Manage savings for better wealth creation

There’s a lot of material and published knowledge floating around us highlighting the benefits of being disciplined in investing to generate better returns over the long-run. Also, enough research has proven that it’s more to do with the behaviour than analysis to become successful in investing especially in stock markets.

Domestically too, we’ve witnessed a steady ascent in the Systematic Investment Plan (SIP) contributed to mutual funds (MF) both by the retail and High Net-worth Individuals (HNI) alike. The contribution to these systematic investments arises from the difference between the earnings and expenses or a portion of the surplus.

Though, ideally the equation should be other way where one should expend post their savings. What I have realised over the years of advising clients is that once the monthly contribution is arrived, there is a diligent effort by the investors sticking to honor this commitment, rightly so. And of course, this amount being contributed could be arrived after great deliberations on the needs, income and risk appetite.

What most investors fail is to show a bit of enthusiasm and initiative when coming to the savings cycle. This is again a sign I have witnessed in interacting and managing investors over a long period of time; that there’s always a bit of comfort or cushion is taken while committing to the monthly contribution. So, while the monthly investments continue, there’s a pile up of the cushion which itself becomes more than a month’s planned input but investors seem to continue to wait than to deploy that amount also for investment.

Those investors who consciously were topping up their monthly investments by further infusing the surpluses (from the planned savings) either partially or fully are rewarded with larger gains and also the goals being reached in advance. So, I encourage investors to check their saving patterns or rather expense patterns while doing investments. If an individual finds the surplus is piling up, they need to move at least half of these into the existing investment strategy or better employ a more tactical approach to take a bit of higher risk exposure to generate superior returns.

A sustained tab on the investment behaviour thus not only helps to tinker the investment cycle but probably leads one to mend their investment styles. So, if an investor is managing to find corpus consistently accumulated then they are better off increasing their monthly contributions. Of course, one could not always opt for higher risk investments like I had earlier mentioned but also these bring more semblance to the portfolio by moving to debt or hybrid investments. Coincidentally, one may even use these little surpluses to infuse into traditional investment avenues for long-term moderate returns through safer investments like PPF.

Similarly, one could even employ liquid or ultra-short-term funds and even hybrid savings accounts (these accounts automatically move any surplus beyond a pre-defined threshold into a deposit) to efficiently manage savings. These smaller tweaks in the way the money is saved could add a whopping benefit in the long run for the investor due to the effect of compounding (famously described as an eight wonder by Einstein, a powerful force in the universe).

So, those investors who are more mindful of their habits and patterns stand to gain by making subtle changes. It’s said that a mile-long journey always starts with a single first step, so, make the first step and commit to the path for greater wealth creation.

(The author is a co-founder of “Wealocity”, a wealth management firm and could be reached at knk@wealocity.com)