2 Lies and a Truth: Money Management

In today’s fast-paced world, it has never been more important to manage your finances effectively. Pupils planning for retirement or recent graduates embarking on their first careers alike must acquire a firm grasp on the art of money management in order to attain financial prosperity and security. This money management guide will examine the importance of money management, the benefits of money management, and pragmatic approaches to achieve favourable results. Developing a comprehension of money management principles, such as the significance of budgeting and the optimisation of savings and investments, will enable you to embark on a path towards a more prosperous financial future.

1. I am still young, I can think of retirement later. 

It’s a lie,

Ideally, everyone should start their retirement planning as and when they start earning, this enables them to make a good amount of corpus till their retirement. Retirement planning has become an essential part of financial planning.

Why retirement planning has become essential for women?

Presently, more than men, women have a greater need to manage their finances actively. According to the LXME’s Women and Money Power Report 2022, only 2% of women are investing for their retirement. Studies have shown women have a longer life expectancy than men. In India, the average male life expectancy is 68.4 years, and the average female life expectancy is 71.1 years. Sometimes, even working women tend to depend on their husbands to manage money. In the case of their husband’s early demise, widows find it difficult to manage their finances.

Therefore, it is very important for every woman to plan her retirement, as, with more years of life, women also need enough funds to cover their expenses. Moreover, old age can come with its share of problems such as health issues, the need for support and fulfilling your dreams and goals post-retirement.

Presently, we generally end up spending more than required without realizing the fact about how important it is to save for future goals. If you just earn & spend and intend to continue this cycle till the time you retire, you will be left with no money!

Have you ever thought about what will happen after retirement?

As we are living in an inflation-bearing world we will need adequate corpus in order to enjoy post-retirement stress-free.

How to create Retirement Fund?

1. Calculate the amount required to maintain the same standard of living and smooth post-retirement life.
2. Consider all essential aspects of retirement planning:

> Possible age of retirement

> Life expectancy

> Inflation

> Rate of return

> Monthly expenses, etc

3. Want to know how you can calculate it in 1 min?  Try out the Retirement Calculator!
4. Once your emergency fund is in place, start preparing your retirement fund.
5. The early you start planning your retirement, the higher corpus you can accumulate without straining your pockets!

Pro tip: To invest for your retirement, start soon, stay invested, and target returns of 14%* with the LXME Long-term Plan and 15% with the LXME Equity Fund. Start here: Invest Tab

2. Savings in small amounts can help you create wealth. 

It’s right,

Investing early in life aids in saving more than compared to those who start investing in the later stages of their life. Many people think investments need big amounts, which is why they postpone them and miss out on the opportunity to create huge wealth. Even small amounts can do miracles. Creating wealth is not an overwhelming task. It just needs patience, consistency, and a little sacrifice of your present luxury.

Let’s look at an example of Mitali and Amrit, who are two friends who embarked on their working life journey at the age of 20. Both earn Rs. 20,000 every month. Mitali and Amrit both have different perspectives on their life. Mitali believes in investing her money to fulfil her future goals, long term wealth creation as she is well informed about the advantages of early investing. So, Mitali starts her investment journey right away as soon as she receives her first salary with LXME Long Term Plan for Rs. 5,000 per month at the rate of 14% till her retirement, i.e. till age 60.

On the other hand, Amrit believes in enjoying her life to the fullest and spending on different luxuries. She thinks her whole life is ahead of investing and doesn’t focus on increasing her wealth, or the importance of money management so she ends up spending all her salary until she realizes the importance of investing. She asks Mitali for a good fund to invest in her money and reap the benefit she is receiving. Radha suggests LXME’s Long term Plan and starts investing in the same from age 25 with Rs. 5,000 at the rate of 14% till her retirement, i.e. till age 60. So, let’s look at what corpus Mitali and Amrit have accumulated at the age of 60.

Evidently, we can see the power of compounding in the longer term. Mitali was able to accumulate ₹ 5.69 crores (₹ 11.30 crore – ₹ 5.62 crores) more than Amrit, as Mitali just started 5 years earlier. To match the corpus of Mitali, Aarti will have to invest Rs. 10,066 at the rate of 14%.

If you invest early, even small amounts of investments with consistency can make you millionaires. You can see the power of compounding in the long term. Your consistent investment of ₹ 5000 can make you crorepati. The power of compounding works by growing your wealth exponentially. It adds the profit earned back to the principal amount and then reinvests the entire sum to accelerate the profit-earning process. This is how you can create wealth with small amounts.

Pro tip: To create wealth, start investing NOW; as you have seen, even small amounts can help you do that. Visit the LXME app, where you can look for various portfolios that are curated and well-researched by experts.

3. You can earn quick money through trading in the stock market.

It’s a lie,

Earning quick money is a myth. You might have heard that you can earn quick money through trading in the stock market. That’s true, but it needs expertise, which comes after spending time learning and understanding the stock market in detail. However, you need adequate knowledge and analytical skills, after which you can trade in the stock market. So, time needs to be spent on learning; that’s why we say earning quick money is a myth. The trader does not always earn profits. They also incur losses, which is why you should have a high-risk appetite. The fact about trading is 90% of traders lose money in Intraday Trading.

What is trading?

A trader having expertise, knowledge, time to track the market, and a high-risk appetite resorts to trading. They use volatility to try and make profits.

What is investing?

An investor who wants to grow their money and create wealth over time by using fundamentals of the market, sector, and stock. This is a long-term strategy that aims to mitigate market volatility.

If you want to create wealth, you should invest and create a diversified portfolio in order to earn inflation-beating returns and have stability in your portfolio.

If you wish to invest in the stock market but do not possess adequate knowledge, then you should consider investing in mutual funds as they offer various diversified portfolios according to your needs, and these portfolios are professionally managed by fund managers.

You can visit the LXME app and look out for portfolios such as LXME Long-Term Plan, LXME Short-Term Plan, LXME Tax Savings Plan, LXME Rs.100 Equity Fund, etc., which are finely curated and well-researched by experts.

FAQs: Money Management Guide