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Why and How to invest money – Basics of Investment

Updated on August 28, 2012

Most people simply save and invest money because their parents or friends also do it, but do you know why you invest money or do you simply invest because you have enough money?? Before investing your money, you must know why you want to invest money, i.e. the purpose behind your investment has to be very clear in your mind. There can be numerous reasons for you to invest money like to buy a new car or to buy a bigger house or to pay for higher education. Whatever the reason is, there should be a clear purpose for your investment and you should invest accordingly.

Purpose behind the Investment

Once you have a clear idea that for what are you going to use the matured money, you will invest accordingly for that stipulated time period. Suppose, if you want to save money to pay for your child’s higher studies, you know after how many years you need the 'X' amount. According to that, you should invest your money and by that time you will get the required amount of money.

How to invest money

You should decide on how to invest money as per your needs. If it is a real need like to pay fees, you must invest in safe and secured investment instruments. If you want to invest for some of your desires like buying a big or luxurious car, you have an option to invest part of the money in some risky instrument and invest remaining money in safe instruments to create a balance.

Points to remember before investing money

  • Know why you want to Invest Money
  • Have a clear Purpose / Reason
  • Invest according to your needs
  • Differentiate your investment by separating your needs from wants
  • Needs: Safe and Secure Investment Instruments
  • Desires: Safe + Moderate Risk Investment Instruments

If you want to fulfill some of your desire in very less time, then you may have to take more risk and invest entire money in high risk investment instruments or combine high risk and moderate risk investment instruments. But always remember while investing for short term, you are taking risk with entire money. In this case, either you will get very good returns or your whole money would also get lost. So, invest in these instruments only when you have no other option or you are a risk taker and want some quick money; no matter what will happen with your invested money.

These are some basics of money management that you must follow while investing money to easily achieve your goals and desires on time.

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