Regardless of what age you have the urge to retire at, asset creation is one of the building blocks of managing personal finances. Since the thought of creating an asset can be quite daunting, most Indians who begin earning decide to leave that for later. Why make costly mistakes and lose hard-earned money at this initial stage, they reason. Ironically, this is precisely the stage when you can take risks. Moreover, there is a substantial difference between blindly throwing money at any investment opportunity that comes along and taking informed decisions. Rather than go for the big investments right off, it is possible to start off small and gradually leverage what you create to move upwards, using the power of compounding (Did you know it’s almost impossible to for us to mentally gauge the compounded interest one can earn over the long term? Try calculating and see). Here are five pointers to get you started.
The sooner you begin, the better your chances of amassing bigger assets in future. The rationale behind this is a little thing called compounding. Don’t save, invest. Even if its for a few months in a liquid fund, put your money to work. Don’t let it idle in a savings account. If you want to play extra safe, put it in fixed deposits at least, but start creating a corpus that you can build on in future. Do not liquidate your investments, reinvest and let the interest grow on a compounded basis. Remember that you have to hold on to any profitable assets for a very long time to benefit from this.
There’s a simple rule that needs to be followed. Do NOT increase your expenses in tandem with periodic rises in income. Sure, you will need to upgrade your attire to a certain extent as you advance up the corporate ladder. However, one should avoid buying a new ensemble every month just because you get a few appreciative comments. Similarly, ensure that you get a tiffin box from home instead of ordering takeaways. (Your CFO clearly earns way more than you do but if you notice, he brings his lunch along and he definitely understands money management better than you do!) This way, you will not only save money but also remain healthier, which means more unused leaves to encash.
Normal salary rises are fine, but why not jump a few steps ahead? Do part-time courses and learn a new task that enables you to take on additional responsibilities. Better still, if you have fixed working hours or a five-day week, take on non-conflicting freelance work. Its better to work more while young and ease off as age catches up. Invest the extra money that you earn, don’t spend it.
Its amazing how easy it becomes to control your spending when cash is the only medium of payment. Keep credit cards away and pay cash everywhere you go. This way you avoid taking on extra debt that might force you to liquidate investments in a crisis scenario later on. Follow strict financial discipline when it comes to amount allotted for necessities and never divert it for luxuries like an extra show at the multiplex or dinner at a fancy restaurant.
So you already invested the planned amount this fiscal and your employer decided to reward your performance with a bonus. Don’t waste time figuring out what new gadget you can buy, just invest it straight off. Use every possible opportunity to invest rather than spend. Before you know it, there will be sufficient funds in hand to take the next step forward .
Invest in equities and properties
Do your research and understand what makes a deal good or bad. Read books, attend seminars and follow blogs by experts. You can use both to build a substantial amount of wealth with a low initial sum. However, there are a few basic rules to be followed.
While everyone likes to predict election results and consider their impact on investment opportunities in the equity market, Raamdeo Agrawal, joint MD, Motilal Oswal Financial Services, underlined that “Everybody should stick to buying quality companies with strong fundamentals and not on stocks depended on the outcome of exit poll.”
Similarly, when it comes to real estate, while your corpus can be leveraged to buy a property with a home loan, Kishor Pate, CMD, Amit Enterprises Housing Ltd, points out that the location matters a great deal. “Obviously, luxury homes in key areas such as Aundh, Baner, Sahakarnagar, Kalyaninagar and Viman Nagar will become increasingly valuable over time. But within a span of five to seven years, even newer areas will have been made valuable because of increased infrastructure and accelerated saturation. Investing in a luxury property in such an area today can pay off handsomely over the long term,” he points out.