There are as many formulas for saving and investing as for solving math problems. How do you make money using these? How do you control costs? How do you hide income? How do you create more money with that saved money? Now, let’s find out.
1, 2, 3, START
1, 2, 3 is said before starting a running race. That means getting ready to run. You, too, can complete these three steps and get ready to do magic with money.
1. Pay off your past small debts immediately. Also, clear any dues.
2. Write your income, expenses, and long-term debts on paper. If there are any other sources of income, include them as well.
3. If you understand how much income you will get and how much you will spend in a month, you will get an estimate of your plans. So, be ready on one date with a clear plan.
FISH FORMULA:
FI – Fixed Income, S – Savings, H – Happy Life
Fixed Income (FI): Divide your monthly income into three parts. The first part should be used for expenses, such as house rent, internet bill, phone bill, milk bill, groceries, etc. Expenditures for movies and entertainment are not included in this scope.
Savings (S): Invest the second part of your earnings. Short-term and long-term goals should include building a house, planning for retirement, educating your children, buying a car, and planning a trip.
But the plans vary depending on your needs. So, it would help if you decided how much you want to allocate for short-term and long-term goals. Let’s find out how to proceed with these savings.
Happy Life (H): Life is meant to be fun, at least a little bit. You have to spend some money on that, too. Movies and entertainment fall into this category.
But spending a smaller amount of your income on this is better. Make sure that the fun doesn’t turn into wasteful expenditure; otherwise, this will affect the first two steps.
Maximize Savings with Arithmetic Progression principle:
Our salaries increase slightly every year. We should also increase our investments regularly. For example, if we have Rs. 100,000 this year, suppose we invest Rs. 10,000 yearly. Our savings and returns will gradually increase.
- Arithmetic Progression: a, a+d, a+2d, a+3d, …….
- a = Annual Savings, d = Dosage
- Year 1: Rs. 100,000
- Year 2: Rs. 110,000
- Year 3: Rs. 120,000
Let’s increase the value of R:
What is left is called the Remainder. In our FISH formula, we can profit more if we leave some FI and divert the Remainder to S or H.
Financial discipline is practiced by increasing R every month. So don’t spoil your health by getting into R fights.
Pythagorean Investments:
The Pythagorean theorem mathematically describes the relationship between the sides of a right triangle. Also, the savings should be divided into three parts. They are:
- Emergency fund
- Life Insurance/Term Policy
- Investments in different ways
Other investments = Savings = Emergency Fund + Life Insurance
Just as (hypotenuse)^2 = (side)^2 + (side)^2, we have savings in the form of (other investments) = (emergency fund) + (life insurance term policy).
Whatever amount we invest in, we should ensure that it equals the amount of emergency funds and term policy. If desired, we can increase the emergency fund and reduce the term policy amount.
Otherwise, it is okay to prioritize insurance and cut the emergency fund. However, you may not receive life insurance money because it is only valid when you are in an accident.
If you don’t want it like that, you will have to lose the entire property for medical treatment in an emergency.
Build an emergency fund from time to time. Reinvest the old fund after creating the new one. Only then will we expect a profit from this.”