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You want to start saving and investing money, but every time you find yourself spending all your last month’s salary. And as a result, you don’t have anything left over to invest at the end of the month. How many times have you come across this scenario? I myself have faced this problem multiple times in my life. No matter how hard I try, at the end of the month, I am left with little or no money for investment.
What can I do to rectify this? How do I save enough money to invest? Well, the answer lies in automating your investments as I quickly found out. But then what is meant by automating the investments? And what are its benefits?
Automating simply means setting up a process by which the money from your salary account is automatically debited on a pre-defined date and transferred to some other savings account for investment purposes. There are multiple benefits to this as mentioned below:
Creates investing discipline
Instead of you having to curb your impulses and save money for investing at the end of the month, the money is automatically debited from your account even before you can spend a single rupee. And this happens every month as soon as the salary is credited to your account. You don’t have to worry about opening that mutual fund website to invest a lump sum amount every month. It’s a time taking process and causes a lot of fuss. In today’s fast-paced world, who has time to spend so much on completing a single investment?
Instead of taking so much trouble every month, better not to invest at all. Most of the people think like that and I don’t blame them. But what if the money is debited on its own on a set date without a single intervention from your end. No more hassles of opening your laptop, logging into that mutual fund website, entering all the required transaction details and then completing the payment. Instead of all these, you just get an SMS on your phone that your pre-defined investment of X rupees has been successfully completed. What a relief!! This will go a long way in building a habit of regular investments.
Teaches to pay yourself first
What do we do when we get our salary at the end of the month? Most of us would like to buy that long-desired shirt or jeans, go out for a movie with friends or order a pizza at home. Some may even go out for a bi-monthly trip to another place. Then we have to also pay our rent or home loan EMI, electricity bills, credit card bills, etc. After doing all this whatever is left behind, we keep it as savings in either bank account or put in a low yield instrument like FDs. So basically the savings mindset goes as follows,
Income-Expenses = Savings
The legendary investor Warren Buffet advised doing just the opposite. According to him, the formula should be like below
Income-Savings = Expenses
See the difference? Did you notice how the “Savings” and the “Expenses” items swapped positions? Herein lies the difference in mindset between the rich and the poor. The rich prioritize savings before expenses. They pay themselves first before anyone else. Automating your investments will help you to do just that. As soon as the salary hits your bank account, a chunk of it will be moved automatically to your savings account for investment purposes. And whatever is left behind in your salary account can be used for your expenses.
Keeps a check on expenses
This follows from the above point. If at the beginning of the month, a major portion of your salary is moved to another account then you will be forced to cut down on your expenditures. Previously before spending, you had an image of an amount in your mind that you can spend. Now that amount will greatly reduce and as a result, you will also be pushed to adjust accordingly.
Best time to set the investing schedule
I always set the automated bank debit instructions in the first week of the month between 1st to 7th. This ensures that even before I could spend a single penny, I set aside money for my investments. I ensure that I put aside at least 30% of my salary for investments. This is not a benchmark but a good place to start. A beginner can start by saving 30% and then gradually keep it increasing. Whenever you get a raise as part of your annual appraisal or a bonus, instead of blowing all of it away transfer a part of it to your savings account. And then you can enjoy the rest.
Best ways to automate your investments
There are many ways to automate the investment process. It depends on the different products that you are investing into. It’s not a one size fits all formula. But I can give an idea based on the products that I invest in. You can take a cue from it and then build your own automated process.
Stocks
I usually invest in stocks through Sharekhan. I do it on a monthly basis similar to a mutual fund SIP plan instead of doing a lump sum investment. I believe this helps to inculcate a disciplined investing habit. Sharekhan offers a solution to this known as Stock SIP basket. You have to create a basket of stocks based on your investing preferences, decide the quantity of each stock that you want to buy and then save the final basket. You will also have to set the date of investment, which is basically the day of the month when these stocks will be purchased. Now you just have to ensure that before that particular day every month, your equity account has sufficient balance to complete the transaction.
Sharekhan offers an automated way to do this. You can add Sharekhan’s partner bank account as a beneficiary to your own bank account. And then you can schedule a money transfer to that account every month. Ensure that you set this at least 3-5 days before the stock SIP date to account for any unforeseen delays. And that’s it, now you can just sit back and relax. Every month on the set date, the money will be automatically transferred to Sharekhan and then the stocks will be purchased on the SIP date.
Mutual Funds
I invest in direct plans of mutual funds. For automating the investing, I log into the mutual fund website. Then I set up a new SIP instruction into the fund of my choice with the desired monthly investment amount. At the end of the process, you will get a unique URN #. This is a reference number for identifying the SIP order that you have placed with the mutual fund house. You will have to next log into your bank website and go to the billers section. There you will have to add a new biller for this fund with the URN # generated before. Ensure that you enable the auto-pay feature during this process. This will ensure that every month on the SIP date, the money is automatically debited from your bank account and transferred to the mutual fund house.
Peer to peer lending(P2P) loans
P2P is a unique concept of investing that has recently been introduced to India a few years back. This model of investing has seen tremendous success in the past especially in countries like the US, UK, and China. To put it in short, a borrower registers on a P2P platform for some loan requirements. And a pool of investors joins hands to satisfy the loan. In return, they get a handsome interest on the principal amount that they had invested.
Read more about it here: What is P2P and how good an investment is it?
There are multiple good P2P websites in India like Lendenclub, Faircent, Lendbox, etc. All of these offer an auto investment option to investors. An investor can choose the risk profile of borrowers that he wants to invest into. He can also set the amount that he wants to invest in each risk category. The platform also will give some suggestions to help you set up auto investment instruction. After that, you just have to ensure that you keep enough balance in your P2P escrow account.
As soon as any loan becomes live on the platform the auto investing will kick in. If the loan matches your investing criteria then you will be automatically invested into that loan. P2P sites also have a partner bank for their escrow accounts. Add these accounts as a beneficiary and schedule transfer to them every month as per the amount of your choice.
These were some of the tips from my end for automating your investments. Setting up an automated process may take some time initially but it’s well worth it. It will save a lot of pain later on and help to make your investing easier and more disciplined. I hope I was able to help you with this article and make your investing journey a bit easier. If you found it useful, please do comment below and let me know what you feel about the ideas discussed. Also, you can share this article with your friends who are looking for answers to their investing questions.