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How to Make the Most of Your Idle Money

At some point, we all find ourselves with a bit of extra cash. Maybe your vacation plans are on hold, there’s no new gadget calling your name, and you’ve already refreshed your wardrobe. To top it off, the stock market is running high, making investments a risky move. So what should you do with this idle money? The common advice is to sit tight until the market takes a dip, offering a prime opportunity to invest. But waiting can be tough, especially with cash just sitting there. It’s easy to splurge on a new pair of sneakers, buy an extravagant gift, or simply let the money disappear into everyday expenses. By the time the market finally cools off, you might find yourself without the funds to invest.

This brings us to the focus of this post: managing idle money wisely to build a strong investment war chest. Let’s dive in.

Understanding Idle Money

Idle money is essentially cash that isn’t earmarked for immediate use—meaning you won’t need it in the next 30 days. It’s extra money that’s hanging around in your bank account, ready to be put to work. Here’s how it might look depending on your income source:

For Salaried Individuals

If you receive a steady paycheck, your monthly expenses might take up around 60% of your salary, covering rent, bills, groceries, and weekend outings. You might invest another 20% into mutual funds through SIPs, and maybe set aside another 20% for individual stock investments or just leave it in your savings account. That last chunk, if not invested, is your idle money.

Remember, idle money is separate from your emergency fund, which should cover at least six months’ worth of living expenses. It’s there for unexpected events like job loss or medical emergencies.

Another source of idle money for salaried individuals comes from one-time bonuses. It could be an annual bonus, a Diwali bonus, or a joining bonus when you start a new job. This lump sum is often extra cash that you didn’t plan to spend immediately, making it ideal for building your investment war chest.

For Self-Employed or Business Owners

If you’re a freelancer or business owner, you might receive lump-sum payments from clients upon completing a project or advances when signing a new contract. There are also performance-based bonuses that can add a boost to your bank account.

Sometimes, you find idle money from sources you didn’t expect. A fixed deposit might mature and suddenly add a substantial sum to your account. Dividends from stock investments can also surprise you with a larger-than-expected payout.

If you’re a careful spender, you might notice that every few months, a sizeable chunk of money accumulates in your savings account. This is also idle money that could be put to better use.

Putting Idle Money to Work

The key to managing idle money is having a plan. Instead of letting it sit idle or spending it on non-essential items, consider creating an investment strategy. Look for low-risk investment opportunities like bonds or high-interest savings accounts while you wait for the right moment to invest in the stock market. This way, your idle money doesn’t just sit there; it works for you, growing your investment war chest.

Remember, idle money is an opportunity. By managing it effectively, you can build a solid financial foundation that’s ready for when the market offers the right opportunity to invest.

In our discussion, we examined why idle money isn’t a good thing and shared some pro-tips on managing your cash. Now, let’s dive deeper into why idle money is a drag on your financial health and the traps to avoid when you find yourself with extra cash.

Why Idle Money Is Trouble

Here’s a mantra to remember: Idle money is not ideal. There are a few solid reasons why keeping cash parked in a bank account or a safe place is a risky move.

Reason 1: Money Should Always Be Earning

Money that’s just sitting around isn’t doing you any favors. It’s lazy, lying dormant in your wallet or savings account. Over time, inflation eats away at its value. Even if your bank offers you a 4-5% interest rate, it’s not enough to counteract India’s average inflation rate of 6%+. The net result? Your idle money is losing value. This is why financial experts like Robert Kiyosaki, in his book “Rich Dad, Poor Dad,” urge you to put your money to work.

If you’re an investor, you want every penny to be actively earning you returns. The more your money works, the more you can build wealth. Idle money is like a car that’s stuck in the garage—it’s not taking you anywhere.

Reason 2: Idle Money Encourages Impulse Spending

Idle money is like a burning hole in your pocket. When you have extra cash, there’s a natural urge to spend it on something you want but don’t really need. Maybe it’s a new smartphone, a fancy gadget, or the latest workout gear. While treating yourself once in a while isn’t bad, constant impulse spending can quickly derail your financial goals.

