Well, that looks an easy question but it is not as easy as you think. You might think the remaining money after deducting all the expenses must be invested. But let me tell you this is not the right way to invest money because you may need some money for emergency e.g. your wallet or purse has been stolen and need some more money this time to compensate your loss. Likewise you may need extra money at some certain occasions. So to invest money wisely you need to follow the simple rules laid down below.
1. Properly estimate your expenses.
2. Keep some margin over and above your expenses.
3. Keep some money with you in your bank account or with you which can be available anytime for unexpected situations.
4. Invest rest of your money.
The above three golden rules can be explained much more clearly with an example.
Suppose you are earning $1000 per month. First rule is to be followed by taking into account your earnings. So if your expenses are more than $1000 you cannot invest anything as you don’t have any money left with you. But say your total expenses for the month totaled to $650. The remaining $350 is lying with you. Now the time for rule 2, keep some margin over and above your expenses. So keep $50 as margin money. Why the margin is kept? The answer is very simple. You have estimated your expenses and estimates may be different from the actual ones. You may have to spend some extra money more than your estimation.
The remaining is $300. Time for rule 3 – keep some money in your bank account or with you for unexpected occurrences. Let’s say you keep $100 in your bank account available immediately. Now you have with you $200 remaining for investment i.e. rule 4. You can invest $200 wherever you want either for short term or long term. Your investment is now justified as you only invested money which would remain spare with you if you haven’t invested it.