Insurance plan.
Ok, so now you’ve secured yourself against the major hiccups that can pop up in your investment journey. You can start walking towards building your wealth (to be honest, you’ve already started down this part with 80C deductions), and it is time you considered what your portfolio should look like.
You’ll have to come up with a plan for your portfolio allocation and decide how much capital you want to allocate to each asset class. This includes the money that you’ll invest as part of 80C of tax deductions (remember ELSS is equity-linked so if you choose to go that route, that counts as equity allocation in your portfolio).
I’ll leave you here for now. You now have a reasonable amount of knowledge to start financial planning. We’ll pick up from here in the next part of this article. Alternatively, you can go through the YouTube channels from where I’ve sourced the above videos and jump ahead.