scorecardresearchMoney equals happiness, says a survey; here's how to ensure you have enough

Money equals happiness, says a survey; here's how to ensure you have enough of it

Updated: 19 Mar 2023, 08:55 AM IST

A report published in the Washington Post includes survey results based on a six-month experiment that suggests periodic cash transfers of up to $10,000 make people happier than those who did not receive the payment.

Money can buy happiness

Money can buy happiness

When you do not have enough money, you realize that you are missing out on something that can make you happy. Highbrows relying on spiritual enlightenment may argue against the efficacy of money. Irrespective of how intellectual it may seem, not having enough money when required can always be a cause of concern. 

A report published in the Washington Post includes survey results based on a six-month experiment that suggests periodic cash transfers of up to $10,000 make people happier than those who did not receive the payment. 

But, how do you ensure such frequent cash flows? How do you ensure savings and investments such that you have money as and when you need it? For this, you must decide your financial goals first and then choose between short-term and long-term investments accordingly. You must also care to check for extremely short-duration investments that include scope for easy liquidity too.

Draw a financial roadmap

Creating an investment portfolio is not easy. You must have a financial roadmap in mind. How much you are worth currently and how you envision your finances in the future are factors that you cannot afford to ignore.

Viral Bhatt, Founder, Money Mantra, says, “The first step you must take while deciding your investments is to set your investment goals. What are you trying to achieve with your investments? Do you want to save for retirement? A child's education? A new home? Once you know your goals, you can start looking for the right investments to help you achieve them.”

Not all investments will yield similar returns nor they can be invested and held for equal tenures. This explains the need to predefine how long you wish to stay invested and the extent of returns you expect from your investments.

Check your risk appetite

The term “risk appetite” technically refers to the highest level of risk investors may be willing to accept to achieve their goals before the inherent risk in the investment exceeds the reward. This implies why you must assess your comfort zone before taking on any kind of risk. For example, equity investments being market-linked involve a lot of risks compared to debt instruments that include fixed-income options like bonds, money market instruments, government securities (G-Secs) and more.

Not all investors have the same risk appetite. Some of them do not mind taking high and continued risks while others prefer stability over volatility. Suresh Sadagopan, MD & Principal Officer, Ladder7 Wealth Planners, said, “We normally do the investors’ risk profiling using a questionnaire which throws up a score indicating their risk propensity. Apart from that we also consider their personal situation, goals, tenure, liquidity needs etc. before suggesting the appropriate portfolio.”

Asset allocation matters

By allocating a portfolio`s assets in accordance with a person's objectives, risk tolerance, and investment horizon, asset allocation is a type of investment strategy that seeks to strike a balance between risk and reward. Equities, fixed-income, cash and cash equivalents are the three main asset classes. Because each has a different level of risk and return, it will behave differently over time. There is no simple formula that can determine a person's optimal wealth allocation. There are indeed permutations and combinations involved before deciding which asset would suit your risk profile and, thus, will fit in your scheme of investments perfectly.

Mayur Shah, a registered investment advisor and certified financial planner, said, “Asset allocation plays important role in clients’ investing journey for achieving their financial goals. Along with risk appetite, we have to consider the money and time available to accumulate the required corpus while deciding the asset allocation.

While deciding equities, debt and other allocations, it is important to divide goals into short-term, medium-term and long-term goals. If the goal is due any time before three to four years, then it’s a short-term goal for which investors may invest only in debt and may avoid equities but if they are investing for a long-term goal then more portion of their investments may go into equities at the start (they may also decide large cap, mid cap, small cap, etc. exposer under equities) and they may gradually increase debt portion of the portfolio by reducing equities when time available to achieve goal starts reducing, this is also called as progressive asset allocation strategy. The right asset allocation will help investors to reach near their financial goals in time and without any stress.”

Most personal finance analysts opine that deciding on the right asset allocation is the first step to deciding how to invest and how much money to invest.

Working on an emergency fund

You do not have a sizeable emergency corpus in a day or two. It takes time as you must start by focusing on small saving goals instead of rushing to build a large corpus in a day. Decide how much money you want to see in that fund. Most people keep an amount equivalent to their six months’ pay though others may decide on a higher amount by accounting for monthly loan instalments, SIP investments, insurance premiums, sudden expenses and more.

However, once you have created your emergency fund, ensure that you do not squander your hard earned money by misconstruing that you have more money than required. No amount of money is enough when it comes to meeting sudden needs.

Money can buy you happiness indeed though a lot also depends on how you visualize your finances and view your happiness in the long run. Enough money in hand means that you will have nothing to worry about. 

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First Published: 19 Mar 2023, 08:55 AM IST