As a savvy investor, you should know the difference between needs and wants. It’s essential to keep your spending in check, focusing on necessities and saving the rest for investments. But idle money makes it too easy to splurge, which can be a slippery slope.

Where Not to Park Your Idle Money

Knowing where not to stash your idle money is just as important as knowing where to put it. Here are some places to avoid:

  • Savings Accounts: While it might seem safe to park your idle money in a savings account, the low-interest rates mean you’re not keeping pace with inflation. The longer it stays there, the more value it loses.
  • High-Risk Investments: Extra money can tempt you to take on more risk than you should. Cryptocurrencies, new investment platforms promising high returns, or high-risk stocks can seem attractive, but they can also be dangerous. A good rule of thumb is to test the waters with a small amount, but don’t throw all your idle money into high-risk assets.
  • Making a Big One-Time Investment in Mutual Funds: If you have a large sum of idle money, resist the urge to invest it all at once in mutual funds. Instead, opt for a systematic investment plan (SIP) to spread your investment over time, reducing the risk of buying at a peak valuation.
  • Investing in Trendy Stocks with High Valuations: Investing in the stock market when prices are high or during a bull run can lead to reduced returns. Use Good Till Triggered (GTT) orders to buy stocks at a price that aligns with their value. Avoid buying at inflated prices, as the market can correct, leading to losses.
  • If you’ve been following along, you might be asking yourself, “What do I do with my idle money if I can’t keep it in a bank account, invest it in risky assets, or put it all at once into mutual funds or the stock market?” Don’t worry; you’re not alone. The key is to find the right places to park your idle cash while you wait for the best investment opportunities.

Keep in mind that the stock market has its highs and lows. Sometimes you have to wait for the right moment to invest. This could be after a bull run when stocks are overvalued, or during a bear market when prices might be more reasonable. These cycles can last from a few quarters to several years. In the meantime, here are some goals to guide you on where to put your idle money without risking it or watching it lose value.

Goal 1: Keep It Out of Sight

To avoid spending your idle money impulsively, it’s best to keep it away from your regular savings account or cash at hand. This way, you’re less likely to dip into it for everyday expenses or impulse buys.

Goal 2: Outpace Inflation

Inflation is a silent thief, eroding the value of your money over time. Even if you have it safely parked, it could still lose value. So, your goal should be to find a place to grow your idle money just enough to beat inflation.

Goal 3: Avoid Long-Term Lock-In

You might need to use your idle money within a year, whether the stock market drops or you want to invest in other opportunities. So, the best place for idle money is where there’s little to no lock-in period, giving you flexibility when you need it.

Goal 4: High Liquidity

Liquidity means having easy access to your money when you need it. This is crucial for idle money because you never know when an investment opportunity might pop up, and you want to be ready to take advantage of it.

 Goal 5: Minimize Risk

Finally, you want your idle money to be safe. You don’t want to risk losing it in a bad investment. Choose options where there’s little to no risk of losing your principal.

With these five goals in mind, let’s explore two of the best options for handling your idle money.

Pro Option 1: Treasury Bills

Treasury Bills, or T-Bills, are government-issued securities with short-term investment periods of 91, 182, or 364 days. These are a great option because they come with zero risk—the Indian government guarantees them. This makes T-Bills perfect for meeting Goal 5: keeping your money safe. Plus, they’re a low-risk way to grow your idle money while waiting for other opportunities.

Pro Option 2: Sovereign Gold Bonds

Sovereign Gold Bonds (SGBs) are securities issued by the government, tied to the price of gold. Investing in SGBs is a safer way to tap into the value of gold without having to worry about storing the physical metal. Over the long term, gold tends to increase in value, so SGBs are a great way to meet Goal 2: outpacing inflation.

Know: The Power Of Sovereign Gold Bonds

However, SGBs might have a bit more risk in the short term because gold prices can fluctuate. So, if you’re looking to park your idle money for less than a year, you might want to consider other options. But if you’re thinking long-term, SGBs are a solid choice.

By keeping these goals and options in mind, you can handle your idle money smartly and strategically. The key is to stay patient, keep your money safe, and be ready to invest when the time is right.

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