By Rahul Chopadekar
Building wealth at the earliest! How to Start?
The second-best time to start anything is today. The best time to start was yesterday. If you didn’t, make today the day.
You’re never too old to start building wealth, but if you start when you’re young, you have far more enormous potential to accumulate a fortune. And more time to let that fortune compound itself as you grow old. The earlier you start investing, the more money you will accumulate over time. Everyone can find money to invest if one analyze and change spending habits.
Investing allows you to take advantage of compounding of interest. Some say that the eighth wonder of the world is compounding of interest. The strength of compounding is visible from the fact that if you start investing a small sum of Rs. 1,000 per month from the age of 10 years, at the time of your retirement (after 50 years), you would have saved only (Rs. 6,00,000/-). Assuming you were able to invest the same @15% p.a. compounding rate of interest, you get a total of Rs. 14,08,42,944/- . Yes, you read it right, you get 2,318 times of your money invested. Unbelievable but TRUE, and passively grows your wealth overtime to provide your protection for your financial safety and security.
Steps to Start Building Wealth
- Set savings goals
- If you are focused on building wealth, it helps to have a clear goal in mind. Decide whether you want:
- Financial Independence
- Retirement Savings
- Money to Start a Business
- Extra Income
- Emergency Fund
Once you know your goal, that will help you determine:
- Time to reach that goal
- How much you need to save
- How risky your investments can be
- Type of investments to make
Add to your savings frequently
When you are making money, it is easy to spend most, if not all, of it. One is not saving enough because your wants and needs always surpass what you have budgeted. Developing a habit of constant saving is essential. It is vital to have a sizeable amount saved up for the future. It is necessary to have an emergency fund because you can face sudden expenses and avoid debt. The frequency of your contributions (e.g., weekly, monthly, or yearly) has an essential impact on your long-term success.
Create a budget
Going over budget is a behavior trend that is hard to stop when you get comfortable with it. You might want to;
- Track the way you spend. If you find that doing this on your own is hard, you can use online apps. Or take the help of the financial consultants. Make sure that you can categorize your expenditures and see where your money is going.
- Cut down on the spending. Separate your wants from your needs. Find creative ways to cut out unnecessary spending. It will leave you with much more to save and build an emergency fund for about six months’ worth of living expenses.
- Before you buy anything, ask yourself if you need it. Most times, you will find out that you do not. It will help you curb impulsive buying.
Learn about investing
If you did not grow up learning about investing and your parents did not invest much, it can be intimidating to start. There are many different options to choose from, including company stocks, government bonds, mutual funds, and alternative investment options like P2P lending. It can be difficult to predict growth at times. As the saying goes, when there is no risk, there is no reward.
As you start investing, other things to consider include:
- Diversification: Having a variety of investments will offer you more protection during market fluctuations.
- Tax advantages: Certain investment types may be exempt from state/ local or central government taxes. Investments in mutual funds, PPF often offer tax advantages as well.
- Liquidity: Some investments, such as company stocks or bonds, can be sold at any time, while accounts like a fixed deposit or recurring deposits may restrict when you can cash out. Be sure that you can access money for an emergency without paying penalties/withdrawal fees.
- Time HorizonYour time horizon for the savings requirement also makes you decide the investment instruments, short-term fund not advised to invest in volatile instruments like shares and securities.
- Your need of Monthly Income or lumpsum income: If you need a monthly income scheme or a consolidated fund for a particular option, its good to go for a safe and secure options having least volatility like Bank deposits, Liquid Mutual Funds or Peer to Peer (P2P) lending platforms.
Use compounding when you invest.
When you move money from savings into an investment vehicle, take advantage of compounding.
- Compounding will make your investments grow faster, like a snowball effect. The longer it rolls, the faster it becomes. Compounding works more quickly if you invest more frequently.
- When you compound your investments, you are earning “interest on interest.” Over time, you make interest on both your original investment and on the prior interest you received.
Make Steady Progress
- Make steps each month to make progress. Instead of saving a significant amount some months, then pulling money out of savings other months, set a smaller amount for each month, so you are always keeping. It allows your money to earn interest and grow continuously.
- Set up recurring transfers / ECS / SIP from your bank to your investment. It will enable you to automate your contributions, which is the easiest way to make sure you continue to invest.
If you aim to put 10% of your income straight into investments, especially if you are allocating other funds to retirement savings, you will begin to build wealth and create a more stable financial future for yourself.
www.omlp2p.com is one of the RBI’s registered NBFC-P2P. It provides a technology-enabled e-commerce platform to its Lenders and Borrowers to avail their loan at a highly competitive Rate of Interest, in a hassle-free manner without many documents; at the same time, it provides its Lenders Higher return on their capital by providing opportunities to lend to sound quality, well-assessed borrowers.
The author, Mr. Rahul Chopadekar, is a team member of www.omlp2p.com. The article written by him is in his capacity and educational in nature. All the views are his personal views were shared with Prittle Prattle News personally.
