Investments lessons from your parents

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The way you handle your money may be drastically different from what your parents did. After all, with nearly everything going digital today, the world is your oyster. But despite the obvious differences in what Gen X and millennials do with their money, there are some solid investment lessons that your parents can teach you about investments.

Check them out here.

Lesson 1: Save first, spend later

With flash sales, jaw-dropping discounts, aggressive marketing and a rush of offers, it’s hard to refrain from impulse spending these days. But even as you spend the first chunk of your paycheck on those items waiting in your cart, you can no doubt feel your parents’ look of disapproval. That’s justified though, because they always saved first, and spent later.

That’s something that you should do too. Pay yourself first by saving up for the future. If you’re not sure how much to spend, you can use the 50-30-20 rule, where you allocate 50% of your income to your needs, 30% to your ‘wants’ or discretionary spends, and 20% to savings. And if you can save more than just 20%, go ahead and invest in your future just the way your parents did.

Lesson 2: Prepare for emergencies

Your parents always had some liquid cash lying around, remember? While holding funds as cash may not be the best course of action anymore, the little nugget of wisdom here is to have some liquid investments or funds that you can easily access in case of emergencies like an unexpected medical issue or a sudden repair that your home or car may need.

Today, the focus in this area has shifted to emergency funds. You can use a high-yield savings account as a space to create your emergency fund. Or, you could put your money in highly liquid assets like gold and blue-chip stocks. The core idea is to ensure that your funds are easily convertible to cash when an emergency comes knocking.

 

Lesson 3: Go after goals, not money

The end point of all investments is to create wealth - there’s no doubt about that. But what’s all that wealth going to be used for? In other words, what are your goals in life? That’s something your parents’ generation never lost sight of. Most-if not all - of their investments were geared towards very specific goals.

Like saving up for your higher education in X years, or creating a retirement fund in Y years. That kind of clear goal-setting is another important lesson you can pick up from your parents. When you link a goal to your investments, it gives your money a sense of purpose. And creating your investment portfolio becomes much easier when you have specific goals tied to your investments.

Lesson 4: Don’t overlook those government schemes

Mutual funds and equity are highly popular investment options right now. And while you may no doubt be highly interested in these investments, there’s another lesson from your parents - about where to invest - that is relevant here. Don’t write off those government schemes. Today, we have many government-backed schemes in India that are particularly low-risk and better suited for long-term investments.

So, when you are creating your investment plan, factor in schemes and investments like the Public Provident Fund (PPF), National Pension Scheme (NPS), Sovereign Gold Bonds (SGBs), G-Secs and more. In most cases, these schemes come with great tax benefits too, and that adds up to higher savings. Looks like your parents cracked the code to tax savings, after all.

Lesson 5: Diversify

Chances are, your parents have probably told you this explicitly - “Don’t put all your eggs in one basket.” But even if they haven’t said it in so many words, their investment habits definitely reflected this. And this lesson about how and where to invest holds true to this day. Your portfolio should have a healthy mix of investment options.

Include short-term, medium-term and long-term investments. Balance high-risk investments with moderate-risk options, even if you’re young and willing to take on a higher degree of investment risk. Diversification ensures that you don’t lose all your investment capital at one go. Because if you put your funds in just one asset, what happens if that asset performs poorly? Yes, that’s right, you’ll lose most or all of your capital. Thankfully, your parents' investment style accounted for this.

Wrapping up

There’s a lot you can learn from your parents’ approach to investments, after all. These timeless investments lessons from parents will perhaps continue to hold good despite radical changes in the investment landscape. So, when you’re creating your financial plan, make sure you factor in these little nuggets of wisdom.

A quick recap

  • Saving first and spending later - which essentially amounts to paying yourself first - is one of the many valuable investment lessons you can learn from your parents.
  • Gen X has also set an example of how an emergency fund and goal-based investing are important.
  • They’ve also taught us that government schemes can be beneficial over the long run, and that diversification is crucial.

How would you rate this chapter?

Comments (2)

RAMKUMAR kumar

02 Mar 2022, 07:51 PM

Good learning

Replies (1)

Smart Money

11 Mar 2022, 12:38 PM

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RINKU

03 Feb 2022, 02:35 PM

Great

Replies (1)

Smart Money

11 Feb 2022, 06:46 PM

Dear User, We are glad that you are enjoying learning. You can also try our newly launched short courses on the below link. https://smartmoney.angelone.in/short-courses/

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FAQ'S

Yes,there are many government-backed schemes and instruments that you can invest in for the short term. Treasury Bills, for instance, have maturity periods less than 1 year. There are also Cash Management Bills (CMBs), which are issued for maturity periods less than 91 days, making them an ultra-short-term investment option. If you want a slightly longer tenure, you could look at the National Savings Certificate, which has a maturity period of 5 years.
You can diversify your portfolio across asset classes - like equity, debt, etc. Or, you could diversify within a specific asset class - like small cap, large cap, etc. A portfolio can also be diversified sectorally, thematically, or based on the investment period.
To save up for emergencies, you can consider investment options like high-yield savings accounts, money market instruments, liquid stocks and bonds, or Certificates of Deposit (CDs).
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